Proposed Retirement & Healthcare Reform and Financial Advice

1. Proposed Retirement & Healthcare Reform and Financial Advice Duduza Khosana 23 October 2008

2. NSSF - Factors Behind Reform • Poor coverage of current system • Problems within the private sector: • High costs – erosion of value • Lack of transparency • Governance and compliance issues • High profile problems: bulking, fraud • Lack of preservation • Identified a need for: • Inflation-linked benefits • Replacement ratios of at least 40% • Redistribution • Diversification • Economies of scale

3. Principles of Social Security Reform • Equity • Pooling of risks • Mandatory participation • Administrative efficiency • Solidarity/Wider support

4. Government Proposals A Social Security System represented by 4 tiers: • Tier 0: Non-contributory social assistance for poverty alleviation • Tier 1: Mandatory contributory - state tier • Tier 2: Mandatory contributory - private tier • Tier 3: Voluntary contributory - private tier

5. * Source Jaques Malan Consultants & Actuaries TIER 0 TIER 3 Social Security Grants Voluntary Provisions • State Old Age • Pension (SOAP) • PAYG • Means test Retirement: Occupational Funds, Industry Funds, Individual Retirement Funds Children’s Grant Death Benefits Disability Grant Disability Benefits Taxes % of Salaries Current System

6. * Source Jaques Malan Consultants & Actuaries TIER 0 TIER 1 TIER 2 TIER 3 Private Mandatory (ARIs) Social Security Grants National Social Security Fund Voluntary • State Old Age • Pension (SOAP) • PAYG (DB) • Universal • Basic Retirement • Benefit • State Admin • Funded • Mandatory Additional Retirement Benefits Additional Retirement • Private Admin • (ARIs) • Ind. Accounts • - Mandatory Preservation Death Children’s Grant Death Disability Disability Disability Grant Unemployment 15-18% of salaries 3-6% risk, 10-12% retirement Wage/Conts Subsidy Taxes 10-12% of salaries % of salaries Basic Proposal R 0 pa R 80 000 pa R 700 000 pa

7. Suggested Wage Subsidies for Employers • Rebate or credit in PAYE system • Related to gross wage paid to employees earning below R43 000 pa • < R15 000 /3x wage amount • =R15 000 R5 000 pa (maximum subsidy) • > R15 000 & R43 000 R7 500 pa less (1/6 x wage amount) • > R43 000 No subsidy

8. * Source Jaques Malan Consultants & Actuaries subsidy 10-12% of R20 000 pa Example 1 R20 000 pa NSSF SOAP 10-12% of R80 000 pa 10-12% of R60 000 pa Example 2 R140 000 pa SOAP NSSF ARI Examples 10-12% of R80 000 pa 12% of R625 000 pa % of R100 000 pa Example 3 R800 000 pa NSSF ARI Voluntary

9. Post Implementation • Impact on employers: • Employers are going to have to contribute to funds regardless of their size • SMMEs are going to be impacted but should start moving in the right direction • Impact on employees: • Employees are going to have less to spend on a monthly basis • Consumerism will apply

10. SA’s Socio-Economy • SMME sector representation in the process • Short employment tenure in sector vs compulsory preservation conditions • Alignment of UIF and Preservation Policies • Effect on predetermined factors:- • Society’s housing needs • Education • Poverty rates

11. The Future of Health Solutions in South Africa

12. Government’s Healthcare Vision • Definition of Social Health Insurance (SHI) • Compulsory contributions for all employed in formal sector • Based on ability to pay and not need for insurance • All that contribute are eligible for medical scheme coverage • Three pillars for SHI implementation • Pillar I: Equal contributions for the sick and healthy (risk cross-subsidies) • Pillar II: Contribution as percentage of income vs equal Rand amounts (income cross-subsidies) • Pillar III: Compulsory membership for the formally employed

13. Attaining Government’s Vision • Risk Equalisation Fund (REF) • Purpose: To equalise differences in claims costs of schemes due to differences in age and sickness profiles • Not intended to equalise due to inefficiencies and differences in non-PMB benefits • Schemes with older, sicker profiles will receive payments from REF • Schemes with younger, healthier profiles will contribute to REF

14. Social Health Insurance and REF

15. Basic Benefits- Amendment Bill Key objectives of Amendment Bill: • Provide for risk equalisation among schemes (Pillar I SHI) • Reduce complexity of scheme benefit designs and enhance cross-subsidisation • Enhance benefit and contribution comparability between schemes • Allow for establishment of Low Income Medical Schemes (LIMS)

16. Basic Benefits- Amendment Bill • Basic benefits • One standard set of compulsory benefits (including PMBs) • Contributions not set according to age or sickness profile per option • Basic benefits and contributions thus the same for all members on a scheme • Contributions may reflect more efficient and affordable provider arrangements • Supplementary benefits • Limited number allowed per scheme (three or four) • Differentiated contributions

17. Attaining Government’s Vision

18. Standardised Benefit Structures

19. 6 Steps to Professional Financial Planning • Establish and Define a professional relationship • Introductory process: FAIS Compliance • Professional qualifications and accreditation disclosure • Definition of duration of professional relationship • Agreement on method of decision making • Gather information and set objectives • Definition of personal and financial goals • Gather of all necessary information and documents

20. 6 Steps to Professional Financial Planning • Conduct Financial Needs Analysis (FNA) • Analyses of current financial situation • Determination of required action to meet goals • This includes analysing: • Assets • Liabilities • Cash flow • Current insurance cover • Investments and/or tax strategies

21. 6 Steps to Professional Financial Planning • Report preparation • Offer recommendations that address goals • Recommendations based on information provided • Implementation of financial plan • Agreement on how the recommendation will be carried out • Advisor’s co-ordinates implementation of the process • Continued monitoring of the financial plan • Advisor monitors progress towards agreed goals • Provision of periodic reports on progress

22. Thank you