Real Issues in Employee Benefits: Retirement Reform. Presented by Joanna Legutko. October 2011

Transcription

1 Real Issues in Employee Benefits: Retirement Reform Presented by Joanna Legutko October 2011

2 Introduction South African retirement system has many problems Reform has been on the cards since 1994 Reform includes: New NSSF More regulation of private funds Principles: solidarity, mandatory participation, centralisation

3 In the Ring with Policymakers

4 Who is designing the new system? Interdepartmental task team IDTT: National Treasury (and SARS) Department of Social Development Department of Labour Department of Health Many more

5 Why is the Government redesigning Retirement?

6 Problems with the current system Poor coverage Voluntary membership No compulsion to provide funds, no compulsion to join Little provision for informal workers, selfemployed, seasonal workers, farm labourers, etc

7 People in Millions Coverage of current system Formally employed excludes agricultural workers Formally Employed = 9.3m Existing Provision = 5.8m < R12k R12 - R75k R75k - R150k R150k - R1m > R1m Annual Income Formally Employed Existing Provision QLFS 2008; PFAR 2005, Old Mutual Research

8 Problems with the current system High costs erosion of value Lack of Transparency Governance and Compliance issues High-profile problems: bulking, fraud Lack of preservation

9 Lack of preservation 20% of members exit funds every year Average fund at retirement reduced by 67% due to non preservation Only 60% of funds >R1m are preserved 75% of young members earning more than R300k p.a. do NOT preserve > What do employees in your company do? Sources: Alexander Forbes Member Watch, FSB Annual Report

10 NSSF Debate: Blow by Blow

11 Reform Timeline 2002 Report of Committee of Inquiry into a Comprehensive System of Social Security for South Africa 2004 National Treasury first Discussion Paper on Retirement Reform 2007, February National Treasury Second Discussion Paper on Retirement Reform.

12 Reform Timeline No further official communication Research commissioned and undertaken Regular meetings of development team Fundamental concepts reconsidered Next steps: ministerial committee NEDLAC (National Economic Development and Labour Council)

13 So what are the current proposals?

14 The World Bank Model TIER 0 TIER 1 TIER 2 TIER 3 Social Security Mandatory Contributory State Tier Mandatory Contributory Private Tier Voluntary Contributory Private Tier Taxes % of Salaries % of Salaries % of Salaries Source: World Bank, 1994

15 Current SA Retirement system TIER 0 TIER 1 TIER 2 TIER 3 Social Security Grants Voluntary Provisions State Old Age Pension (SOAP) - PAYG - Means test Children s Grant Mandatory Contributory State Tier Mandatory Contributory Private Tier Retirement: Occupational Funds, Industry Funds, Individual Retirement Annuities Death Benefits Disability Grant UIF Disability Benefits 2% of Salaries Taxes % of Salaries

16 Proposed structure TIER 0 TIER 1 TIER 2 TIER 3 Social Security Grants National Social Security Fund (NSSF) Private Mandatory Voluntary State Old Age Pension (SOAP) -PAYG (DB) - Universal Basic Retirement Benefit - State Admin - Mandatory Additional Retirement Benefits Private Admin Additional Retirement Children s Grant Disability Grant Death Disability Unemployment Death Disability Death Disability Taxes 10% - 15% of Salaries % Salaries % of Salaries R 13,000 p.a. R150,000 R 750,000

17 What s actually happening? Radical reforms (NSSF, Accreditation, new state structures) delayed SOAG NRA equalised to 60 Improving governance: PF130 more training, more reporting FAIS Exams for advisors Regulation 28 updated

18 What s actually happening? Improving preservation Taxation of lump sums change last year Provident funds to be abolished from 2012 Taxation changes Capping tax-deductible contributions at around 22.5% of R900k from 2012 Number of funds reduced from to around 3000 cleaning up discontinued funds + movement into umbrellas

19 Planning the Showdown: Is there room for Match Fixing?

20 Realising the implications NSSF to take over majority of members / contributions Private funds reduce in size costs go up Different impact on low income and high income workers Consider value add from employer

21 What value does your fund add? Competitive advantage Looking after employees in retirement Low cost insured benefits Access to tax effective savings

22 And in the new environment? Compare NSSF benefits to current fund benefits Is top up fund cost effective? Consider umbrella funds What are member needs? What are competitors doing? Note no tax subsidies above R200,000 contributions p.a.

23 The Final Countdown winning the Game

24 What should employers be doing? Reassure employees Wait for green paper Engage through industry bodies at NEDLAC Consider cost saving alternatives Be proactive about preservation Evaluate value proposition for employees

25 Thank You. Questions?