Proposed Reforms

1
Proposed Reforms

• David OBrien
• Head Retirement Reform

November 2008
2
Old Mutuals Social Responsibility

• Old Mutual (SA) launched Masisizane, a R440
  million national economic transformation
  initiative supporting the Shared Growth
  initiatives of our country
• ILima - 42 assignments were completed in six
  provinces
• Financial education (2007) - 3 244 people
  received financial training through Masisizane
  initiatives
• Property development in under-serviced areas.
  IDEAS Fund initiatives for 2007
• OM Foundation invested R35 million in community
  projects throughout South Africa
• Hluma R500 million partnership between Old Mutual
  (SA) and the Development Bank of Southern Africa
  (DBSA)
• Cape Craft Design Institute (CCDI) and the Old
  Mutual Foundation, launched GIFT to bring crafts
  people and their markets together
• The Small-scale Farming programmes flagship
  project, the Organic Farms Group (OFG)
• A financial package called Domestic Workers
  Plan, aimed at empowering approximately one
  million South African domestic workers, was
  launched by the Presidential Working Group on
  Women (PWGW), with the support of Old Mutual (SA)

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Inter Departmental Task Team (IDTT) - Savings
Voluntary
1m
Private Compulsory
150
SALARY PER ANNUM (000S)
75
12
SOAP
0
4
Inter Departmental Task Team (IDTT) - Savings
Voluntary
1m
Private Compulsory
150
5 - 25 Industry Funds
SALARY PER ANNUM (000S)
75
Etc.
Fund C
Fund B
SATU
Fund A
SACCAWU
GEPF
12
SOAP
0
5
Inter Departmental Task Team (IDTT) - Risk
1m
Voluntary
150
SALARY PER ANNUM (000S)
State Fund
75
12
SOAP
0
6
Unique challenges

• Unemployment _at_ 23
• SA ranks 121st on UN Human Development Index
• High levels of inequality
• Gini coefficient 0.65 and the trend is widening
• Low Life expectancy rates
• Prevalence of HIV/AIDS
• Many of the poor will not reach retirement age
• Earnings patterns of the poor erratic
• Poor have more pressing needs than retirement
  savings

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Require unique solutions

• Formal economy not necessarily the best option
• Poor save in vehicles with social benefits
• Home ownership
• Education
• Informal community savings

8
Savings by low income

• Dont see saving for retirement as priority
• 33 currently saving
• 67 not currently saving
• Incomes of working age people are lower than the
  income received from SOAG
• Income inadequate for basic needs
• Low potential to save
• Prefer investments with tangible outcomes
• Improving housing
• Educating children
• Retirement income
• 89 age 60 receive their income from SOAG
• Remaining 11 receive income from family /
  friends or have no income

Finmark Trust
9
Some Pension Fund Facts

• 9m formally employed people
• 6m in pension fund vehicles
• 20 of members exit funds every year
• Average fund at retirement reduced by 67 due to
  non- preservation
• Only 60 of funds gtR1m are preserved
• 75 of young members earning more than R300k p.a.
  do not preserve
• The first 20 years of retirement saving could
  contribute over 60 of the fund
• On average South Africans retire 2 years earlier
• Over half of South Africans are worried about
  outliving their retirement income

Alexander Forbes Member Watch
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What is Happening
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Some Critical Issues to Debate

• Replacement Ratio
• 55 at 40
• Funded or Unfunded
• Dependency Ratio
• Sustainability
• Economic Stability
• Defined Benefit or Defined Contribution
• Risk carried in most appropriate way for
  societys benefit
• Discriminatory against the poor
• Compulsory Preservation
• Contribution according to ability
• South African context
• Role of the Private Sector
• Skills and Infrastructure

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What is Old Mutual doing?

• Contributing positively to the reform process
• Participate in industry debates
• Extensive external lobbying with stakeholders
• Shaped industry Joint Forum proposal
• Developing innovative new solutions and services
• Domestic Workers, Financial Solutions for Women
• Financial Well-being Programme
• Assisting clients to transition successfully to
  the new future

Should you require any additional information,
please refer to the Old Mutual website on
Retirement Reform http//www.oldmutual.co.za/reti
rementreform or contact David OBrien Head
Retirement Reform on 021-509 3056
/dobrien_at_oldmutual.com or Charmaine Maree
Communications on 021-504 4658 /
cmaree_at_oldmutual.com
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Sharing and Inequities in the Risk Market

• John Kotze

November 2008
14
Lets talk about RISK Benefits

• But before we do that whos up for some
  thumb-wrestling?
• Pair up most pins in a minute!

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The History of Insurance (Collaboration)

• Lloyds Coffee Shop
• Insurance for the common good
• Share costs if ship sinks more ships at sea
• All share in risk, society as a whole is better

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Risk benefit questions

• What are risk benefits?
• What risk benefits does the average
  employer/retirement fund provide?
• What risk benefits do self-employed, informally
  employed or part-time employees have?
• How many people die or become disabled, and how
  many reach retirement?
• How does this differ in different industries?
• What are the benefits of group risk death and
  disability cover?
• How important are death and disability benefits
  to you?
• Are they important enough that you will pay 4 of
  your salary for them? (e.g. R200 p.m. risk
  benefit cost for someone earning R5000 p.m.)

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Reforms wider than anticipated

• Risk Benefits is an important issue
• Fair discrimination
• Concept of Solidarity
• Averaging of risk across industries
• Actuarial insurance for the social good
• Eliminate inequities
• Benefit design
• Risk management (e.g. working with disability
  claimants to promote their return to work)
• Risk Equalisation Mechanism? redistributive in
  a group risk context

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Lets talk about FISH
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Summary

• Risk cover is important!
• Collaboration is crucial
• Regulators
• Industry
• Members receiving the benefits
• Insurance for the social good
• Fair cross subsidisation and equitable
  contributions/benefits
• Effective claims and risk management
• Possibly through a risk equalisation mechanism

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Questions?
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Recent Pending Changes

• Roderick Stevenson

November 2008
22

. reform is a process, not an event.  
Trevor Manuel, Minister of Finance
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Protection

• SOAG
• Increase of means test thresholds of Social
  Grants
• Reduction of retirement age for men 1
• Death Benefits and Beneficiary Funds 2
• Death benefit provisions changed to introduce a
  fund that will replace umbrella trusts
• Other changes to protect beneficiaries of death
  benefits
• New Definition of unclaimed benefit to prepare
  the way for regulation2

1. Social Assistance Amendment Act, 2008 2.
Financial Services Laws General Amendment Act 2008
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Recognition

• Preservation Funds
• New definitions for Pension and Provident
  Preservation Funds introduced into the Income Tax
  Act 3
• Legislative Framework
• Remove restrictive entry criteria which
  discouraged preservation
• Allow unclaimed benefits and divorce awards into
  preservation funds
• Living Annuities 3
• Specific definition introduced to Income Tax
  Legislation to treat as annuities

3. Taxation Laws Amendment Act, 2008
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Fairness

• Divorce
• Clean break principle introduced 4
• New process for accessing divorce awards 5
• New tax dispensation from 1 March 2009 6

4. Pension Funds Amendment Act, 2007 5. Financial
Services Laws General Amendment Act 2008 6.
Revenue Laws Amendment Bill, 2008
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Questions?