Pretoria - With only about 10% of South Africans being able to maintain their standard of living once they retire, government is looking at ways of lowering retirement fund costs, says Finance Minister Pravin Gordhan.
This comes as National Treasury on Monday released proposals for improving the country's retirement savings. The draft proposals stem from the 2012 National Budget, with the country looking to strengthen its social security systems.
"Uniform tax treatment for retirement fund contribution and benefits will simplify the retirement system. Several initiatives to reform the annuities market, lower retirement fund costs and strengthen fund governance are under consideration," noted the overview of proposals.
"What we're saying is that this is the beginning of an important process because retirement and retiring on the basis of a decent standard of living that one is used to is a crucial part of one's life and what we're finding is that only about 10% of South Africans are able to maintain the same standard of living once they stop working," Gordhan explained.
"This is not a pretty picture for South Africans going forward and the initiative we're talking about today [will] reform the retirement industry. It is about saying how we give South Africans a better deal. How do we ensure that they have a decent standard of living post retirement and what are the things that they need to do; what [does] industry need to do and what it is that government and regulators need to do in order to achieve this outcome?"
Treasury noted that at 16%, South Africa's gross national savings rate did not compare well with some of its Brics counterparts like India (at 34%) and China (at 53%).
Gordhan noted that fees for many products in the financial sector remained too high, with high costs in savings products undermining the national objective of getting people to save more. The financial sector, according to Treasury, must take "urgent steps" to reduce costs and introduce more appropriate and transparent products.
"This is an important step in initiating a paradigm shift in the way in which the retirement phenomenon operates in SA," said the minister.
The proposed short to medium term reforms include measures to reduce the costs of retirement products; improving fund governance and the role of trustees and reforming the annuities market.
Gordhan said this was the beginning of strengthening the regulatory practices of the retirement fund industry. He said the manner in which retirement products and costs were structured would form the crux of what would no doubt be "strenuous discussions" between government and the industry.
Although South Africa has a substantial amount of money in the retirement system, what was needed now were means of increasing the pool of savings. People needed to strike a balance between saving and spending.
The temptation and necessity to withdraw retirement funds when one changed jobs was another point highlighted in the draft proposals.
"What we want to [discuss] with stakeholders and society is how do we encourage better preservation? How do we encourage you to keep as much of that money for the long term rather than for immediate consumption purposes," questioned Gordhan.
He said it was important to increase the level of understanding of the importance of savings and ensuring a decent retirement.
The purpose of improving governance was to ensure that the beneficiaries of funds, which are the ordinary workers who contribute to these funds, benefited the most.
Tax incentives, said the minister, played an important part in inducing "savings behaviour".
"Preliminary discussions have already taken place in the last few weeks, including with trade unions and business associates. The release of this paper will help us get to phase two but most importantly, we need to increase the level of understanding and literacy among the South African public.
"We want every South African to understand the importance of saving, the importance of contributing to a retirement fund and ensuring a decent retirement."
Treasury noted that not all citizens were able to save. "That's part of a broader discussion in government involving social security reform. This process is pretty much in its final stages within Cabinet process. We hope in the next six weeks, we will be able to release this document with the Minister of Social Development."
About R2.4 trillion of the country's household savings enter the retirement industry.
Comments to the overview document can be submitted to National Treasury until 31 July.
