Compulsory social security fund on the cards

Cape Town – Government is moving ahead with efforts to compel all workers to contribute towards a national social security fund to provide for retirement, death and disability benefits.

President Jacob Zuma said in response to a parliamentary question from African National Congress MP Hope Malgas that the proposals for a national social security fund are under discussion at the National Economic Development and Labour Council (Nedlac).

The draft paper for the proposed fund was released in November last year. It is expected to serve as a single platform through which all workers can make regular social security contributions while they are still working, to avoid falling into poverty in the event of retirement or disability.

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Zuma said in his response all income earners will be required to contribute towards the fund as government believes this will foster social solidarity and the sharing of risks among all workers.

In addition, the fund will provide an income to the dependants of all contributors who die before retirement.

The fund’s benefits will be defined and guaranteed to protect contributors and foster social solidarity.

Low income earners will be supported through a contribution subsidy to reduce the burden on their disposable income.

“The benefit design of the fund,” Zuma said, “is crucial for the protection of vulnerable workers in our country. At present, the existing retirement benefit schemes are based on defined contributions rather than defined benefits.”

According to the president, retirement funds based on defined contributions give members of these funds no guarantee of how much their benefits will be, and they may lose their savings if markets perform poorly.

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“In contrast, the national social security fund will carry the risk of poor investment performance on behalf of individual contributors, and thus provide assurance of a guaranteed benefit to all workers and their households.” 

Three years ago, government proposed compelling South Africans to put two-thirds of their provident fund savings into a retirement annuity and only allowing them to take one-third in cash. They are currently entitled to the full amount.

Union federation Cosatu was however vehemently opposed to the stipulation, which Zuma signed into law in 2016. Zuma backtracked in his 2016 State of the Nation address and the implementation dates, which were supposed to be March 1 2016, have been moved out to 2018.