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

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

A picture of old age prosperity

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

#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?

#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

#3 NSF in the cold Designed for the untaxed Design options 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?

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