The private sector will almost certainly be presented with a use-it-or-lose-it opportunity on the run-in to pension fund reform as delays to the original 2010 implementation timetable become increasingly likely.
The smart move is to optimise the extra time, according to Liberty Life, a leading pension fund administrator that has prepared for the changing retirement landscape by creating a new senior executive portfolio – pension reform strategy.
Baron Furstenburg (pictured), a former senior National Treasury official who heads the new department, says additional time can be put to good use by companies that have only just begun to plan for a more inclusive system and its financial implications.
He explains: “The introduction of reform was originally envisaged for 2010. However, some delays look increasingly likely and we expect to see a phased approach.
“It is important that private sector players and employers do not interpret the prospect of delay as justification for doing nothing or slowing down their preparations.
“A new system of retirement cover for all workers, including the lowest paid, implies significant change in many areas, including funding provisions, remuneration structures, wage negotiations, stakeholder relationships, earnings projections, payroll processes, worker education and HR support.
“Any delay by policymakers is not an excuse to do nothing; it’s a precious gift of additional preparation time and should be put to good use.”
Policymakers are committed to extensive consultation before implementing reforms that will introduce a social security net for workers while removing anomalies and inconsistencies from the current system.
Mandatory social security contributions for all workers earning up to a certain earnings threshold is believed to be under investigation. A supplementary tier of retirement savings for those in higher pay grades is also being considered.
A priority, says Furstenburg, will be steps to close “the structural gap that currently exists for purposes of old age income security between the social old age grant of R930 a month and tax-incentivised savings”.
Within formal business, it is believed that a third of employees on average receive no form of pension cover.
“Designing new payroll processes to ensure full coverage will be a point of focus for many employers,” says Furstenburg. “Many companies are unaware of the complexities this may entail as they have not yet begun to address the challenge.”
Liberty Life’s pension reform strategist assists clients by describing the possible shape of a new dispensation while outlining implications for business.
He notes: “Many of the companies we speak to are eager to engage with the process and recognise that major adjustments are necessary.
“At the same time, the current business environment is challenging and managerial resources are stretched thin. In some quarters, therefore, there may be a temptation to stall on new initiatives and put the issue on the back-burner.
“Past experience with the implementation of major policy initiatives suggests that a lackadaisical approach is inappropriate. Policymakers allow some leeway, but if they think you’re deliberately dragging your feet, they won’t be afraid to take action. Under a new dispensation, they will come down quite heavily on those employers who are uncooperative. A little effort now will be rewarded later.”
Get the latest issue of FAnews