Report lays bare risks of social plan
• Business says Zulu’s green paper ignores research and five years of negotiations at Nedlac
A report compiled by the National Economic Development and Labour Council (Nedlac) on the proposed national social security fund (NSSF) has set out the multiple risks and problems raised by business in discussions on the reforms, all of which have been ignored.
In the report, business also expresses dissatisfaction that expert research commissioned from the International Labour Organization (ILO) and others by Nedlac has been disregarded by the drafters of the green paper on comprehensive social security and retirement reform released by social development minister Lindiwe Zulu.
The release of the green paper last week took the social partners by surprise as five years of negotiations had reached little consensus. The areas of difference are contained in the final Nedlac report, which details what transpired over the five years and sets out the areas of agreement and disagreement.
While Cosatu agreed to most of the proposal in the negotiations, the report shows, it has since said it would not support increased taxation of workers. The Public Servants Association and Solidarity have rejected the proposal and said they will litigate against it.
While business in principle supported the creation of an NSSF, it expressed concern that its views had “largely gone unheard” in the revised draft green paper, which appears to be the same as the 2016 version with hardly any changes. Research on behalf of the Nedlac task team had been disregarded, it said, and “there has been no progress in building a quantified
and costed evidence-based approach” to the programme.
Among the dangers flagged by business in the report is that not everyone will be better off under the proposed NSSF as modelling by the ILO has shown there would be a “significant escalation in contributions for the future”. This would erode individual earnings.
Research by the ILO also concluded that the proposed contribution ceiling of R276,000 per annum was too high as a proportion of the existing working population’s income. In terms of the proposals workers would contribute 8%-12% of qualified earnings up to the R276,000 ceiling. The government would subsidise contributions of low-income workers.
Business argued during Nedlac deliberations that such a high threshold will cannabilise the business of the retirement industry, replacing or overlapping “with almost all existing retirement and life fund contribution flows, terminating or reducing the associated investment of funds in the capital market. The risks to the economy and the income security of SA’s workforce are large and the benefits were unclear,” the business comments read.
The green paper “does not show how NSSF costs and benefits will compare with existing pension, provident fund and group life arrangements, or how the transition to a consolidated statutory fund will avoid disrupting these arrangements”.
The green paper did not go to cabinet before being released, an unusual order of events.
The Treasury has also made clear that it had not been tested against either fiscal or tax policy and it is not government policy.
The green paper does not explain how an NSSF would be phased in, how contributions would be taxed, and what a state subsidy for contributions by low-income workers would cost the fiscus.
The design of the scheme is singled out as problematic, offering contributors a defined benefit on retirement, based on a formula. Research undertaken for the Nedlac task team indicated that a pay-as-you-go system passes the burden of providing benefits to future generations.
Business favours a fully funded NSSF designed to complement occupational and voluntary savings for low-income workers, providing a smaller benefit but consuming less of an individual’s earnings.