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Category Retirement
SUB CATEGORIES Annuties |  General |  Savings & Investments | 

Look to Mauritius or Italy?

15 October 2006 Angelo Coppola

Old age funding specialist Rob Rusconi- speaking at the Old Mutual retirement reform conference in Johannesburg, says its not about the small issues facing individual retirement funds, its about the issues that face the policymakers. It's not about retirement fund tax, and what the percentage should be.

As a starting point, it is a given that redistribution and savings are needed for a country to grow. It's a choice between the mandatory and voluntary approach.

Locally we depend strongly on a voluntary savings environment, whether its occupational and individual, although there is a form of mandatory savings for those working for corporate SA.

In the public policy arena working people are needed to fund the payment to the old age group, and if the ageing profile changes then there will be a funding gap.

Policy makers can't afford to make increasingly dramatic promises to the population about the funding they will get. There are no silver bullets when it comes to funding of the old agers, and a pay as you go approach or a pre-funded approach individually can't work. There has to be a combination solution.

Locally it appears that we are not as exposed to demographic pressures, for instance. Private sector dependence is an issue. Government has an obligation.

In New Zealand 4% of GDP is spent on managing the system there. In SA we pay 2% of GDP for social pensions, while at the same time we are spending 2% on tax incentives.

Professor Elsa Fornero- professor of economics at the University of Turin, Italy, says that in Italy expenditure on pensions is 15% of gdp. This is not a tragedy, although the expenditure is discouraging, to people who want to save. State provisions for pension should be increased. At the moment this is assistance.

Are you ready to bet on your economy, she asks? Currently the growth rate locally is 4%. If you want growth, there should be pay-as-you go contributions. Every rand you put in will contribute to your pension, without expenses eating into the capital.

From a policy makers position this savings structure must work or it must be changed. Rusconi is optimistic about the pace of change though. Costs are coming down, and the regulator is shaking his fists.

The pension policy process is complex one, and there is a lot of work going on before the document is released. Rusconi says that the personal risk issue is still misunderstood and we dont understand what we have exposed our citizens to.

And don't be fooled- there is politics in most countries- and a case in point is Germany where a hung parliament over the last couple of years has been very detrimental to pensioners.

In fact there are five pieces of legislation that affect the creation of a pension or retirement fund, so is it any wonder that there isn't a rush of pensioners trying to get into these schemes.

Mauritius has a truly universal pension, and an example to Africa and the rest of the world- everyone gets paid a pension over a certain age- there is no means test, as is the case in South Africa. In Mauritius it appears that the state of the economy has a lot to do with the success and implementation of the programme.

Turning to Australia several decades ago the individual savings numbers were very low. There was a change and individual accounts became the order of the day, with increased coverage of the population, although there are two tiers of funds and costs, and polarisation.

Added to which it appears that citizens are exposed several risks.

Editor's thoughts:
*Pension reform is a complicated issue and has far ranging impacts, but its time for some certainty, and while we are not alone, it is time to start doing and stop talking.
*A savings culture is a difficult thing to implement when a large portion of our working population don't earn a consistent income, and cant afford to put cash away.

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