Young South Africans must be considered in retirement and healthcare reforms
In an effort to improve the lives of ordinary South Africans, the country is on the brink of reforming both the retirement and health sectors.
While reforms are desperately needed, one policy aspect that is often overlooked relates to how young people are included in the system.
According to the Development Bank of Southern Africa, unemployment in people under 30 is a growing problem.
47% of people of working age under 30 are out of work and around a third of these are not looking for work and are thus excluded from official unemployment figures. Those fortunate enough to secure employment enjoy much less job security than their older colleagues. In fact, they were twice as likely to be retrenched in the first six months of 2009.
“The issue of youth unemployment is the elephant in the room as far as reforms are concerned,” says Craig Aitchison, Head of OMAC Actuaries and Consultants.
“These reforms cost money and rely on a working population of a certain size to support the sick and the elderly. Youth unemployment means the pool of contributors is much smaller. It also means this group is unable to save in their early twenties.
“Savings made early in one’s working life form the core of one’s retirement savings because they grow with compound interest for the longest time period. If young people are not saving it means that a vast number of people will be reliant on the state in their old age, even if they secure employment later in life.”
Aitchison says this is compounded by the fact that young people are more likely to have jobs without health and retirement benefits. The Development Bank of Southern Africa suggests that only a fifth of workers under 30 belong to a medical scheme and a third have retirement benefits.
These statistics are supported by the findings of the Old Mutual Savings Monitor, published last week (25 November 2009). The results indicate that 53% of working South Africans have access to retirement savings vehicles and 40% have access to medical cover. only 28% of under-30’s are members of pension or provident funds and just less than 30% belong to a medical scheme.
In short, even when young people secure work, they are largely excluded from the savings and insurance benefits that many workers take for granted.
The result is twofold.
“Firstly, younger members are financially vulnerable to high, unexpected medical costs at a time when they are fairly likely to experience them,” says Margaret Hulme, Manager :Healthcare Consulting at OMAC. Teen drivers are four times more likely to crash than older drivers. Young adults aged between 20 and 30 are also more like to crash than older drivers. The likelihood of getting into a serious accident is highest amongst young men.
“Medical costs in these situations can amount to hundreds of thousands of Rand or even millions of Rand,” says Hulme. “This can result in individuals becoming seriously indebted if they do not have adequate medical cover.”
Secondly, the later one starts saving for retirement, the more one needs to save to retire comfortably. Someone starting to save at age 35 may need to save around 50% more each month than someone who starts saving at 25.
“Unfortunately, our tax system does not sufficiently incentivise late-starters to save more for retirement, and many retirement funds do not allow flexible contributions,” says Aitchison. “However, considering the savings position of South Africans under 30, a review of this stance is long overdue.”
