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Retirement Fund Reform

In this commentary, Rob Rusconi addresses three critical issues: insufficient analysis, member security concerns, and the lack of fiscal support for the National Savings Fund. He highlights the need for a comprehensive financial and demographic modeling, accurate data on retirement fund costs, and an evaluation of policy development. The commentary emphasizes the importance of understanding the old-age landscape, sensitivities, and coordinated policy responses in reforming the retirement fund system.

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Retirement Fund Reform

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

  2. 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

  3. A picture of old age prosperity

  4. 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

  5. #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?

  6. #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

  7. #3 NSF in the cold • Designed for the untaxed • Elegantly disincentives the middle-class and wealthy • But doesn’t 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?

  8. Summary of response • Strong, thorough & practical document • But we need to: • describe the old-age landscape • understand the sensitivities • ensure coordinated policy response

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