Economists slam ‘risky, non-viable’ National Social Security Fund proposal
Share this article:
ECONOMISTS yesterday slammed the government’s proposal for a mandatory social insurance scheme, called the National Social Security Fund (NSSF), as “not viable” in its current form, saying it would “introduce material systemic risk” to South Africans’ retirement-funding aspirations and in effect be a monopoly.
On Wednesday, Social Development Minister Lindiwe Zulu published a green paper on Comprehensive Social Security and Retirement Reform for comment by December 10. The Department of Social Development said the fund would complement social assistance programmes, social insurance funds and private arrangements.
The fund intends to provide basic benefits, such as pensions, disability and survivor benefits, for all qualifying citizens up to a threshold – including all employees from within the private sector. In addition, citizens can choose to top up their retirement benefits using an occupational or individual arrangement.
A mandatory pension payroll contribution worth between 8 and 12 percent of earnings was proposed to be met by employees and employers when the NSSF was established.
Old Mutual Investment Group chief economist Johann Els said yesterday that he did not think the reform package would advance further, because it was not at all viable in its current form.
“These reform packages have to be approved by the Treasury and go through Nedlac and other regulators. In my opinion, this is a wish list from the minister. There is very little chance of this becoming law, as it is not a wellthought-through package and needs a lot more discussion,” Els said.
John Anderson, the executive: investment, products and enablement at Alexander Forbes, said the proposal introduced material systemic risk to South Africans’ retirement-funding aspirations. “Any failures, inefficiencies or irregularities within the centralised structure will affect all income-earners. In contrast, the impact of any failure by a single entity within the current diversified retirement-funding industry is limited to the clients of that entity,” he said.
Anderson said the proposal removed agency and the power of self-determination from employers, bargaining councils and unions.
Currently, members benefited from the competitive pressures applied to service providers to improve service levels, innovate and control costs. The proposal would result in an effective monopoly and monopsony (a market condition in which there is only one buyer) within the retirement-funding space with no freedom of choice.
He said South Africa had made significant progress in enhancing retirement funding through improved competition, governance, regulation, transparency, innovation and reduced costs since 2012. “None of this has been factored into the paper. The reforms proposed may be misinformed by outdated data, rendering them inappropriate,” he said.
Dr Stephen Smith, a senior policy adviser and member of the social security standing committee of the Association for Savings and Investment South Africa (Asisa), said the Covid-19 pandemic and the consequences of the lockdown had highlighted the urgent need for appropriate social protection, particularly of informal and vulnerable workers.
“We need solutions to provide protection for these workers, to provide support through unemployment and saving through to retirement, as existing legislation and structures are not designed to cater for their needs. Asisa sees this as the most urgent issue to solve,” he said.
But Smith said it was important that future social security reform programmes built on, rather than disrupted, the existing contractual savings and life insurance arrangements of public and private sector employees. “It is these savings pools that finance much of the country’s investment requirements and fund South Africa’s capital market.”
He said much of the document would have to be weighed with reference to how scarce individual and state resources were optimised on an affordable and sustainable basis.
“Existing contributors are already struggling to preserve what they have accumulated, asking for access to their long-term retirement savings,” he said.