Retirement reform ‘still alive’, but is it well?

“It will depend on discussions going forward – Treasury official.

Ingé Lamprecht   |  27 July 2016 00:26 

JOHANNESBURG – The retirement reform process is “still alive”, but whether it is “alive and well” will to a large extent depend on future discussions, a Treasury official has said.

Speaking at the 10X Investments Conference, Olano Makhubela, chief director for financial investments and savings at National Treasury, said these discussions are not easy as parties have got different interests and it is challenging to get everyone around a table to agree on a common objective.

“We hope we will be able to make some progress,” he said.

His comments follow after government postponed the compulsory annuitisation of provident fund benefits, which was due to take effect on March 1 this year, by two more years.

The amendment would have brought provident funds in line with pension funds and retirement annuities, which are already required to annuitise, but it was postponed in the face of pushback from within union ranks. Tax-related reforms, including the harmonised 27.5% tax deductions on contributions to retirement funds went ahead. The changes are part of a broader reform effort to ensure that South Africans can have a financially secure retirement. It is estimated that less than 10% of South Africans can maintain their living standard in retirement.

Following the postponement of compulsory annuitisation in February, Cosatu said while it took note of the postponement workers would never agree to negotiate tax reforms in the absence of a Comprehensive Social Security paper.

Meanwhile Treasury has agreed with Parliament to try and publish the Social Security Reform Paper following the promulgation of the Revenue Laws Amendment Act in May. There was an expectation that this could happen within around three months (by August).

“We are working on finalising the paper. It has not been easy but hopefully we will get it out soon,” Makhubela said on Tuesday.

He said there is an acknowledgement among all constituencies – including government, lawmakers, unions, communities and industry – that there is a need for workers to save for their retirement, but in an effort to get buy-in, the form these savings should take, including the nature of annuitisation, should be up for discussion.

A new round of discussions will go through Nedlac (National Economic Development and Labour Council) and may also have to be done outside of Nedlac as some unions are no longer part of it.

“It is going to be a difficult process because at least Nedlac helps in terms of co-ordinating the discussions and having everyone in one room whereas now you might make progress in Nedlac, but because you then have to engage other parties outside of Nedlac it complicates the discussions.”

One of the concerns raised by unions is the lower life expectancy of low-income workers, which Treasury accepts, Makhubela said.

He said a question that could be asked is why the financial services industry has been a bit slow in coming up with products targeting low-income retirees as this could help to solve some of the challenges.

Makhubela acknowledged that the Social Security Reform Paper has been outstanding for a while and said government has accepted that it “could arguably have done better”.

He stressed however that the issues that had to be considered were complex and that Treasury had to be careful not to rush the process. As the proposals are part of long-term reform, it doesn’t want to end up with unintended consequences, which become difficult to reverse.

It is for this reason that it is introducing the reforms gradually.

“So [you] try and undertake certain critical reforms, while you ensure that ultimately those gradual reforms will take you to the intended main objective of having a comprehensive social security.””

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