Africa needs strong pension funds to support infrastructure development

The role of pension funds is becoming more critical as the African continent focuses on infrastructure development. That’s the assertion of delegates attending the OECD/IOPS global Forum on Pension Funds conference, currently underway in Cape Town this week. South Africa has one of the largest retirement fund industries in the world, with total assets worth around 1.9 trillion Rand. This week delegates from over 60 countries are looking at ways of ensuring that the pension fund industry in Africa is aligned to the continent’s developmental goals.

In his speech delivered by the Chief Director at National Treasury Mr Olano Makhubela, Deputy Minister of Finance, Mr Nhlanhla Nene bemoaned the lack of retirement savings in South Africa.

Said Mr nene: “South Africa is an anomaly amongst other countries since it lacks a coherent national social security pillar. Instead, our system is dominated by occupational and voluntary pension funds which continue to serve us very well, albeit with some challenges. In this regard it is not our intention to weaken the current pension system, but instead, we seek to strengthen it by extending coverage through a contributory national social security system. This is important since South African pension law does not compel employers to provide a pension fund for employees.”

The Deputy Minister went on to outline the urgent reforms that need to be introduced to the South African pensions industry. These include addressing the leakages during the contribution phase, with for example, individuals who are eager to take their retirement benefits when they change jobs and couples who divorce for the express purpose of accessing their retirement benefits.

Notwithstanding the unique structural challenges that South Africa poses (like the high unemployment rate) Nene stressed the need to have a restricted withdrawal system to support the South African economy.