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SA needs a social security system, writes Isaac Moledi

By unknown | Apr 03, 2007 | COMMENTS [ 0 ]

Law firm Deneys Reitz says South Africa has a unique opportunity to study the social security systems of other countries if it wants to provide a new system that will meet the needs of its people.

Law firm Deneys Reitz says South Africa has a unique opportunity to study the social security systems of other countries if it wants to provide a new system that will meet the needs of its people.

In his state of the nation speech in February, President Thabo Mbeki said a social security tax was to be introduced to fund pension, disability and unemployment benefits.

Finance Minister Trevor Manuel supported this view in his budget speech.

The proposed social security system is necessary because South Africans do not save enough for retirement and disability.

Aggravating the situation is the R3billion a month the state pays to about 10,8million disabled beneficiaries and pensioners. The government views this as too costly.

The state says this money can be better spent on poverty relief, the creation of basic infrastructure, job creation and housing.

The state is also concerned that, though the country has a well-established retirement industry, it does not meet everyone's needs.

By combining retirement savings with unemployment insurance and protection of dependants, a social security system can provide affordable basic benefits for everyone, the government says.

Though Deneys Reitz believes that such a system is needed, it advises the government to study other social security systems, particularly that of Singapore.

The law firm's concern with a centrally-controlled fund, says Deneys Reitz's Johan Troskie, is that if not managed properly, retirement savings will become a pipe dream.

The Singapore system, he says, has had "varying degrees of success".

The Central Provident Fund, as the Singapore system is known, is publicly managed and was set up primarily to provide funds for retired workers.

Employees and employers both contribute to the fund, but unlike most social security systems in other countries, it is fully funded.

Members accumulate assets in their individual accounts, which they can later draw down.

Though originally designed to secure economic provisions for old age, the fund has also been used for housing and other social investment purposes.

This has led to a largely successful housing system, with more than 90percent of citizens owning a home.

According to Troskie, the Singapore fund is used as monetary policy - if times get bad, the employer portion of the contribution is decreased and vice versa.

One of the biggest problems with the system, says Troskie, is an increasing negative rate of return by the fund administrators.

This has led to a widespread perception in Singapore that the system no longer serves the people. Many members now rely on their children for financial support and less on their fund pensions.

Another criticism is that the fund enables the government to play an unnervingly large part in the economy.

"Since there is no transparency, disclosure, or public accounting of these funds, no one knows whether these widely held beliefs are indeed correct," says Troskie.

Troskie says an essential part of the successful implementation of the South African social security system is an indication from the government that the retirement industry will be widely canvassed and that many questions, including tax issues, will be carefully considered before the final legislation is tabled.

But he stresses that the system must be economically efficient, sustainable and able to stand up to scrutiny.


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