The overhaul of retirement saving structures is still the subject of some disagreement between government departments, delaying the long-awaited next retirement reform policy paper still further.
According to Selwyn Jehoma, the deputy director-general of the Department of Social Welfare, significant agreement has been reached on key elements of the overhaul, but there are still outstanding issues.
Speaking at the Institute of Retirement Funds (IRF) annual convention in Durban this week, Jehoma says agreement has been reached on:
* A universal pension. The current social old age grant (Soag), which is subject to a qualifying income and an assets means test, should be retained but be subject to neither a means test nor an affluence test.
* A mandatory national pension fund. The initial proposed opt-out option for the proposed National Social Security Fund (NSSF) is no longer an option. It will be compulsory for most employed people to be a member of the fund. The fund will have two tiers.
* The first tier will be a compulsory defined benefit (DB) fund, which will guarantee a pension at retirement age. The fund could be based fully or partially on a pay-as-you-go structure. In other words, those people employed today will fund the pensions of those people who have retired.
The original proposal was that the fund should provide a pension equal to about 40 percent of your final pay cheque, but Jehoma suggests that this amount could be upped to closer to 70 percent.
Jehoma says the fund should be seen as an assurance product rather than a savings product. It will assure that you will receive a pension if you survive into retirement. Neither you nor your heirs will receive any cash benefit apart from the pension.
* The second tier will be a voluntary defined contribution scheme, to which you can make contributions. This part of the structure will supplement the basic DB pension.
* Additional savings. Additional discretionary retirement savings will be permitted outside the DB mandatory part of the NSSF in private arrangements, but these funds will have to be accredited to ensure proper governance. A cap will also be placed on tax incentives for retirement savings.
* Death and disability benefits. Jehoma says there will be assured risk benefits to provide benefits for members who become disabled before retirement and for dependants if a member dies. However, there is no agreement as yet on the extent of these benefits. The benefits could be scaled, with decreasing benefits for those on higher incomes.
* Grant for low-income earners. An income grant paid to employers to subside membership of low-income employees has been dropped in favour of a direct contribution grant for members below a certain income level.
* No forced transfers. No one will be forced to transfer existing retirement savings to the NSSF.
* Preservation. While the preservation of retirement savings will be compulsory, a revised system of providing unemployment benefits is on the cards. Jehoma says that agreement still has to be reached on future unemployment fund contributions.
Jehoma says no agreement has been reached on the regulation of retirement savings, the investment strategy and management of the NSSF assets, the implementation sequence and whether there should be a single government department dealing with all aspects of pensions, including Soag, the NSSF and private provision.