The green paper on a new social security reform programme has not been approved by the cabinet and is not government policy, a senior Treasury official said on Thursday.
Treasury deputy director-general Ismail Momoniat said the proposal reflected some of the aspirations of the various constituencies in the National Economic and Labour Council (Nedlac), which had not reached consensus on it after several years of discussion.
The publication of the green paper on Wednesday by social development minister Lindiwe Zulu took the Nedlac constituencies by surprise. Momoniat said the proposals had not been tested against fiscal and tax policies.
The paper suggests wide-ranging changes to the social security system, including setting up a fund run by the government in which employees would be compelled to contribute between 8% and 12% of qualifying earnings up to a ceiling of R276,000 — which may erode the business of private savings companies.
The retirement and savings industry, which looks after trillions of rand on behalf of workers and pensioners, warned the government that any new social security reform programme should not disrupt the existing plans that are crucial to its own funding and the country’s infrastructure needs.
Unions slammed the plan as an additional tax on workers struggling to make ends meet.
The department of social development wants a single fund, which would pool resources to provide retirement, survivor, disability and unemployment benefits, arguing that the current system excludes millions of workers from private sector pension coverage.
The green paper, which was released for public consultation, did not go to the cabinet first, the usual practice. It may be several years before its proposals are implemented, if at all.
“Systemic weaknesses in the private retirement system exclude millions of workers due to voluntary participation resulting in poor risk pooling and low levels of income replacement,” the document said. It estimated that 6.2-million workers with formal jobs have been left out.
Matthew Parks, who represents Cosatu at Nedlac, said any proposal to tax workers is a “no go”. The Public Servants Association said the plan was “another attempt by government to get its hands on overtaxed workers’ hard-earned money”.
Business has argued that the retirement needs of uncovered workers could be dealt with in a separate scheme without including those who already have adequate cover.
Reminiscent of the government’s plan for National Health Insurance to provide universal health access, private sector players have expressed unease at the creation of a huge bureaucratic structure that may damage what is regarded as a well-functioning private system.
It also comes at a time when public confidence in state-owned entities is at an all-time low after years of corruption and mismanagement.
Social security reform has been on the government agenda for nearly a decade and has been under discussion at Nedlac for the past four years. A 2012 social security and retirement reform discussion document forms the basis of Zulu’s green paper.
Stephen Smith, a senior policy adviser at the Association for Savings and Investment SA, whose members have R6-trillion of assets, said SA needs to protect the savings pools accumulated by the life industry, which has financed much of the country’s investment requirements and also funds the government through the capital market.
It acknowledged there is an “urgent need for the appropriate social protection, particularly of informal and vulnerable workers, as existing legislation and structures are not designed to cater for their needs”.
A better-integrated social security system requires a balance to be achieved between different components, Smith said in a statement.
“For example, a state pension which is used to pool and subsidise risks between workers has to be balanced against what proportion of income remains for the funding of an adequate pension related to an individual’s accustomed standard of living.”
Smith said it was important to have clarity on how the promises embedded in the design of the proposed system would affect government finances, and to ensure that future social security reform programmes did not inhibit employment creation.
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