Moonstone: National Security Fund
Personal Finance on Saturday carried a very informative article on the proposed reform of pension funds. What is particularly disturbing is the apparent difference in approach between National Treasury and the Department of Social Development.
“Selwyn Jehoma, the deputy director-general of the Department of Social Development, bluntly told the IRF convention that his department does not deal with things such as macro-economic policy - which is rightly the National Treasury's responsibility - and so he sees no reason why the treasury should be driving social security and retirement reform.”
Please click here to read the full article.
Mention is made in the article of a discussion document to be released by the end of the year. Some of the issues which have yet to be finalised include regulation of the retirement fund industry and, thankfully, complementary social reforms such as a national contributory health system and a national risk assurance scheme, amongst others.
This is very welcome news, given the past experience of pieces of legislation that were enacted and gave rise to duplication and confusion.
It would appear that the tax deductibility of personal retirement funding provision will at best be capped, and at worst be scrapped. This is yet another nail in the coffin of efforts to induce a savings-minded society.
Indications are that the additional tax payable as a result of the reduction or capping of deductible contributions will subsidise the lower income groups.
I may be over-sensitive, but reading the article gave me an uneasy feeling that social reform is taking precedence over financial sensibility.
In another report published in Rapport yesterday, Adri van Zyl reports on a submission by Nathea Nicolay of Metropolitan EB on the possible impact of AIDS on the proposed National Social Security Fund (NSSF).
One of the biggest challenges facing the fund is to find a balance between the provision of risk and retirement benefits. Unless something is done to counter the AIDS pandemic, it could put huge strain of the NSSF’s resources.
“At the moment anti-retroviral medicine costs about R6 000 per year while the fund will have to pay out R45 000 to someone earning R15 000 per year…” (my translation.) With the current life expectancy of 51 years of age, most people will not even reach retirement age.
Given the potential demand on the fund it makes no sense to dissuade people from making private provision for their retirement. They should rather be encouraged to do more, thereby reducing government’s future obligation.
