Lessons France can learn from SA on pension fund reform
In October 2010 there were huge strikes across France against pension reform. Activist JeanBaptiste Reddé’s slogan “Ecoutez la colère du peuple” (Listen to the people’s rage) became famous worldwide as epitomising public sentiment.
More than a decade later France is burning again because of President Emmanuel Macron’s proposed pension reform, which seeks to push back the legal retirement age from 62 to 64, or reduce payouts for those who still wish to retire before 64. At the same time, SA is going through retirement reforms itself. In February 2021 the National Treasury tabled its proposed “two-pot system”, which is scheduled to be implemented in March 2024.
The glaring difference between the reform processes is that SA has not experienced anywhere near the level of dissent France is getting from unions, the public and retirement fund institutions. A closer look at the primary reasons for the unrest in France reveals some interesting lessons.
The SA government retirement system reforms have been future-focused, with most changes not affecting any accrued benefits at the date of the change, so members will keep their existing vested rights and benefits. In SA retirement funds are well-regulated by the Financial Sector Conduct Authority.
Not many significant governance failures have occurred in the sector, and over time due to increased governance requirements there has been a reduction in the number of stand-alone funds in the country, with many funds moving into commercial umbrella funds.
Trust in the government depends on the approach adopted when reforms are proposed. The less democratic, inclusive and transparent, the greater the probability that the reforms will be vehemently opposed and public confidence in its undertakings will be diminished.
France’s defined benefit system is projected to dive into deficit in the coming decade due to the country’s ageing population. The deferred pension age is intended to sustain contributions for a longer period to mitigate the risk, while recognising the extended lifespan of the population. The French government’s rationale to alleviate the strain on the retirement system therefore seems entirely plausible. Why, then, has the reform been met with such resistance?
The proposed pension reform come at a time when many French workers are facing economic insecurity, high unemployment and inflation, and with those, declining living standards. It touches on their pockets because working longer means more money paid in tax to subsidise retirees, and with high inflation and a rising cost of living there is an erosion of disposable income and discretionary savings.
In SA the proposed “twopot system”, has been designed to tackle the country’s retirement savings crisis. The reforms seek to strike a balance between two problems: the need to maximise retirement savings by minimising early withdrawals, and the need to allow for early access to a portion of one’s retirement savings to manage the consequences of unforeseen events and emergencies, such as Covid-19.
Though pension coverage for older people is exceptionally high in SA (92.6%), by world standards due to the largely noncontributory state pension known as the old age grant, 40% of the elderly are still classified as poor. This
FUTURE-FOCUSED, MOST CHANGES HERE DO NOT AFFECT ANY ACCRUED BENEFITS AT THE DATE OF CHANGE
emphasis on better retirement outcomes while maintaining limited access has encouraged the buy-in of the majority of fund members.
In France the proposed pension reform is seen by many as having been imposed by the government without adequate consultation with either workers or the public at large. Consultation and engagement with stakeholders are critical to any reform process.
However, it must be borne in mind that a consultative approach can lead to delays in reforms because initially not all parties will be satisfied with the proposals. Even so, delays are a price worth paying if it averts a situation in which unions protest against change because they have not bought into it.
The SA consultative process has been comprehensive, with input obtained from both the industry and all other stakeholders from the outset. This has meant the government has received buy-in and input. The process has been underpinned by cooperation, and almost all of the major concerns of unions and industry were taken on board and dealt with in some form or another.
While the French system is feeling the pain, it is highly unlikely that we will see a similar outcome here.