Edition: June / Aug 2017
A grand scheme is back on the table.
The noble intentions are spelled out but the finer details aren’t.
Introduction of umbrella funds was supposed to have bred a new era of cost and administrative simplicity. To an extent, it has. But it has also sparked fresh layers of complexity. As the number of funds have proliferated, in different types for different market segments, so too has the number of options for fund sponsors as well as participating employers indirectly including their employees.
Additional complications arise from the imminence (if that’s what it is) of the state-run National Social Security Fund. That the proposals were published shortly before the Christmas holidays by the unimpressive Social Development minister Bathabile Dlamini, and looked pretty much a rehash of the department’s 2012 effort, perhaps caused the document to be lost on the radar
But it had better jump right back on. A social-security plan has been insisted upon by organised labour (so described) as a prerequisite for its cooperation with National Treasury’s retirement-reform initiatives. Thus will Social Development and National Treasury somehow have to get together their respective acts since polarisations have become even sharper than they were in 2012.
It’s against this background that a recent Actuarial Society seminar was an eye-opener. Addressed by Sara Herbert of Old Mutual Corporate Consultants and Rowan Burger of Momentum (in his personal capacity and trying to be apolitical), they pointed to a host of problems. In the present mad milieu, solutions were less obvious.
Herbert noted there were now no fewer than 445 different umbrella funds ranging type from commercial, dominated by a handful of large life-company sponsors, to industry funds such as bargaining councils. The commercial umbrellas, to single them out as the biggest players, offered different packages with increasing levels of choice and cost. How are potential participants ever to get their heads around them for the optimal benefit of fund members?
She also suggested a particular challenge for trade-union funds that mainly comprise lower-paid employees. To the extent that such individuals would be unable or unrequired to contribute to the NSSF, they’d be unable to benefit from it.
At the bottom of the pyramid is the tax-funded state old-age pension (soap) where the poorer and indigent will be stuck. Next level is the NSSF to which employees earning above an income threshold will have to contribute. Above it is the level of provider-sponsored funds. Come the NSSF and, as Burger’s slide illustrates above, they’ll be squeezed to support the NSSF.
Focusing his presentation on the NSSF, Burger put some questions that beg answers:
- How is trust in a state-run system to be established?
- Where there’s a dependence on six million contributors in a population of 50m, what would be acceptable levels for “solidarity” and cross-subsidisation between NSSF contributors and non-contributors?
- What will be the NSSF’s investment objectives, for instance to mitigate returns and stimulate job creation?
- Will the NSSF’s distribution costs compare favourably or unfavourably against the private sector?
Here we go again. Another day, another policy argument to be contextualised in a fiscally-convoluted economy.