Politically Pragmatic: The National Social Security Fund

Numerous papers, articles and talks concerning the reform process have resulted in a confused message that has unsettled many stakeholders in the industry. Among the outstanding issues is the mandatory nature of the National Social Security Fund.

The delays in releasing any information about the National Social Security Fund (NSSF) from the authorities involved seem to indicate a certain amount of conflict or indecision.In speculating about the reason, one is drawn to look at some possible political motivation or sensitivity behind the dichotomy of views. This dichotomy may be to allow “opt out” or “inclusive” concepts underlying the final decision. Allowing a “opt out” will permit large, well managed funds to remain outside the proposed National Fund whereas an “inclusive” system would entail mandatory inclusion for all funds.

Grasping the consequences

The fully “inclusive” system is thought to be the answer to non-discrimination and cross-subsidisation. However, the characteristics of a fully “inclusive” NSSF will close down all existing industry funds, resulting in the loss of direct employment for 20 000 people. The investment control of the market may result after some time as the great power of contributions forces the purchase of listed stocks and shares by the National Fund.

The characteristics of the “opt out” situation would allow parts of the retirement fund industry, developed over the last 50 years to remain. Unfortunately this will run contrary to the concept of a fully inclusive system which has the concept of cross-subsidisation as a priority.

Simple choice?

On the face of it, the choice seems simple. Politically, however, one needs to look below the surface for potential problems or knock-on effects. The large union funds are the mainstay of their clout and, if forced to close their funds due to an “inclusive” system being mandated, the political ramifications may lead to industrial action if not massive loss in political support for the ruling party.

Further anticipated problems include the administration of such a National Fund, the enforcement of all informal traders to contribute to the system and the potential for mismanagement.

In Chile and Nigeria, it took more than 30 years of problems and changes to arrive at what they deem to be satisfactory systems. In Europe, the national funds have all had huge problems and many are insolvent.

In contrast, the Australian retirement fund system of compulsory contribution to any superannuation fund at a minimum of 9% of income, has been successful.

Understanding the fundamentals

Some concepts need to be explored in looking for an acceptable construction.
1. Cross-subsidisation in a system where unemployment exceeds 40% cannot be sustained without huge State contributions.
2. In a society where the average mortality age is below 50 years, new consideration must be given to a minimum retirement age.
3. The system must have one agenda only: retirement investment (National Savings Fund).
4. The inclusion of death, disability, UIF and other social subsidies will cause the system to fail under the load of cost and complexity. In this context, the subsidisation of social and financial aspects of society can only exist in the minds of the mathematically challenged. This is the responsibility of the State.
5. A culture of contribution-driven benefits must prevail over a claims-driven system.

One must have sympathy for the planners at this point. Any decision will lead to misery in one form or other and will have political ramifications.