State pension plan could force South Africans to start saving
The government's proposal on the state pension plan could include financial service offerings like life and disability cover - services traditionally provided by life assurers.
The social security and retirement reforms, which the government predicts will be rolled out in 2010, will initially target the country's formally employed citizens, making it compulsory for them to save towards their retirement and also giving them a death and disability benefit. The aim is for everybody to belong to the retirement plan, from the lowest paid to those who earn millions every year.
This proposal has come as no surprise to analysts and economists considering that insurance levels have been dropping significantly over the past two years for products like life and disability cover, retirement annuities and endowment savings. A look at the latest All Media and Product Survey (AMPS) figures for the insurance industry shows that insurance levels for every type of insurance product have dropped among lower income earners, with the exception of funeral policies.
According to estimates by the Financial Sector Charter (FSC), between 4 and 5million people in formal employment today don't belong to any retirement plan.
The government's proposal could also be an admission that the FSC has failed its number one priority, which is to improve access to financial services among all South Africans. Considering that these products could become cheaper, is this incentive enough for South Africans to start making provision for the future?
According to Colen Garrow, chief economist at equity firm Brait, results of surveys like the AMPS survey are not a new phenomenon as South Africans generally lack a savings culture.
"There is no end in sight for the downward spiral of the savings culture in South Africa," he said.