Those of us who have occupational pensions in SA, and who preserve them, know they can serve us well. Yet, in the latest Mercer CFA Institute report on pension systems around the world, SA ranks only 31st out of 43 systems. To be fair, SA is the only African country in the survey, and all of the countries with higher ratings have higher per capita incomes than SA, often as much as 10 times more.
The three top systems — Iceland, Norway and Denmark — also have high levels of trust between their populations and the state. Their populations can tolerate higher marginal tax rates than even SA, because they know they get value from their tax, not only in the national pension scheme, but in the quality of state education, health care, security and transport.
Mercer’s David Knox, a trustee of the Tasmanian superannuation scheme, says Iceland has both a basic and more comprehensive state pension scheme, compulsory occupational schemes, with specified contributions from employers and employees alike and voluntary contributions from employers and employees. There are also voluntary tax-incentivised pension products similar to our retirement annuities (RAs).
It is such a well-funded system that, unlike some other European countries, there is no danger of systemic collapse of the state due to its pension liabilities.
This contrasts with Italy, which is one place below SA. It has a "notional" (not fully funded) defined contribution scheme for workers, which promises a pension without the assets to back the promise. It has a voluntary occupational pension regime, but with considerably less coverage than SA. And Italy had a very low retirement age in the past: state employees could claim a pension after 30 years’ service, and even sooner if they were in dangerous jobs such as police, prisons or the fire service.
A factor that counts against SA in the rankings is one of the basic pillars of retirement: the lack of a state-run national pension fund. The state old-age grant does a fair job at poverty alleviation, especially in rural areas. But there is very little chance that anyone who doesn’t belong to an occupational fund will be able to retire on anything like half their final pay.
In theory, anyone can save for retirement by monthly contributions to unit trusts or RAs. But unit trusts are too easy to access. And though RAs can’t be accessed before 55, it is easy enough to stop contributions at any time.
There was a recent bid to launch a national pension scheme through the department of social development. Never mind that there aren’t Nordic levels of trust between the people and the government — within the government the National Treasury can’t trust the social development department to run such a scheme.
Mercer recommends a minimum level of contributions into retirement savings funds. In SA, it is compulsory for full-time employees to join the occupational scheme if there is one, but there are no prescribed minimum contributions. And some way must be found to give coverage to millennials who may be doing two part-time jobs at the same time.
For those of us jaded by endless stories of corruption and state capture it might be a surprise to hear that SA scores best in the integrity section of the Mercer questionnaire. SA funds must be separate legal entities from the employer; they are regulated by the Financial Sector Conduct Authority and supervised by the pension funds adjudicator.
And, as trustees will know, we are required to prepare both an investment and risk policy.
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