The day before the 2012 National Budget Speech, I presented on the proposed National Social Security Fund ('NSSF') to some of the country’s leading financial journalists. My presentation was preceded by a preview on likely tax changes, including issues such as estate duty effectively no longer applying to South African couples with less than R7-million of assets — an academic point to most of us. So when I started off my presentation with the fact that the NSSF would have an impact on every employed person in South Africa, I had their full attention.
The NSSF appeared on the government’s policy agenda when former President Mbeki stated in his 2007 State of the Nation Address that "all South Africans will enjoy membership of a common, administratively efficient social insurance system" and that it would be based on five core principles, namely equity, pooling of risks, mandatory participation, administrative efficiency and solidarity. Various research papers were released that year by the Department of Social Development.
Industry enthusiasm was muted to say the least — Barnard Jacobs Mellet then estimated that about R15-billion (equivalent to 6.2 percent of the local stock exchange’s market capitalisation) could be expunged from the value of the insurance sector were the draft proposals to be implemented. That figure would be much higher in today’s terms.
National Treasury pointed to a significant change in its thinking around the proposal in its 2010 Budget Review, allowing for the possibility of opting out of NSSF by "allowing accredited private funds to operate alongside a statutory default arrangement" with accreditation based on factors such as governance standards and cost efficiency. This thinking would benefit appropriately structured products such as the Sanlam Umbrella Fund.
But still no official government paper on the NSSF has emerged since the original 2007 proposals. Between 2008 and 2011 many promises were made that an updated paper would be published but nothing has emerged so far. It appears that there must have been disagreement within government as to the way forward — very possibly with different ideologies being favoured by the Department of Social Development and National Treasury.
But all this is expected to change soon, with the imminent release of a green paper proposing major social security reforms, as promised in the 2012 Budget Review. We expect this paper to be aligned with the 2007 Department of Social Development proposals — "the main proposal is to establish a mandatory statutory fund to provide pensions, life insurance and disability benefits".
Article continues on page two and three: what percentage of your salary you would have to contribute to a forced pension and a bullet point list of some concerns regarding the NSSF...