International Learnings Key To Local Pension And Social Reform Design
When considering the implementation of the proposed National Social Security Fund, South Africa should take cognisance of key learnings from other countries that could be adapted and applied to suit the local environment.
That is the view of David O’Brien, Head of Retirement Reform at Old Mutual, who provided some thoughts on a reformed national pension system at a seminar on Social Security & Retirement Fund Reform, hosted by the Actuarial Society of South Africa in Sandton this week.
O’Brien says: “We have learned from research that lower income groups don’t see saving for their old age as a priority as they have more pressing needs than retirement, such as housing and educating their children.”
O’Brien adds:“In Mexico, part of the national pension system includes a contribution to a housing fund which extends credit to its participants under the best possible financial terms, while protecting the savings deposited in individual accounts.This means that individual citizens have access to funding for housing purposes during their working lives, and can still access any unused funds at retirement.
Ten percent of the Mexican population have been housed directly as a result of the scheme. Such a housing finance scheme could add impetus to clearing South Africa’s housing backlog and assist Government’s War on Poverty campaign.”
Research has shown that failure to preserve pension savings when changing jobs is the main reason why people participating in the existing pension system do not have sufficient income at retirement.
O’Brien is of the opinion that the majority of pension savings should be preserved to address this issue, but that a ‘social release valve’ which acknowledges the needs of financially hard-pressed South Africans, is required. “In Australia, people may request access to a portion of their pension fund prior to retirement in specific circumstances such as severe financial hardship, medical treatment or terminal illness.However access to funds may be better in the form of a regular income as opposed to a lump sum.”
O’Brien says that irrespective of the direction that the reforms may ultimately take, there are some solutions that could be implemented immediately to ensure that South Africans retire financially secure.
In this regard, he suggests that the obligations of retirement fund trustees can be more easily met by creating a financially aware member base. For example, Old Mutual’s Financial Wellbeing Program offers a range of member education solutions that are applicable to all levels of employee.”
