IMPACT ON NATIONAL SAVINGS

Proposed measure or lever 1. 100% preservation on withdrawal 2. 100% preservation on retrenchment 3. Total contribution increased to 27.5% 4. Expand coverage to entire working population 5. Expand coverage to include net investment income 6. Expand coverage to include gross operating surplus 7. Total contribution increased to 40% Lever’s impact on national savings* 1.1% 0.7% 5.9% 0.7% 0.6% 1.2% 10.9% Cumulative impact on national savings* * Savings as a percentage of GDP. The savings figure was 16.4% in 2015. 17.5% 18.2% 24.0% 25.7% 27.1% 30.1% 38.3% of our retirement savings when leaving a fund, typically on resignation. The actuaries worked on the assumption that currently only 30 percent of withdrawal benefits are preserved within retirement funds.

2. Getting us to preserve 100 percent of our retirement savings on retrenchment. The actuaries assumed that currently no one who is retrenched preserves their retrenchment benefits and considered the impact if we were forced to leave all our retirement savings in our funds on retrenchment.

3. Getting us to increase our retirement fund contributions from the current average of 13 percent of our salaries to the maximum amount you can contribute and still receive a tax deduction: 27.5 percent of your taxable income or remuneration, whichever is higher.

4. Expanding compulsory contributions to retirement funds to the entire working population. The actuaries considered two different contribution rates: 13 percent and 27.5 percent of salaries.

5. Expanding the amount on which you must make contributions to include your net investment income.

6. Expanding the amount on which you must make contributions to include any operating surpluses from any business you run.

7. Increasing the amount you need to save to 40 percent of your income. Although this may seem very high, this would take into account not only your retirement savings, but savings for education and housing.

Of these seven “levers”, Chennells and Kistan identified increasing the amount we contribute to our funds as the most effective. If we were all to contribute the maximum of 27.5 percent, it could result in savings as a percentage of GDP increasing to 25.7 percent.

Savings at 25 percent of GDP is the “magic number” required to get GDP growth to 5.4 percent, the target set in the government’s National Development Plan.

Chennells and Kistan say that South Africa is in the unfortunate position of needing higher savings to spur growth, and needing higher growth to create capacity in household incomes for saving. While there are no simple solutions, they say that if every effort was made to support and encourage household savings, as long as the government provides the conditions for investment in the country, “it would be possible to begin a virtuous cycle of increasing savings, increasing investment and economic growth, which in turn will result in increased investment and further growth”.