The snorting of the SSR Bull

The proposed reformed retirement system has four pillars:

1. Social assistance grants for those individuals that are most vulnerable;

2. Mandatory participation in a National Social Security Fund (NSSF) up to a threshold earnings level, which provides basic retirement, unemployment, death and disability cover;

3. Mandatory participation in private occupational or individual retirement funds for individuals with earnings above the threshold earnings level; and

4. Supplementary voluntary savings where individuals can choose where and how to invest any additional income.

To accomplish this, National Treasury has specified the following reforms as part of its plan:

• Governance and regulatory reforms to the retirement fund industry;

• Reforms to the tax system;

• Administrative reforms to enable the South African Revenue Service (SARS) to manage the proposed system; and

• Introduction of a wage subsidy.

Although it might feel like SSR has become more of a political ploy than a reality, by taking a closer look at the last decade it becomes clear that the government has been actively shaping the retirement industry in preparation for SSR implementation.

 

The origins of SSR as we know it today stem largely from the 2002 report from the Committee of Inquiry, Transforming the Present, Protecting the Future. By 2004, National Treasury released its Retirement Reform discussion paper, and within a year the now well-known Statement of Intent was signed.

Shortly thereafter, the first meaningful changes were made to the industry by enhancing poor policy values. In 2007 the second discussion paper Social Security and Retirement Reform, was released, and soon we saw the Pension Funds Amendment Bill, amendments to commission structures, and minimum early termination values within the Long-term Insurance Act.

There have been a number of regulatory updates in recent years, and these represent the first steps in the longer-term SSR plan.

The 2013 Budget Speech made some high-level references to SSR, and a full chapter of the budget review was dedicated to the topic.

However, this year the Minister of Finance took a crucial step further, making specific mention of retirement reform and describing planned legislative changes – including tax changes. This makes it clear that government is sticking to its original plan and progress is being made. Timeframes are still unclear, but in all likelihood we are looking at a medium- to long-term plan.

 

The recent National Development Plan is also closely intertwined with SSR ideals and was frequently referenced in the 2013 National Budget, specifically with regard to social security.

In recent years, attention has turned to the National Health Insurance (NHI) project. NHI forms part of the overall SSR project, and its origins stem from the same 2002 report. So although it may seem that focus has shifted away from SSR, NHI is actually another piece in the same SSR puzzle.

Very little detail has been included about the proposed death, disability and retrenchment benefits provided by the NSSF. This is a meaty topic in its own right, which could have a significant impact on the market, and will require fair consideration.

There has been significant reformation of the retirement industry, and in the near future we can expect to see reforms to the tax system and implementation of health reforms. SSR is alive and kicking.

 

SSR has largely grown from aspirational principles; however, in order to be successful it will also need to make practical and financial sense to all stakeholders. Our responsibility is to continue to debate this project among ourselves and with our clients and, most important, to engage with government to ensure that we achieve a mutually beneficial outcome.