As South Africa Stirs Up Savings Culture

By Pascal Kelvin Kudiabor-Pretoria, South Africa

 

In spite of the efforts of the South African National Treasury to encourage its?citizens to develop a culture of putting money into the bank for future use, the existing?regulatory framework to boost this initiative continues to weigh down its progress.

In view of this, the NT has initiated many discussions on regulatory reforms to achieve this objective.

Addressing 28 financial journalists drawn from Ghana, Nigeria, Kenya, Botswana, Namibia and South Africa at this year?s Sanlam Summer School on 29 October in Pretoria, the Chief Executive of Sanlam Personal Finance Actuarial, Anton Gildenhuys?regrets that, “unlike Australia, membership in retirement funds is not compulsory in South Africa. People save by law in Australia but in South Africa you have the option to save or not. There is no preservation in South Africa.”

The 2004 retirement reform discussion paper is cited as noting that, there is a large and well-established private contractual savings sector, government employees are provided for through a near-fully funded retirement arrangement.

But approximately three-quarters of the population reach retirement age without a funded pension benefit and hence rely on a government social assistance grant programme.

According to Gildenhuys, in South Africa, the insurance industry believes that, the country needs a funded system that is the three tier so that, people can draw down their money during retirement. The savings system is better than Pay As You Go (PAYG). PAYG means that, you use your taxes to pay your pension. ?We are against the PAYG system.?

He however bemoaned the delay in its take off blaming it on scoring political points through ownership of the reform by two governments. ?We embrace the reform as an industry.?

The regulatory reforms are a key concern not only to South Africans but to the international community because of the sheer magnitude of change that is going on.

Nyameka Mandonda is a 26-year-old civil servant. She says the new reforms limits ones options. ?It would help if you are given options as to where to invest your money either at Allan Gray or government fund. Government does not give you high returns on your retirement contribution. If we retire we are not going to get a lump sum.?

?If these reforms are implemented correctly I am certain that we would see improvement in savings in South Africa,? Gildenhuys acknowledges.

The retirement funding system which is codified in the Pension Funds Act and promulgated in 1956 has been in place for a long time.

Since its promulgation, there have been many attempts to amend the Act but to no avail.

In its latest series of discussions the National Treasury in July this year released the?Charges in South Africa Retirement Funds?paper in an effort to close the chapter on the reform.

The reforms are set to be implemented in 2015 if all things work according to plan.

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