Life expectancy challenges for Social Security

Statistics have shown that half of the 15-year-olds of today will not reach retirement age. This will have a huge implication on retirement reform as funds will probably not be enough, and more death benefits will have to be paid out.

The debate around Social Security reform over the last few years has increasingly revealed the complexity of the challenges facing the architects of a national scheme. South Africa's life expectancy and the HIV and AIDS scourge represent just some of the unique complexities facing Government as it plans and debates Social Security reforms.

It's important to remember some of the main objectives of the proposed framework include:

* Extension of coverage to all members of the population
* Protection against poverty in old age, which includes disability
* Provision of an income and replacement of lost earnings as a result of voluntary or involuntary retirement
* Creation of an environment for the development of additional voluntary provisions for retirement income.

Unique challenges

While we can develop a framework modeled on other plans around the world, we will have to overcome certain unique challenges such as low life expectancy particularly among blue-collar workers, poor financial literacy and the development of an administration platform that can handle the complexities and scope of a national scheme.

For a large segment of the South African workforce, reaching normal retirement age is a vague hope rather than a reality, forcing a much more immediate focus on medium-term savings as well as death and disability benefits.

On the other hand, higher paid workers, who have a much longer life expectancy, have different needs. The current system, which allows members to cash out their retirement benefits when changing jobs, has led to gross under-provision in this sector with dire financial consequences in old age. South Africa is one of the few countries in the world which allows for withdrawal prior to retirement.

Flexible system

The challenge is to facilitate an orderly transition to a savings and protection system that is flexible enough to cater to the very diverse needs of the different parts of South Africa's workforce. We need a scheme that widens the retirement funding net and makes better provision for the poor in terms of risk benefits. While many of the issues are nowhere close to being resolved, South Africa does have the benefit of learning about what has worked and what has not worked in other markets.

Low life expectancy in South Africa is a curveball and reflects the broader need for an innovative risk benefits solution and flexibility within the proposed system.