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Pensions & savings Reform efforts in South Africa Institute for Financial Management & Research Centre for Insurance & Risk Management Suggested pathway Regulator Environmental uncertainty Challenges for South Africa Progress Environmental uncertainties age distribution

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Pensions savings l.jpg

Pensions & savings

Reform efforts in South Africa

Institute for Financial Management & Research

Centre for Insurance & Risk Management


Suggested pathway l.jpg
Suggested pathway

Regulator

  • Environmental uncertainty

  • Challenges for South Africa

  • Progress


Environmental uncertainties l.jpg
Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives


The world is changing l.jpg
The world is changing

OECD

E Europe & former Sov Union

Latin America & Caribbean

Asia

Middle East & N Africa

Sub-Saharan Africa

South Africa

Source: World Bank (1994)

Averting the Old Age Crisis

Oxford University Press

Population over sixty years old

%

Key determinants

  • Mortality

  • Fertility

  • Immigration

35

30

25

20

15

10

Source: World Bank (1994)

Averting the Old Age Crisis

Oxford University Press &

ASSA AIDS Model

Standard assumptions

5

0

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100



The world is changing6 l.jpg
The world is changing

Source: UN World Economic & Social Survey 2007


The world is changing7 l.jpg
The world is changing

OECD

E Europe & former Sov Union

Latin America & Caribbean

Asia

Middle East & N Africa

Sub-Saharan Africa

South Africa

Source: World Bank (1994)

Averting the Old Age Crisis

Oxford University Press

Population over sixty years old

%

Key determinants

  • Mortality

  • Fertility

  • Immigration

35

30

25

20

15

10

Source: World Bank (1994)

Averting the Old Age Crisis

Oxford University Press &

ASSA AIDS Model

Standard assumptions

5

0

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100






Environmental uncertainties12 l.jpg
Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives


Environmental uncertainties13 l.jpg
Environmental uncertainties

  • Personal income per province, 2008 (adults)


Environmental uncertainties14 l.jpg
Environmental uncertainties

  • Personal income per population group, 2008 (adults)


Environmental uncertainties15 l.jpg
Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives

  • Barometer: GINI

  • Wildcard: immigration


Environmental uncertainties16 l.jpg
Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives

  • market openness

  • social protection focus

  • some vague in-between

  • key policy issue

  • Barometer: labour policy

  • Wildcard: political responsibility


Environmental uncertainties17 l.jpg
Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives

  • market openness

  • social protection focus

  • some vague in-between

  • key policy issue

  • what does ‘for the people’ mean?

  • market regulatory policy

  • that key again


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Policy alternatives for long-term saving

Redistribution

Saving

Mandatory

Voluntary

I

II

III

I. Social security: disproportionately benefits the poor

II. Occupational funds or individual accounts

III. Additional provision


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Policy alternatives for long-term saving

Redistribution

Saving

Mandatory

Voluntary

I

II

III

I. Social security: disproportionately benefits the poor

II. Occupational funds or individual accounts

III. Additional provision


Policy alternatives for long term saving20 l.jpg
Policy alternatives for long-term saving

Community

Redistribution

Saving

Non-contributory

Contributory

Mandatory

Voluntary

0

I

II

III

IV

  • Context

  • Flexibility

  • Diversification


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The S African system in 5-pillar language

Community

Redistribution

Saving

Non-contributory

Contributory

Mandatory

Voluntary

0

I

II

III

IV

  • Context

  • Flexibility

  • Diversification


System framework l.jpg
System framework

DC

DB

PAYG

Funded

Public management

Private management


Payg systems germany l.jpg
PAYG systems: Germany

Features

Very generous social security

DC

Complex private sector saving

Strong regulatory intervention

Small private saving market

DB

PAYG

Funded

Public management

Issues

Ageing impacts very serious

Political impasse

Stunted development

Private management

Distracted by EU imperatives

 New Zealand


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Individual account systems: Chile

Features

1st ‘mandatory country’

DC

Dependence on a/c’s

Underpin provided

Gradual liberalization

DB

PAYG

Funded

Public management

Issues

Poor saving outcome

Poor solidarity

Inappropriate activity

Private management

Growing cost of underpin

 Australia

 Nigeria


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South Africa

DC

DB

PAYG

Funded

Public management

Private management


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South Africa policymaker problems

Some of the key issues

Participation incentives

Preservation imperative

System inefficiency

The poor & working poor




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South Africa policymaker problems

Some of the key issues

Participation incentives

Preservation imperative

System inefficiency

The poor & working poor


Policymaker dilemmas l.jpg
Policymaker dilemmas

Trade-offs

Improving standards without damaging supply

Providing paternalistic support for the demand side

When has the market failed?

Is government participation justifiable?

Is the journey more important than the destination?

Which objectives are the most important and how should they be evaluated?

Participant security

Sustainability

Solidarity

Cost control

Poverty alleviation

Investment returns

Coverage

Replacement ratios

Public confidence

Capital market development

Economic stability

Health coverage

Labour incentives

Supply side effectiveness


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Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives

  • market openness

  • social protection focus

  • some vague in-between

  • key policy issue

  • what does ‘for the people’ mean?

  • market regulatory policy

  • that key again


Sa private sector system a summary l.jpg
SA private sector system – a summary

Providers of product

Retirement funds

Intermediaries & advisers

Regulator



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Environmental uncertainties

  • age distribution

  • education and skills

  • wealth

  • equality

  • Demographic change

  • Economic alternatives

  • Policy alternatives

  • market openness

  • social protection focus

  • some vague in-between

  • key policy issue

  • what does ‘for the people’ mean?

  • market regulatory policy

  • that key again


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Low-end issues

Genesis (2008:11)


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Low-end issues

  • Six hurdles to rational saving by LSM 1-5

    • Short-sightedness

    • Affordability constraints

    • Community motivation

    • Automatic and means-tested income

    • Unattractive vehicles

    • Opportunity cost


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What are the likely developments?

Reducing certainty

  • Continuation of SOAG

  • removal of the means test

  • policy statement on increases (?)

  • Mandatory contributions

  • to a central fund

  • Mandatory contributions

  • to a central fund

  • & private alternatives

Parameters

  • Participation incentives

  • wage or explicit subsidy

Reduced tax concessions

Annuitization issues

Nature of accredited private sector vehicles

?

Risk benefit provision

Transition rules


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Pensions & savings

Reform efforts in South Africa

Institute for Financial Management & Research

Centre for Insurance & Risk Management


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Regulatory rationale

  • Reactive approach

  • Proactive approach

  • Market mechanism

  • Dependent on

    • independent monitoring

    • credible deterrents

Trustee

  • Characterised by

    • few, large providers

    • strict structural standards

    • stringent regulations

    • pre-empting problems

    • strongly resourced regulator

Provider

Customer

  • Competitive differentiation


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Product provisions

  • Need for minimum standard

    • Current framework focused largely on financial soundness

    • Customer protection paramount in mandatory environment

    • Providers will be very powerful

    • Cost-efficiency is crucial

    • Consumer comprehension facilitated by simplicity

    • Portability enhanced by standardisation


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Policy lessons from Australia

 Chile

Source: APRA Annual Superannuation Bulletin 2005


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Policy lessons from Australia

 Chile

Source: APRA Annual Superannuation Bulletin 2005


Policy lessons from australia43 l.jpg
Policy lessons from Australia

 Chile

Source: APRA Annual Superannuation Bulletin 2005


Policy lessons from australia44 l.jpg
Policy lessons from Australia

 Chile

Source: APRA Insight, special edition 2007


Policy lessons from australia45 l.jpg
Policy lessons from Australia

 Chile

Source: APRA Insight, special edition 2007


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