According to proposals in a green paper, published by social development minister Lindiwe Zulu, all employers and employees will be obliged to pay into a government-run national social security fund.
The contribution will be between 8% and 12% of earnings up to the current Unemployment Insurance Fund (UIF) ceiling of R276 000 a year.
According to Zulu, the proposed fund is based on “social security principles of risk pooling and social solidarity”. She also said that, “The most notable gap in our social security system is the absence of a mandatory contributory public social security fund that provides retirement, disability and survivor benefits to the workforce. Although private occupational and voluntary schemes partially fill this gap, some 6.2-million formal sector workers — primarily low-income earners, informal workers and informal sector workers — are excluded from such arrangements.”
She said that with the proposed fund, the government should be able to subsidize the contributions of low-income workers. It is proposed that employees earning below an income threshold of R22 320 per year should not be obliged to contribute to the NSSF for retirement or risk benefits but will continue to contribute to the UIF.
The “NSSF tier 2 “ will run on a defined-benefit basis, a worker’s pension in retirement will be based on career earnings and the duration of contributions. The disability and survivor benefits will be based on salary at the time of injury or death. The NSSF will also pay a flat-rate funeral benefit.
Zulu said that, “However, those earning above the tax threshold will need to contribute to supplementary retirement savings and insurance arrangements to ensure an adequate replacement income. To achieve this, it is proposed that the NSSF tier 2 be augmented by introducing an auto-enrolment based third tier.”
According to the green paper, members of private retirement funds rarely receive a sufficient income in retirement, partly because they do not preserve their saving throughout their career and high administrative costs and fees erode the individual’s savings.
“A default rule is proposed, under which employers will be obliged to auto-enroll employees for incomes above the tier 2 contribution ceiling (currently R276,000 per annum) into either the employer’s occupational scheme or the NSSF default fund. For employers and income earners who do not have access to an occupational scheme, the NSSF run default fund will participate in tier 3 alongside occupational schemes.”
The government also proposes the gradual elimination of the means tests for social grants, together with a standardized disability assessment: a contribution subsidy to encourage low-income workers to join the NSSF. It’s also assessing an extension of UIF benefits, including a continuation benefit for workers who have exhausted their full UIF benefits, to be paid at a lower rate and linked to labour activation measures to protect workers from having to draw down their retirement savings; and alignment of social security with the National Health Insurance, especially for the medical benefits presently covered by the Compensation and Road Accident funds.
Public comments on the green paper are invited until December 10 2021.
Sources: MSN
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