Issue: September/October 2007
“Millions of people today are not saving enough for their futures. And our pension system suffers from structural problems.” Sound familiar? It was said by John Hutton MP in his foreword to the UK Department for Work & Pensions white paper Security in Retirement: Towards a New Pensions System published last May.
Michael-John Albert, partner in the financial institutions services team at Deloitte, draws on UK reports that could assist in South Africa.
He could as well have written the foreword to our National Treasury’s retirement fund reform discussion paper. I’d like to focus on one aspect of its proposal for a National Savings Fund (NSF), namely who should deliver on it, with reference to the UK Pension Commission reports where lessons may be learned.
Creation of a National Pension Savings Scheme (NPSS) was recommended to encourage more private savings for everybody in the workplace. Key mechanisms are:
Some concerns raised:
Investigation into costs of indicated:
These costs are not unreasonable considering that the NSF might also adopt limited investment choice. The appropriateness of a one-size-fits-all investment approach, with a bonus for remaining in the fund until retirement, will require further discussion. Perhaps a step-by-step approach is required in South Africa. Once people are in the savings net and have started to build up capital, we can consider the appropriateness or suitability of their investment choices.
The final point considered in the UK is the significant operational set-up risks and costs. Establishment and roll-out of the fund therefore requires careful planning. The risks here favour use of existing structures, such as insurers, for NSF administration.
Hopefully the UK recommendations can help fuel debate from a South African perspective. Meanwhile, some suggestions of my own on how the process for determining delivery should be handled: