South Africans are often upbraided for being a nation of poor savers. Personally, it’s an accusation that irritates me. We are given little incentive to save, particularly through our tax structure that soon starts eating away at any savings the average person sets aside.
However, we do have a highly developed, sophisticated financial services industry, often said to be comparable to the best in the world. This industry offers numerous good savings products – so perhaps we are bad savers, not taking full advantage of savings plans and often not sticking to them.
South Africa also has a refined retirement industry.
A newspaper report a few weeks ago on a national pension scheme based on compulsory retirement provisions probably got pulses racing, but according to Dube Tshidi, head of pensions at the Financial Services Board (FSB), absolutely nothing is imminent.
“These were just some ideas being kicked around. Nothing definite is planned at this stage – we certainly aren’t drawing up a draft document for submission to government,” he said.
Tshidi said while there is a need for some form of national pension, the FSB is at present simply looking at possible options, including overseas models. He agreed that the compulsory retirement provisions scheme, as reported, is unworkable. “I must emphasise there is nothing definite. In due course we will try to formulate a proposal, but it could take some time.”
Though there is no legislation, as yet, compelling employers to provide retirement benefits, most reputable companies do offer comprehensive pension or provident fund packages to employees. The problem here, we are told, is that we often misuse these benefits, and this is partly why we are regarded as poor savers.
Steven Wright, senior director of
legal services at Alexander Forbes, says
the country has very efficient occupational pension funds, though the benefits ultimately paid to retirees are not always good.
“The main problem is that people often withdraw their pension money when they leave the company, and instead of transferring it to a new fund, they squander it. Then after 30 or 40 years of working they reach retirement and ask, ‘How can I live on this?’ “
In this regard, it’s hard not to see ourselves as poor savers. It seems many South Africans just aren’t prudent, and don’t take saving for their retirement seriously enough.
But, at least, people in employment have some space to provide adequately for retirement. If they don’t, it’s hard to blame anyone but themselves.
The unemployed and infrequently employed have a different prob- lem, and it’s hard to see what can be done here, especially for the elderly unemployed who have no private sector pension.
South Africa, says Wright, has no state pension in the true sense, where contributions from all citizens provide the funding. Instead, there are old-age grants, funded by the taxpayer and paying about R520 a month to the very poor. Wright says this is really nothing more than “poverty relief”.
However, Chris Liebenberg, Nedcor chair and former finance minister, says in comparison to the rest of Africa our state grants are relatively good. But he adds that what needs to be found is a system to address the social security issue of the unemployed.
“Unemployment is virtually endemic in South Africa, and when a person is unemployed here they have absolutely no income. What is patently clear to me is that sooner or later we are going to have to address the social security system in South Africa.”
The biggest problem is finding a workable system. Any scheme, such as compulsory retirement provisions where the employed pay into a fund that can be accessed by everyone, seems little more than a pipe dream given South Africa’s high unemployment.
“By looking at models where the employed contribute to a national scheme for all, we seem to be making the mistake that Europe made a long time ago,” says Wright. “Unfunded social pension schemes for the benefit of people who have retired work when there is a high percentage of employed people and they are relatively young. But when the population starts ageing and relatively fewer people are working, tax revenues can’t sustain increasing payments and you get a retirement time bomb as you have in many European countries, for example, Italy – it’s a system doomed to failure.”
South Africa’s problem regarding such a scheme, says Wright, is not so much one of an ageing population, but of high unemployment. “The same problem will occur with any scheme funded by the employed, but for the benefit of all,” he says. “It’s a simple numbers game. I don’t know what the solution is.”
However, Wright says a start would be to develop a culture of saving and create more employment. “The concern regarding a national scheme would be that it is ill- conceived or poorly designed. The danger is in creating a huge, expensive bureaucracy that would use up a large chunk of contributions going into the scheme to simply operate, without providing meaningful benefits – we would still have no real saving.”
Fraud and abuse of the system are also potential problems, and collection of contributions could be a nightmare – the government has no idea how many people are informally employed, so how could they monitor contributions from this large sector?
Liebenberg, however, sees some hope in ongoing fiscal discipline from the authorities. “We see this coming through in the budget. A commitment to fiscal discipline five years ago is coming through, for example, in the lowering of corporate tax rates.
“Fairly soon personal tax rates could also be reviewed. Considering the cycle South Africa is in, maybe personal taxes should not be lowered, but the reduction instead used as a loan levy to start funding job creation, for example through the small and medium business enterprises. There are lots of options to investigate.”
Liebenberg admits there will probably be an outcry if a potential personal tax reduction is used to fund job creation, but points out that the previous government introduced loan levies at times.
“People need to feel comfortable that government will put the loan levy to good use, it’s about government credibility. I believe government has shown it has this discipline. One thing I know, however, is that we can’t expect social stability to continue with our present high unemployment,” he says.
It’s a tough question to answer, but if a solution is to be found it should not be imposed on the population by the government. This is one problem that clearly needs the state and private sector to work closely together.