Social Development tables social security and retirement reform green paper
Higher income earners expected to contribute to state and private sector pension funds.
The department of Social Development has gazetted its green paper on Comprehensive Social Security and Retirement Reform, which proposes a National Social Security Fund (NSSF). The government-managed fund is expected to provide retirement, disability and unemployment benefits.
Under the proposal, employers and employees will initially be obliged to contribute up to 12 percent of their earnings, up to a proposed threshold. So, for earnings of more than R276 000 a year, it will be a maximum of 12 percent or R33 120 to the fund. The first 10 percent will go to the mandatory fund and the remaining two percent to unemployment insurance.
Higher-income workers are expected also to contribute to private-sector pension funds.
The paper proposed that the government should subsidise the contributions of low-income workers. Those who earn less than R22,320 per year won’t have to contribute, but a government-backed annuity product will be designed for them.
“A simplified contribution arrangement for self-employed individuals and informal workers will also be established. However, those earning above the tax threshold will need to contribute to supplementary retirement savings and insurance arrangements to ensure an adequate replacement income,” the paper states.
The NSSF pensions will be based on career earnings and the duration of contributions. The fund will also pay out disability and survivor benefits, as well as a flat-rate funeral benefit, and provide income protection benefits for all workers and their families.
The paper proposes automatic enrolment to encourage workers to contribute to supplementary retirement and insurance arrangements.
Other proposals include:
- A universal income grant to the working age population at a level that will at least lift the individual out of poverty”.
- Regulatory reform of the pensions and life insurance industry: Higher-income workers will be encouraged through tax incentives to contribute to pension and insurance plans, in addition to the NSSF.
- The extension of UIF benefits: The paper proposes that credits will be accrued at a rate of one day for every four days worked (the current ratio is one day for every six days worked) and the long-term unemployed will receive a continuation benefit.
- Road Accident Benefit Scheme: To replace the current Road Accident Fund, and provide income replacement benefits on a similar basis to the Compensation Fund, with the benefit dependent on the injured worker’s capacity to earn.
- Means test phased out: Social grants to be phased out through the alignment of social assistance with the structure of personal income tax rebates, so dependent children, the disabled and the elderly will be eligible for a grant, regardless of their income or assets.
The department said that the green paper's recommendations will take several years to implement, and that a phased-in implementation approach is proposed. Interested persons and organisations are invited to submit comments on the paper by 10 December 2021.