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Cape Town - The reality from government's perspective is that it really cannot afford a retirement system which will take care of all South Africans, Rowan Burger of Momentum told Fin24.
It is, therefore, up to workers to provide for themselves.
He explained that retirement reform is needed, because too few South Africans retire comfortably – estimated at less than 6%.
"This is because too few people are in the system - an estimated 7 million workers are not on a retirement fund," he said.
On top of that South Africans do not save at the right levels for long enough, leaving their savings in the system each time they change jobs.
"And those who are in the system don’t appreciate it, given the number of complaints about financial services," he said.
"We have seen piecemeal improvements to the system, but Cosatu has recently called for a moratorium on all changes until the broad landscape is better understood."
He cautioned that people should not panic because of short term news about retirement reforms.
"Rather focus on the longer term and know why and what you are doing. Short term reactions, such as to falls in the investment markets, are the types of events that destroy a working lifetime of successful saving," he warned.
"Government has assured all savers their rights will be protected."
Burger also mentioned a trend of people resigning in order to cash in their pension fund to pay off their debts, with reform being a convenient scapegoat.
However, he thinks the role of fear of not being able to access their retirement savings is perhaps being underestimated by Treasury at the moment and more communication around the proposals should be happening.
"A lot of what National Treasury is doing, is trying to protect South Africans from themselves. They are largely going in the right direction in my opinion," said Burger.
READ: 8 points to clarify retirement reform
Regarding next week's Medium Term Budget Speech, Burger expects it to perhaps signal when the paper on broader social security will be released. He also expects papers on the solution for informal workers and for appropriate defaults soon.
Likely outcomes
Burger expects various consequences resulting from the tax reform. These include more members and assets in the system - either through compulsion or incentivisation of membership and preservation.
"A consolidation and simplification of commercial funds in existence is the key to survival in achieving cost efficiencies. Both of these should result in a retirement funding system delivering better value," suggested Burger.
"We also need to think about how to integrate broader benefits like medical aid, insurance and debt counselling into the a holistic employee benefits program."
Another issue he raised is the improvement of trustee governance, which he expects to come soon.
This could include compulsory training within six months and monitoring and testing by the Financial Services Board (FSB).
"We do need to improve trustees by means of education and to have a more meaningful role in getting member buy-in to the system and building trust," said Burger.
READ: Clarity needed on retirement reforms - expert
Various scenarios of reform
He explained there are many possible end states for a retirement system in South Africa.
"Unions would obviously want big industry specific funds managed by their shop stewards. Financial services companies like the current commercial umbrella pension system that allows each to compete for members and enhance their brand," he said.
Legislators would want the introduction of one large fund to create scale. This may either have a social intention of redistributing wealth through the nature of its benefit design to address the country’s income disparity or be a large efficient exchange for individual personal savings accounts.
“I think we can expect much debate in the next number of years as to what the appropriate structure should look like, with many often competing ideals trying to come to the fore," he concluded.
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- Fin24
