The new proposed mandatory retirement fund – storm in a teacup or a powerful example?

On the 18th of August 2021, the Minister of Social Development, Lindiwe Zulu, published The Green Paper On Comprehensive Social Security And Retirement Reform (2021). It sets out the Government’s proposal for a mandatory, comprehensive retirement and social security system.

13 days later, on the 31st of August 2021, the Minister withdrew the controversial document without saying why. So, what happened? Was this a storm in a teacup or a sign that something was working the way it should?

But let us start at the beginning. In this blog, I want to tell you about what a Green Paper and what its function is, what was proposed, what my (and many other people’s) concerns were, how South Africans responded and why this is important.

What is a Green Paper?

A Green Paper is an official publication (which is Gazetted) that outlines specific issues, and then points out possible courses of action in terms of policy and legislation. It is then open for public commentary for a couple of months. Various stakeholders will have the opportunity to comment via online platforms as well as public hearings.

A Green Paper is not in itself government policy. There is a whole process that needs to be followed before a White Paper can be issued that sets out government policy. The White Paper contains proposals for legislative changes or introduces new laws. It is important to note that this was a PROPOSAL and not legislation – YET. People were meant to comment on it.

However, nobody likes having their time and energy wasted

It has been said that this particular Green Paper was published without Cabinet approval. You do need to let your boss know if you are going to put something out on their company’s behalf!

Various balance-and-check mechanisms have been put in place to prevent the ‘Bosses’ from sitting with egg on their faces if things go South. In this case, the Law dictates that an economic impact assessment study must be done. Some suspect that the failure to jump through this hoop was largely why this Paper was pulled.

So ok, what was the fuss all about?

The Department of Social Development proposed a mandatory social insurance scheme, called the National Social Security Fund (NSSF). It would not entirely replace the current social assistance programmes, like the SASSA grants, but will complement these. No one disagrees that this is necessary.

A new social security system needs to look at the varying needs and risks of different groups across their lifetime.

  1. Injury that leads to incapacity or premature death – workers will need financial assistance for themselves and/or their dependents
  1. Loss of income – particularly due to grand-scale, unpredicted events (like COVID-19) and the resultant disruptions in the world of work that may lead to long-term unemployment or the need to reskill or find alternative employment
  1. Old age and disability – the Green Paper acknowledge the fact that many people are living much longer and may need additional resources

So, what would have happened to my existing private pension?

The short answer is that you would still have received your pension. However, you would not be able to opt out of the government scheme. How much you would get from the State would be worked out according to a complicated formula.

Would I still have needed any other life or dread disease cover?

Absolutely. The Government disability grant would not be enough to protect your lifestyle, but it would keep you from eating from a dustbin.

Would I still have had to make contributions to the UIF?

Yes. However, this would be worked into the overall chunk of cash you would have to hand over to the NSSF. The paper is also an attempt to address the needs of those who are working in the informal sector, run their own businesses, or do ‘atypical’ work that is becoming so much more widely the reality of the ‘gig economy’.

How did the Department say it would pay for it?

Well, mostly from your pocket!

Currently, workers and employers contribute 2% of the worker’s earnings to the UIF fund. We saw the necessity of this during COVID-19 – it helped to keep many businesses running by paying a significant portion of the wages of the workers.

However, to fund the ambitious scheme in its proposed format, workers and employers (again half-and-half) would have had to fork over an additional 12% of their earnings to the NSSF.

How did RSA respond?

Political parties, unions, the Reserve Bank, Non-Governmental Organisations and private citizens from all walks of life made a tremendous amount of noise!

  • Political parties circulated petitions and spoke up in public
  • Trade Unions from across the spectrum protested – Solidarity threatened to take the Department to the High Court, whilst COSATU stated publicly that, though they agree with the idea, they strongly disagreed with the cost implications
  • Representatives from the National Economic Development and Labour Council (Nedlac) stated that the suggestions for amendments from business were ignored
  • Various academics and economists pointed to the upheaval this would cause to existing private-sector pension and saving schemes that already provide coverage to more than 60% of SA’s workforce
  • Business Unity South Africa (Busa) said that these are not new ideas. As always, any new system should consider existing savings mechanisms and the current fiscal crisis

My opinions on this issue

It needs to be clear: I am NOT opposing the expansion of a social security safety net! The protections and services available to the vast majority of our citizens are woefully inadequate. This should have been addressed a long, long time ago!

My objections are:

  1. Cost

    Ordinary citizens cannot afford more taxes. The economist Mike Schüssler told Moneyweb that if these proposals were implemented, it would ‘improve’ the country’s ranking to the seventh most-taxed country (in terms of personal income taxes) in the world.

    The Government cannot go into more debt. It will break agreements. The International Monetary Fund (IMF) will have much to say and may want to recall loans.
  1. We cannot afford another SOE

    The Government wanted to create yet another State-Owned Enterprise. It already has 21, none of which are run well (to put it mildly), and all are beleaguered with corruption and scandal. They want to create a monopoly with little or no oversight.
  1. We already have many good, privately monitored, and regulated retirement schemes

    These agencies have the capacity and experience to build, maintain and oversee such a scheme in ways that will build the economy not destroy it further.
  1. The ruling party has lost credibility

    Given its record over the past decade and a half, it is dangerous and foolish to think that the Government will get this one right!

    Even IF all the elected members of the ANC were selfless saints, it would STILL be a bad idea to have a single party have all the say. A monopoly is always a bad thing. Added to that, where there is desperation and lack of oversight there will always be someone who will take advantage of that.

What can we learn from this?

  • Phoning a political party and asking questions – again and again – until you understand the technical aspects of the proposal WORKS
  • Attending public hearings and information sessions and speaking up WORKS
  • Commenting on Green Papers and sending emails to officials WORKS
  • Mobilising WORKS
    • Organising, supporting, or joining a march works – remember, when hundreds of thousands gathered in our streets with banners and flags, we got rid of Zuma
    • If you’re not into organising marches, then at least talk to your neighbours and make sure you all vote

We DO need a Mandatory Fund but it should not disadvantage the public more than help it. It should never be managed by a single party and especially one that has proven itself incapable of governing responsibly and ethically.

If anything, this experience shows us AGAIN the power of every person using their voice.

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