Sunday Times: Op-ed by Isobel Frye on the Green paper
We cannot let the pension fund industry stifle a proper social security scheme
‘The controversy is inevitable; ‘vested interests’, private and bureaucratic, are challenged in a hundred ways. Writes Isobel Frye for the Sunday Times on the Green paper
But … before any of us starts to condemn or to campaign, let him be sure he has studied the report as a whole and in its full text. Let him be sure that he has tried to weigh his sectional interest or prejudice against the plan’s large purpose … “The Beveridge plan is a big and fine thing. It is the charting of a great piece of national reconstruction … it will greatly strengthen our democracy by raising the happiness and wellbeing of ‘the common man’.
The report is now open for discussion and action. It will rouse keen hopes and expectations … The government and parliament have an opportunity they will neglect at their peril and ours.” The words above were carried by The Guardian newspaper in December 1942, when economist Lord Beveridge drafted a report that considered the social faults in the UK and recommended ways to fix the gaps through social security policies.
The faults identified were huge historic inequalities, poverty, high unemployment, poor housing and living conditions and inadequate education and health care for the poor. The similarities with SA’s current social and economic challenges are overwhelming. The speed and venom of the industry’s response are a clear indication of its desire to prevent any reforms in this sector even at the cost of the national interest.
SA needs a comprehensive overhaul of its social security system. The paper needs to be reintroduced and the retirement fund industry and the Treasury need to apologise to the minister for the suggestions that this was an underhand move. The messaging from these naysayers appeared to have three main points: that the reforms are unnecessary, that the green paper was sprung out of nowhere on an unsuspecting industry, and that this is not a conversation for the general public.
None of these positions is correct. SA needs a comprehensive social security system to right the injustices of how we divide social burden and profits. The country is a ticking time bomb for further societal explosion. Recent reports have revealed that 13-million South Africans, 3-million of them children, live in hunger. This is an abnormal society and we should be welcoming policy recommendations that seek to provide lifelines for its stabilisation.
Social security is at the heart of social democracies. Social security policies provide options to balance competing interests and determine how the costs and surpluses in any society are allocated. Historically this role was fulfilled by the state. Since the 1980s, the private sector has increasingly demanded that it be allowed to determine who gets what. Recent global studies on inequality, including by the likes of Thomas Piketty, track a direct link between the rise in debilitating inequalities and the shrinking of the role of the state under pressure from the profiteering private sector.
The current fight seems to be a classic example of this at play. This policy discussion did not spring out of nowhere, but has its providence in the 2002 Taylor report tasked to look at social security proposals in the Reconstruction and Development Programme (RDP) and from the 1998 presidential jobs summit. The green paper contains principles that are located in the RDP, and policies that have been debated in an inclusive process in the National Economic Development & Labour Council since 2016 with representatives from the retirement fund industry, as well as the Treasury, organised labour and the community constituency.
In 2002 the Taylor committee submitted its report, the culmination of more than two years’ work by a committee of experts, to the then minister of social development. The aim was to provide a crucial blueprint to move SA from poverty, inequality and unemployment to the trajectory of a socially cohesive, prosperous and democratic nation. This blueprint was built on a guarantee of basic income for all through a universal basic income grant.
To ensure that people were supported “from the cradle to the grave”, a national social security fund (NSSF) was introduced in the 2012 discussion pap er. This fund would provide income cover for people when they could not actively earn an income on a daily basis, whether this was due to unemployment, injury, maternity leave or retirement. The fund would also provide survivor benefits, and would use its size to provide a funeral policy for all members.
It would be funded by contributions from working people and the state. Membership of the NSSF would follow automatically on birth registration. From cradle to grave. The aim was to introduce the principles of inclusivity, mandatory membership, risk - pooling and the use of scale to drive down costs, and to locate all social security aspects in one department. An advisory body with the highest standard of skills and governance would be created. But the beating heart of the reform, the NSS F, has never been tackled, due, it seems, to the vested interests of stakeholders, most notably the retirement fund industry.
This is historically a highly under-regulated sector, and concern has been raised for years about the internationally high fees and charges built into schemes. In 2013, the Treasury released a technical discussion paper, “Charges in South African retirement funds”, which identified this among other concerns. The proposed NSSF would have three main tiers: a universal floor to ensure everybody can meet their basic needs through a funded basic income grant; a mandatory contributory fund for those able to contribute to their basic retirement funds; and a third level of discretionary top-up savings, very similar to the current private pension funds, which would enable the wealthy to save more for their retirement than the ordinary person.
Could the perceived threat to pension scheme profits be the cause for the outcry over the release of the social development green paper? The transformative vision of the NSSF means everybody has a vested interest in the outcome of this debate, and a green paper process is the correct place for such an inclusive national debate to begin. In 1942, British political leaders stood on the right side of history. In SA here and now, we all need to rise as concerned citizens and demand the reintroduction of the green paper to allow for the proper consultation process to take its course in a transparent manner. It is the right thing to do.
✼ Frye is director of the Studies in Poverty & Inequality Institute, a social policy think-tank