Retirement%20Fund%20Reform

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Finance Portfolio Committee
Comments on National Treasury discussion paper
Retirement Fund Reform
Rob Rusconi
16 February 2005
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Credentials

• Private sector employment
• SEI Investments, global asset manager
• Speaking in my personal capacity
• Author of analysis into industry costs
• Presented at 2004 Actuarial Convention
• Costs of Saving for Retirement
• Options for South Africa

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A picture of old age prosperity
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Three issues
Issue 1 Insufficient analysis Issue 2 Security
of retirement fund members overstated Issue
3 Lack of fiscal support for the National
Savings Fund
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1 Insufficient analysis

• Old Age System not Retirement Fund
• Insufficient financial and demographic modelling
• What is the financial state of the aged?
• How is this picture expected to change in
  future?
• How to evaluate the alternatives (coverage
  cost)?
• Insufficient evidence of coordinated policy
  development
• Social Security benefit increases appear to be
  ad hoc
• Is the pattern of retirement fund fiscal cost
  modeled?
• The missing middle appears to be cost free
  should it be?

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2 Member security

• Retirement fund costs understated
• Research shows that costs are significant
• Particularly for smaller funds
• Career interruptions have not been modeled
• Key shortcoming of my research
• Not dealt with in the Treasury paper
• We do not know how much S Africa is saving for
  retirement
• Very disappointing lack of information even from
  funds
• Let alone the so-called leakage
• False sense of security is the big concern

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3 NSF in the cold

• Designed for the untaxed
• Elegantly disincentives the middle-class and
  wealthy
• But doesnt really encourage participation
• Design options
• Government-funded bonus at retirement
• Very simple design to keep costs low
• Compulsory contributions from employers
• Is access alone sufficient to stave off
  dependence on the State in old age?

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Summary of response

• Strong, thorough practical document
• But we need to
• describe the old-age landscape
• understand the sensitivities
• ensure coordinated policy response