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- Government has largely ignored the business sector's inputs into the proposed National Social Security Fund over the past few years, a new Nedlac report shows.
- Last week, the Department of Social Development gazetted a green paper with far-reaching proposals, that would force South Africans to save for retirement via a state-managed fund.
- The business sector has warned that this would replace almost all existing retirement and life fund contributions people make to private retirement funds.
The Department of Social Development's Green Paper on Comprehensive Social Security and Retirement Reform ignored a host of concerns raised by the National Economic Development and Labour Council (Nedlac) task team, which looked at its proposals over the years.
The department's Green Paper, which was gazetted last week, triggered an outcry as its proposals would force South Africans to save for retirement via a state-managed fund.
Now, Nedlac has published a report reflecting the engagements between government, business, organised labour and community representatives since the first discussion paper on SA's social security approach was published in 2012.
Former Minister of Social Development, Bathabile Dlamini, submitted the paper to a Nedlac task team in 2016.
The task team produced a draft Nedlac report in March 2019, with a host of suggestions and highlights of areas that needed more research.
But the green paper gazetted last week "largely" reproduced the text and recommendations of the 2012 paper. The Nedlac report said the business sector's inputs during years of engagements on the issue went "largely unheard".
"The research undertaken by the ILO [International Labour Organisation] and others on behalf of the Nedlac Task Team appeared to have been disregarded and that there has been no progress in building a quantified and costed evidence-based approach to this reform programme," reads the Nedlac report.
The task team had commissioned substantial research over the years while it engaged with the government over the feasibility of proposals contained in the 2012 discussion paper.
These included a legal opinion on the constitutionality of the proposals, the actuarial sustainability of the National Social Security Fund, and the impact it could have on the investment environment and capital markets.
Having done the research, the task team supported the establishment of a comprehensive social security system. However, it wanted a host of issues ironed out first before the government went ahead with establishing the National Social Security Fund.
Areas of concern and disagreement
The business sector didn't support the proposed defined benefit nature of the fund, also called the pay-as-you-go funding arrangement. It said SA's structural unemployment problem, low economic growth and fiscal constraints could not accommodate this without significant risks and substantial future contribution increases.
Its view was based on the ILO modelling, which flagged significant escalation in future contributions to sustain pension benefits.
"Research undertaken for the Nedlac task team indicated that this passes the burden of providing these benefits to future generations. The risk of a lower national savings rate and lower economic growth has also not been addressed," wrote Nedlac about the sustainability of defined benefits.
The report also noted that envisaged contributions to the National Social Security Fund would replace or overlap with almost all existing retirement and life fund contributions people make to the existing private retirement funds.
Nedlac pointed out that existing retirement and life insurance arrangements generate the savings SA needs for its annual investment requirements.
"The social security reform programme should build on, and not disrupt, this foundation of our economic and financial architecture," reads the report.
Business also wanted the government to show meaningful progress in turning around SA's existing social security funds such as the Unemployment Insurance Fund, the compensation fund and the Road Accident Fund, saying this was a precondition for further expansion of the social insurance framework. It pointed out that they have administrative difficulties, and the government promised to reform them.
Furthermore, business was concerned that the Green Paper does not show how the National Social Security Fund's costs and benefits will compare with the existing retirement funds and group life arrangements.
The report said while the business sector supported the establishment of a National Social Security Fund, if parties could not find a "convergence" on these issues, they could be regarded as a disagreement.
