NATIONAL TREASURY SUMMARY
The following has been published by National Treasury on its website www.treasury.gov.za
"SOCIAL SECURITY REFORM"
All South Africans have a constitutional right to social security. This includes poverty alleviation through social grants, which are now received by some 15 million people. It also includes access to income-protection and income-smoothing arrangements such as life insurance and pensions. Comprehensive social security is fully in line with Government’s key outcomes.
The proposed reforms will expand the social grants system and greatly enhance coverage of existing social insurance arrangements with a view to improving service delivery and maximizing value-for-money. Existing social security entities will reduce costs and improve efficiency by sharing administrative capacity, streamlining benefits and coordinating policymaking. Voluntary pensions and insurance arrangements will also need to improve the quality of the service they offer in accordance with a new regulatory framework to be introduced as part of the reforms.
The reforms will lead to a significant increase in workers’ incomes in retirement by introducing a mandatory social security fund, by ensuring that workers preserve their pension accumulations until retirement, and by improving the value-for-money offered by voluntary or employer pension funds. The mandatory social security fund will not only provide a government-guaranteed pension but will also offer benefits in the event of a worker’s unemployment, disability or death.
The Inter-Ministerial Committee (IMC) on social security and retirement reform was established in 2007 to take up the work begun by the Taylor Committee in establishing a comprehensive system of social security. The IMC brings together representatives of National Treasury, the Department of Social Development, the Department of Labour, the Department of Transport, the Department of Health and the Department of Public Services Administration.
1. What is the current situation in terms of retirement and pension provision in South Africa?
Many South Africans who are currently approaching retirement, face the prospect of poverty in old-age, due to a lack of provision or insufficient savings during their working lives. This situation is exacerbated by the leakages caused by withdrawals before retirement, pension backed loans and constantly changing jobs.
Pension schemes sometimes offer poor service to their members, for example via excessive fees, poor advice or poor communication. These pose a challenge to regulate and supervise efficiently.
2. Why is comprehensive social security and retirement important?
Comprehensive social security is important because it will close the gaps that exist in South Africa's social security landscape. It will lead to a significant increase in coverage and major improvements in efficiency, service delivery, and policy-making. Comprehensive social security will be founded on the principle of social solidarity.
3. What is the Consolidated Government Paper?
The Consolidated Government Paper (CGP) is a policy discussion document that spells out government's vision for improving the social security system.
4. What are the key proposals of the CGP?
The key proposals of the CGP are:
● IIntroducing a mandatory National Social Security Fund (NSSF) to which every worker will contribute 12% of their income between R13,001 and R150,000
● They will thus be entitled to retirement benefits, life insurance and disability benefits (so-called risk benefits), as well as unemployment insurance
● These benefits will be aligned to the existing social security system
● Consolidation and integration of existing social security entities
● Higher means-test thresholds for the state old age and disability grants, or universalisation of the same
● Universal coverage and benefits to members
● An approved funds framework to improve the quality of coverage by voluntary pensions and insurance arrangements
5. What will the NSSF look like?
The NSSF will be run as a Pay-As-You-Go Defined Benefit fund with a 25 per cent reserve requirement. Retirement benefits will be determined by duration of a worker's contributions, wages over the course of their career, and a guaranteed accrual rate. Risk benefits will also be determined a pre-set formula based on a worker's final salary, but will not be dependent on a contributions.
6. Who will benefit from the comprehensive social security and retirement reforms?
All workers and their families will benefit from the proposed reforms. Low-income workers who previously were not covered by any social security arrangements will notice the most substantial change, but the reforms outlined in the CGP will lead to enhanced income security across the entire workforce and improved service delivery from all social security entities, be they public or private.
7. How will the current pension and social security system be impacted by the proposed reforms?
The pre-existing rights of current members will be protected. Some of the present schemes that do not meet the required standards will have to close, and their members transferred to the NSSF. Other pension schemes will have to merge to reduce costs. All pension schemes will need to be evaluated and accredited before they can operate so that they provide adequate protection to members.�
8. How will current employees be impacted by the proposed reforms?
Current employees will retain their existing rights and savings. They will, however, have to participate in the NSSF when it is implemented.�
9. How will retired employees be impacted by the proposed reforms?
The rights and benefits of retired workers will not be affected.
10. How will future employees be impacted by the proposed reforms?
All future employees will be expected to participate and contribute to the NSSF.
11. What are the economic implications of the proposed reforms?
The proposed social security reforms will improve income protection for workers and employers in the event of workplace injuries and accidents, thereby allowing enterprises to operate in a sustainable environment. Comprehensive social security will compliment employment creation and skills development initiaitives.
The reforms are likely to raise South Africa's level of household savings, which in turn will provide the country with more resources for investment in infrastructure, new industries and the creation of new jobs.
12. How will social security reforms be financed?
Neither social security reform nor the institutions it creates will make huge demands on the country's finances or on workers. In fact, the reforms will save costs by streamlining administration and eliminating duplication, thereby freeing up resources to provide better coverage and higher benefits. As far as individual workers are concerned, their contributions will provide them or their families with a fair income in retirement or in the event of that they die or become disabled before retirement.
13. How will the proposed reforms benefit employees in both formal and informal sector?
All employees in the formal sector will enjoy pension and insurance coverage under the National Social Security Fund, including those who were previously not covered. Employees who are in the informal sector will also be encouraged to partcipate and contribute to the NSSF scheme.�
14. Are there any differences/similarities between the comprehensive social security and retirement reform and the much talked about national health insurance?
Comprehensive social security is linked to National Health Insurance insofar as both of these schemes provide protection against medical costs. Whereas National Health Insurance serves as a medical insurance scheme, social security will provide income support in the event of incapacity due to illness. The tewo schemes complement each other in preventing social reversals in the event of illness or accidental injury of a breadwinner. The two schemes are also likely to be financed in a different way; social security reform will not require higher taxes.�
15. If approved, when and how will the proposed reforms be implemented?
Reforming a country's social security system is a complex and long process that requires patience and detailed work on the part of government, workers, employers and the general population. Many stakeholders will be affected and their concerns need to be addressed. The reforms will not be introduced overnight but will have to be appropriately sequenced and tailored so that they do not cause personal or institutional disruption. It is envisaged that the reforms will be implemented in 12 months' time and phased in over a period of 10 years.��
16. Will these reforms be sustainable in the long-term?
Government will ensure that the social security reforms- and in particular the National Social Security Fund- will be sustainable over the long term and will not have an adverse impact on the economy. Automatic balancing mechanisms will be incorporated into the Fund's rules to change the system's parameters in response to any demographic or economic changes that threaten its solvency.”
*Extract from the website of the National Treasury
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