“We’ve got to differentiate between two types of reform: there is social security reform and then there is regulatory reform in the retirement system. What we’ve seen is that there’s a degree of progress being made on policy options going forward on the regulatory reform side, where the focus is on improving savings rates as a kid of policy objective,” Alex van den Heever from the University of the Witwatersrand told CNBC Africa.
“A social security reform doesn’t necessarily focus on savings rates, it focuses on protection. In the regulatory reform being proposed by National Treasury, they’re assuming a degree of protection comes from increasing savings rates, but this is not always the case.”
Van der Heever added that in many cases, retirement protection involves a form of insurance, or a risk pooling problem rather than a savings problem. National Treasury however has to find mechanisms to improve protection over time and change South Africa’s low savings rate.
(READ MORE: Retirment reforms to protect pension fund members)
“The question is as to how you’re calculating your national savings. If you’re taking into account credit extension, that’s what impacts on the level of identified savings, because you’re offsetting your credit extension against your savings levels,” Van den Heever explained.
“The insurance side of protection involves for instance, any vehicle. A defined benefit pension fund is actually a form of risk pooling rather than a form of savings, therefore it’s about the structuring of the mechanisms that are created.”
A number of National Treasury’s proposals, according to Van der Heever, have been about examining the difficulty with maintaining accumulated savings over time, as well as issues such as portability, where people move between different savings funds and withdraw their entitlements with every move.
(WATCH VIDEO: S.Africa's proposed retirement reforms)
“[National Treasury] is also looking at the issue of preservation. They looked at, for instance, the possibility of mandatory preservation, forcing people to keep their accumulate funds and their entitlements in whatever fund they’re in,” said Van den Heever.
“They back down on the preservation aspect primarily because they can’t solve the problem of what happened on the lower income side, where people actually have to draw down on their savings, and that demonstrates the relationship between an insurance-type problem and a saving-type problem.”