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Call for cheaper retirement costs

Only six million people in South Africa belong to a retirement fund. (<a href="http://www.shutterstock.com">Shutterstock</a>)
Only six million people in South Africa belong to a retirement fund. (<a href="http://www.shutterstock.com">Shutterstock</a>)

Johannesburg - National Treasury on Thursday released its last discussion paper in a series of five documents on reforming the retirement industry and promoting household savings.

The latest paper is titled "Charges in South African Retirement Funds".

It discusses charges and costs in the country’s retirement industry, and to benchmark charges and costs in South Africa’s retirement system against other countries.

Only six million people in South Africa belong to a retirement fund.

Treasury retirement specialist David McCarthy said the paper was intended to address a number of problems in the South African retirement system, and allow the public to comment.

"The paper tries to analyse the level of charges in the South African retirement system. It tries to understand the structural factors which lead to high levels of costs in the retirement system and therefore a high level of charges," he said.

It explored ways in which both the structure and operations within the retirement system could be changed to reduce these charges.

The paper also dealt with the issue of compelling all employed people to contribute to a retirement fund.

"We think that it would be a much more efficient retirement system if everyone who was formally employed was obliged to be a member of the retirement fund," McCarthy said.

Proposals to this effect were released by Finance Minister Pravin Gordhan in his 2013 budget speech and draft legislation would be tabled in due course.

"It is a very difficult issue because we are trying to change the culture, the behaviour and the attitude of millions of people. That requires a great deal of care, it is not something that you can simply do overnight."

McCarthy said the high costs of belonging to a retirement fund deterred poor people from joining the system.

If the charges were low, it would be easy for poor people to join retirement funds.

"Currently, if a poor person works for an employer who has a retirement fund, that is probably the most cost effective way they can save by far," he said.

"They should definitely not be deterred... think that the fund they are a member of is expensive. It is probably much cheaper than any of the alternatives."

McCarthy said the paper also dealt with the issue of people cashing in their retirement savings when changing jobs.

About a third of retirement fund members left their fund every year.

Reports showed that people cashed in their funds mostly to pay debt, he said.

The previous four papers covered enabling a better income retirement, preservation and uniform access to savings, incentivising non-retirement savings, and improving tax incentives for retirement savings.

- Sapa

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