I MPLICATION OF PENSION REFORM ON MEMBERS OF RETIREMENT FUNDS AND THEIR DEPENDENTS By: Mr. Jack Malebane

P ENSION R EFORM Address the inequalities of the past and the newer demographic and social change taking place in South Africa. Retirement fund provision is a concern for the whole population and it could place a financial burden on future generations to come. The withdrawal of retirement benefits prior to retirement. Limitation of economic resources The future financial burden on member of retirement funds and their dependents.

P RINCIPLES Equity - Fair and equitable rates of contribution and benefits for all participants Pooling of risks - Collective funding arrangements and non- discriminatory rules and entitlements Mandatory participation - Of employees and self-employed and voluntary participation from informal sector Administrative efficiency – streamlined use of payroll based contributions, modern information system and efficient payment arrangements Solidarity - minimum benefits through social assistance grants financed through the budget

C RITERIA Adequacy - of benefits to the full breadth of population, sufficient to prevent old age poverty and to provide a reliable means to smooth consumption Affordability - within the financing capacity of both individuals and society without displacing other social or economic imperatives and untenable fiscal consequences Sustainability- financial soundness over an appropriate time horizon under a broad set of reasonable assumptions Robustness- including the capacity to withstand major shocks- shifts in economic prospects or demographic trends

A LTERNATIVE A CTIONS The spending of retirement savings prior to retirement needs to be pursued as a matter of urgency. The following are measures which could be implemented: No cash payment of withdrawal benefits will be done after P-day. Preservation of retirement fund moneys on early withdrawal. Payment of divorce benefits should be paid into a preservation fund The full death benefit should not be paid in cash. Payment of cash withdrawal benefits can only be done from Preservation Fund. Preservation Fund Rule Amendment to allow one withdrawal per year. Full vested rights with respect to withdrawal benefit will be protected.

A DMINISTRATION C OSTS A ND G OVERNANCE Utilisation of umbrella funds or collective investment schemes and other similar mechanisms with some modifications. Pension should be purchased from a regulated financial institution such as an insurer or collective investment scheme, so that no deficit or surplus would emerge to the fund as a result of the pensioners. Pensions should continue to be run from a private sector regulated financial institution. FSB is to monitor trustee appointments