Author: Cindy Frantzeskos, Director of Employee Benefits at BDO
With the annual treasury budget now done, an interesting thought exercise is to consider: “What would the dream budget have looked like?” In other words, what fundamental policy changes could we make to structurally improve the prospects of all South Africans.
A structural change that might foster a drastic improvement in the lives of South Africans would be to introduce a compulsory retirement fund for all employees.
As the law currently stands, it is entirely optional whether a company will set up a retirement fund for its employees. It is usually the employers of choice that do in fact set up such a fund, but many firms do not.
The upshot is that most employees reach the end of their working lives woefully under-resourced to fund their retirement years. Whatever savings they may have will be quickly used up, and they are then left with the state pension of about R1 650 a month to live off.
This is the bare minimum, and woefully inadequate for most South Africans.
Compulsory retirement planning is law in the United Kingdom, for instance. Here, it might be introduced gradually, with contributions of, say, three percent of salary by the employee, to be matched by the employer. This might be increased over time, or be part of a sliding scale, where higher-paid individuals pay a higher proportion of their salaries to the fund.
Failing such interventions, government social services will ultimately be saddled with people reaching the end of their working lives and being unable to support themselves. We need to take steps now to begin addressing this.
Another component of such a scheme is how it uses working people, one of our country’s most valuable social assets to fund their own retirement.
This raises another core issue – the need to use our people and their skills to enrich broader society.
This kind of approach could be applied in so many ways. Retired people could become teaching assistants, sharing their knowledge with learners. Community members and company employees could be enlisted to maintain and upgrade infrastructure at schools and hospitals in their areas, or to tend food gardens.
Other urgent social needs that can be filled by such a social service programme would be for childcare or looking after the elderly. The idea is to allow our people – our most valuable community assets – to work for the country.
This could happen practically, through leveraging the labour and skills of the community, or financially by facilitating a compulsory retirement funding scheme so working professionals can fund their own retirement.
The functionality of such a fund would need to be worked out, but it could be incentivised by giving companies a tax rebate to the value of the funds they contribute to the retirement fund. The scheme could also encompass risk cover, to fund disability benefits for the contributors. One outcome of compulsory retirement funding would be to build pride in our people by enabling a system where they can fund their own retirement and spend their later years in dignity.
Similarly, each of us has much to contribute to our society – whether through skills, labour or our finances. The state should look to ways to unlock this potential.
The ultimate goal should be for our country to build national morale and a spirit of self-respect, while lightening the load on our overwhelmed social safety net. All of this would go a long way to instilling confidence in our nation – an urgent requirement as we look to build our country and our economy.
The time for procrastination is over. It’s time for people and communities to be part of the solution. Government should consider building programmes that help us roll up our sleeves and get involved.