Social Security Fund: New opportunities

While the government's proposed new Social Security Fund (SSF) will pose may challenges to the industry, it will also open up opportunities for new products. We asked some of the industry players about their predictions with regard to new opportunities in the wake of the SSF.

"The proposals contained in the second discussion paper may provide two areas of opportunities for insurers, namely voluntary top-up products and underwriting the risk and annuity benefits which are described in the proposals," says Michael Blain, CEO of Centriq. "However, it is not clear what is intended by National Treasury in this regard and specific pronouncements are required to enable the industry to be proactive."

Kenny Meiring, Marketing Strategist at Metropolitan EB agrees, "There will be an opportunity to increase the provision of personal pensions. For the share of salary above R60 000, people will be obliged to make some sort of provision for a pension. This could take the form of membership to a pension fund. However, many of these funds will close over the next couple of years so an 'open scheme' type pension fund could be attractive. Another option would be membership of a retirement annuity fund if these costs can be kept really low."

Changes to existing products

According to Sanlam, existing products and services would have to be changed to augment any benefits offered by the SSF. "The level of death and disability benefits under the fund is not expected to be sufficient for many members," says Danie van Zyl, Actuary at Sanlam Employee Benefits. "There is significant scope for top-up schemes, offering additional benefits.

"The introduction of the SSF is also likely to increase the demand for umbrella funds, as many of the existing funds will no longer have sufficient members to be viable on their own. Initially there could also be an increased demand for preservation funds, as members may opt to preserve their existing benefits privately and not to transfer their accumulated savings to the new government scheme.

Innovative solutions

A compulsory Social Security Tax will also increase the demand for other insurance solutions, such as annuities on retirement, explains van Zyl. "Any lengthy administrative delays in paying a member's retirement benefit or providing an annuity on retirement could also create the need for bridging finance for new retirees."

Tax implications

Wayne van Rensburg of Glenrand MIB also sees opportunities arising. "The structure should allow for tax incentive up to a certain point and this could be covered by the existing industry. It is at the level where there are no tax incentives that the greatest opportunities will open up. Here one assumes that the investment products available in the market would increase significantly as the higher earners will be pursuing investment opportunities that are aligned with retirement funding principles and also tax efficiency due to the tax breaks that have been lost."

A wider view

Grant Pote, General Manager of Old Mutual's Retirement Fund Reform project, takes a wider view. "The industry needs to look further than just products and should consider how to optimise the financial position of individual members and provide increased access, particularly for those that have been excluded historically. The exact nature of the response from the industry is dependent on the details of the Reforms being considered. These need to be discussed with Government."

It will certainly be interesting to watch how these opportunities unfold and how the various industry players respond to take advantage thereof.