Are you prepared to contribute another 12% of your salary?

Are you prepared to contribute another 12% of your salary to a fund backed by government that will provide for your retirement, disability benefits and unemployment benefits?

Although we will all balk at the idea, it has now become a discussion in a Green Paper published by the department of social development.

The Green Paper on Comprehensive Social Security and Retirement Reform proposes a new National Social Security Fund (NSSF) that will initially make it mandatory for all employers and employees to contribute up to 12% of their earnings depending on how much they earn.

If you earn more than R276,000 a year, you will pay the maximum of 12% of R276,000 per year that will amount to about R33,000 or R2,760 per month to the fund, with the first 10% going to the mandatory fund instead of a private sector retirement fund. The other 2% will go to unemployment insurance.

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Pension

While employees who earn more will be expected to contribute to private sector pension funds as well, the Green Paper proposes that government subsidises contributions for low-income workers who earn less than R22,320 per year to an annuity product backed by government. Self-employed people and informal workers will also have to contribute.

NSSF pensions will depend on career earnings and the contribution period. Apart from making provision for pensions, the fund will also provide disability and survivor benefits, a flat-rate funeral benefit and income protection benefits.

If you earn more and expect a bigger pension, you will have to contribute to supplementary retirement savings and insurance. The paper also proposes that workers are enrolled automatically to persuade them to contribute to supplementary retirement and insurance arrangements.

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Other proposals

The Green Paper also proposes a universal income grant for the working age population to lift them out of poverty, regulatory reform of the pensions and life insurance industry, an extension of UIF benefits and a road accident benefit scheme.

The means test will also be phased out for social grants so that all dependent children, disabled people and the elderly will be eligible for a grant, irrespective of their income or assets. Tax rebates will replace social assistance entitlements for families who earn more than the tax threshold.

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Worried consumers

Consumers are already worried about what happens to their taxes and this new plan will be viewed with a lot of scepticism. However, this plan will not be implemented yet. In fact, it is far from being implemented.

A Green Paper is a government policy discussion paper that details specific issues and then points out possible courses of action in terms of policy and legislation. It is followed by a White Paper, which details a government policy position that has been approved by Cabinet, says Dr Stephen Smith, a senior policy advisor and member of the Social Security Standing Committee of the Association for Savings and Investment South Africa (ASISA).

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Working with government

ASISA has been engaging with government and social partners at the National Economic Development and Labour Council (Nedlac), as part of a business sector task team, for the past four years on a 2012 Discussion Document on Comprehensive Social Security and Retirement Reform.

Smith says that the core proposals set out in the Green Paper are not new and have been the subject of discussion and debate for almost twenty years. It contains significant proposals to streamline and restructure the social security system.

“These are complex and wide-reaching reforms which will not result in immediate change. It is essential that members of the public have an opportunity to comment and ASISA therefore supports the consultative process being followed by the minister.”

He says the Green Paper identifies three areas within the public social protection system that are lacking, namely a basic contributory state pension, statutory health insurance and adequate income security for people between the ages of 18 and 59.

“It is important that future social security reform programmes build on, rather than disrupt, the existing contractual savings and life insurance arrangements of both public and private sector employees. It is these savings pools that finance much of the country’s investment requirements and fund South Africa’s capital market.”

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Solidarity will fight it

Trade union Solidarity has taken a completely different tack, saying it will “fight the Green Paper” in court if the minister makes it formal legislation.

According to Solidarity, South African employees are already overtaxed and tired of paying more taxes for fewer and fewer services.

“Workers in South Africa are tired of seeing their hard-earned money being wasted by the state. At best, the state is just inefficient and clumsy, but more often funds like this and the NHI is simply an excuse for looting and corruption,” Dr Dirk Hermann, CEO of Solidarity, says.

“Apart from the new tax proposals, the tax rate is already high, and ordinary people have to incur expenses for which they are already taxed. On top of that, tax money is still looted at a large scale.”

Solidarity’s executive council will meet next Friday to discuss proposals for comprehensive plans for legal tax protest.

“It is time for taxpayers to realise their power and to stand up against a government that does less and less, but who wants to take more and more. We refuse to see how workers become slaves of the state. We are not working for government; the government works for us.”