No to 'Big-Bang Approach' To Pensions
December 4, 2008
Planned pension reform may be dramatic relative to what went before, but this does not imply government will take a "big-bang approach", pension fund administrator Liberty Corporate said on Thursday.
"Consultation, phased change and built-in flexibility are more prudent and likely than sudden demolition and a fresh start from ground zero, the company said in a statement.
Local policy makers were currently investigating the introduction of mandatory social security contributions for everyone from a certain earnings level, backed by a tier of supplementary retirement savings for those in higher pay grades.
"Currently, South Africa is missing a mandatory contributory pillar of pension provision," said the company's head of pension reform strategy Baron Furstenburg.
A structural gap existed for purposes of old age income security between the social old age grant of R930 a month and tax-incentivised savings, he added.
"Policy makers will obviously look to close a gap like this, which implies structural reform but in a phased-in, orderly manner.
"Ordinary members will have plenty of time to make their voices heard during the reform process."
Furstenburg said 2010 timelines were always ambitious and would probably not be met, but the major shape of reform would be apparent by then.
"Significant legislation like this takes time to pass through Parliament. The process will require a re-write of the Pension Funds Act and negotiation and discussion at Nedlac. Full implementation will take a number of years, and vested rights will be protected."
Furstenburg predicted an important role for the private sector, a new environment characterised by tighter regulation, a reduction in the number of funds, stiffer industry competition and more competent boards of trustees.
In addition, demographic and "lifestyle" changes would encourage a degree of flexibility in design by policy makers.
"It is no longer automatic for a person to move straight from full-time employment to retirement without work ... Many work part-time or run small businesses," Furstenburg said.
"Government may therefore be flexible in system design, perhaps by encouraging work beyond 65 by allowing a flexible age for annuitisation." - Sapa
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