Table of contents
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| 7.1. |
Introduction |
| 7.2. |
Overview |
| 7.3. |
Retirement provision as part of the financial life cycle |
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7.3.1. |
The middle class |
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7.3.2. |
The poor |
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7.3.3. |
Entrepreneurs |
| 7.4. |
Coverage |
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7.4.1. |
Formal sector |
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7.4.2. |
Informal sector |
| 7.5. |
Regulation of retirement industry |
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7.5.1. |
Types of funds |
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7.5.2. |
Boards of management |
| 7.6. |
Assets and investments |
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7.6.1. |
Cash flows |
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7.6.2. |
Demographic trends |
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7.6.3. |
Principles of investment |
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7.6.4. |
Government obligations |
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7.6.5. |
Asset classes and risks |
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7.6.6. |
The “herd mentality” approach |
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7.6.7. |
Foreign investment |
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7.6.8. |
Managing collapses in the market |
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7.6.9. |
Corporate governance |
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7.6.10. |
Passive investors |
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7.6.11. |
Company law |
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7.6.12. |
Conflicts of interest |
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7.6.13. |
Professional body |
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7.6.14. |
Stockbrokers’ commissions |
| 7.7. |
Administration costs and rationalisation |
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7.7.1. |
Recommendation |
| 7.8. |
Taxation |
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7.8.1. |
Taxation of contributions |
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7.8.2. |
Taxation of income |
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7.8.3. |
Taxation of benefits |
| 7.9. |
Benefits |
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7.9.1. |
Simplicity |
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7.9.2. |
Leakage and unemployment |
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7.9.3. |
Retirement funds used for unemployment |
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7.9.4. |
Settling debts |
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7.9.5. |
Lump sums versus pensions |
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7.9.6. |
Protection against inflation |
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7.9.7. |
The ratio of benefits to contributions |
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7.9.8. |
Cross subsidies |
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7.9.9. |
Transfer values |
| 7.10. |
State old-age assistance |
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7.10.1. |
Coverage |
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7.10.2. |
Administrative delays |
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7.10.3. |
Level of Social Old Age Pension(SOAP) |
| 7.11. |
Consumer protection issues (pensions, life and disability insurance) |
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7.11.1. |
Excessive sales and lapses, but few complaints |
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7.11.2. |
Commissions |
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7.11.3. |
Voluntary additional cover |
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7.11.4. |
Competition |
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7.11.5. |
Annuity markets |
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7.11.6. |
Unclaimed benefits |
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7.11.7. |
Education |
| 7.12. |
Other issues |
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7.12.1. |
Maximum retirement age |
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7.12.2. |
Cession of benefits |
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7.12.3. |
Divorce |
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7.12.4. |
Forum shopping |
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7.12.5. |
Surpluses |
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7.12.6. |
Taxation of endowment assurances |
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7.12.7. |
Institutions for the frail |
| 7.13. |
Conclusions |
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REFERENCES  - 16Kb < 1min (2 pages) |
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ENDNOTES - 15Kb < 1min (1 pages) |
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7.1 Introduction
A significant portion of this section of the report reviews existing social insurance measures with particular emphasis on retirement and old age. Social insurance as a critical element of social security and more broadly social protection is defined as: provisions made on the basis of previous contributions and the occurrence of a particular contingency such as unemployment or retirement.1
Social insurance is used in this section to describe pensions and other benefits payable on retirement, death of a breadwinner, disability, unemployment, for medical expenses and in the event of a natural disaster. They are currently paid—in the private sector—by life and short-term insurers, pension, provident, retirement annuity and benefit funds, medical aid schemes, and—in the government sector—by the Unemployment Insurance Fund (UIF), the Road Accident Fund, the Compensation Commissioner and the Department of Labour.
The main social policy objective of this section is to ensure that people are able to make adequate provision through a contributory system to provide for their old age, retirement and other risks and contingencies that may befall them during their financial life cycle. Furthermore since this policy objective has to be a part of a comprehensive system of social protection, proposals are made to ensure the effective interface between contributory and non-contributory forms of provision. The institutional policy objective is to ensure an integrated benefit system that ensures that people are able to survive hardship and risk irrespective of their circumstances or life chances.
South Africa’s social insurance system, as represented by the private pension and insurance sectors, is estimated to be the largest in the world relative to gross national product (GNP).
Major achievements have been noted, particularly since the advent of democracy:2
- The Social Old Age Pension (SOAP) has reached racial parity
- The Government Employee Pension Fund (GEPF) is fully funded and managed in accordance with sound accounting and actuarial practice
- Trustee legislation has been passed to ensure democratic and effective management among many others.
Despite these changes, gaps and weaknesses have been identified in this area of social policy. Growing numbers of people appear to be excluded from the contributory pension system because of atypical and informal sector work. Powerful vested interests control the insurance and related industries and investment choice. There is limited state capacity to monitor compliance with trustee laws across 15 000 funds. Inadequate consumer protection exists and little real competition in the environment limits options for members. Moreover, issues that are related to compulsory preservation for the formally employed, portability of benefits and taxation and overlaps with other sectoral policy areas have yet to be addressed. Key recommendations are made to address such problems in the report.
Footnotes:
- Barr, Nicholas 1998 explains this in the third edition of The Economics of the Welfare of the State, Stanford University Press, Stanford, California
- Asher, Anthony.2001:1 in Old Age and Insurance Paper (fifth draft) researched for the Committee of Inquiry into a Comprehensive Social Security System for South Africa (Data from Codoni C (2000). World insurance in 1999: soaring life insurance business published in SIGMA, Swiss Reinsurance Company, P O Box CH-8022, Zurich)
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[Table of contents] |
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