In a green paper this week, the Department of Social Development said that the proposed NSSF would fill a significant gap in South Africa’s social security arrangements and complement social assistance programmes, social insurance funds and private arrangements.

The green paper proposes that employers and employees pay up between 8% and 12% of their earnings as part of reforms triggered by the absence of a mandatory system for pension provision for retirement, death and disability benefits in SA. It says millions of workers are being excluded from “lifestyle-preserving” pension coverage, especially if they were poor and unable to afford private pensions.

The NSSF would also provide pensions to formal, informal, and self-employed workers who reach retirement, disability benefits to those who are physically unable to work, and survivor benefits to their dependents should they not live until retirement, the paper states.

The proposed fund is based on “social security principles of risk pooling and social solidarity”, said Zulu.

“The most notable gap in our social security system is the absence of a mandatory contributory public social security fund that provides retirement, disability and survivor benefits to the workforce,” she said.

“Although private occupational and voluntary schemes partially fill this gap, some 6.2-million formal sector workers — primarily low-income earners, informal workers and informal sector workers — are excluded from such arrangements.”

With the proposed fund, she said the government should subsidise the contributions of low-income workers.

It is proposed that employees earning below an income threshold of R22,320 per year should not be obliged to contribute to the NSSF for retirement or risk benefits but will continue to contribute to the UIF.

The “NSSF tier 2″ will run on a defined-benefit basis. A worker’s pension in retirement will be based on career earnings and the duration of contributions. The disability and survivor benefits will be based on salary at the time of injury or death. The NSSF will also pay a flat-rate funeral benefit.

“However, those earning above the tax threshold will need to contribute to supplementary retirement savings and insurance arrangements to ensure an adequate replacement income.

“To achieve this, it is proposed that the NSSF tier 2 be augmented by introducing an auto-enrolment based third tier.”

Members of private retirement funds rarely receive a sufficient income in retirement, in part because they do not preserve their savings throughout their career and high administrative costs and fees that erode individual’s savings, the green paper states.

“A default rule is proposed, under which employers will be obliged to auto‐enrol employees for incomes above the tier 2 contribution ceiling (currently R276,000 per annum) into either the employer’s occupational scheme or the NSSF default fund.

“For employers and income earners who do not have access to an occupational scheme, the NSSF‐run default fund will participate in tier 3 alongside occupational schemes.”

Trade union federation Cosatu, which has been calling for a comprehensive social security net, said while it had not properly studied the proposals, but it welcomed that something is work being done.

Cosatu spokesperson Sizwe Pamla opined that the federation and its unions would sit and decide which proposals that is acceptable from the draft policy.

“That is something that we have been fighting for a long time. Now that there is some movement, we welcome that. But there has always been a problem when you deal with a policy paper. You expect that you are going to run into some very good ideas that are workable and acceptable to workers and that is what we hope for in this paper,” Pamla said.

Studies in Poverty and Inequality Institute (SPII) director Isobel Frye said the establishment of a mandatory social security fund was a positive step as it would be for a defined benefit rather than a defined contribution.

“Everybody will be guaranteed a decent retirement provision. The radical step is that it will do away with the thousands of private pension funds that currently exist and contributors will benefit from the scale, which means we will get much more for the money we save as there will be less administration costs,” Frye said.

Frye, who was part of the community constituency at the National Economic Development and Labour Council (Nedlac) when the National Social Security Fund (NSSF) was proposed, said it had been established that most South Africans were not good at saving for the future, hence the contributions to the fund had been made mandatory.

“There is consensus that this gap must be addressed by introducing mandatory retirement, death and disability insurance for all workers. These mandatory benefits should be provided through a publicly offered National Social Security Fund (NSSF) operated on the principles of risk pooling and social solidarity,” the paper says.

While contributions made to pensions would be safe in their private funds, the paper proposes that future contributions be made to the NSSF.

The government is yet to give details on which funding model would be adopted for the basic income grant (BIG), but the paper points out that the proposed comprehensive social security reforms were also aimed at rolling it out.

Institute for Economic Justice’s Neil Coleman said the government’s final model for a basic income grant  would have to ensure that wealthier South Africans make a contribution to help address unacceptable levels of poverty in the country.

“We think most South Africans will not mind making that contribution, if they are confident that it will go directly to the intended beneficiaries. The Covid-19 grant, despite some problems, has shown that grants can reach the hands of beneficiaries directly, and with minimal corruption, and all who need it will benefit from it,” Coleman said.

Social development department spokesperson Lumka Oliphant brushed aside concerns that the green paper was light on details on how contributions to the NSSF would be managed by the government.

“That is why it is in the public domain for purposes of comment. We want [the public] to highlight the places we have not covered. We are encouraging people to use this process to comment on the green paper. This process is supposed to ensure that we get everybody’s sense in the green paper for consideration,” Oliphant said.

Meanwhile, the opposition Democratic Alliance has warned that the government’s proposal to introduce a new National Social Security Fund (NSSF) will effectively lead to a steep monthly tax on working South Africans.

The contributions would be between 8% and 12% of earnings, up to the current Unemployment Insurance Fund (UIF) ceiling of R276,000 annually. The DA said that this would amount to around R2,750 a month for those earning R275,000 a year or more.

The proposal should be withdrawn and binned, it said.

“The proposal shows a lack of basic understanding of how the tax system works and is bizarrely regressive in that it is aimed at low earners rather than high earners. The proposal is essentially to tax low-income workers and the struggling middle class much more.

“South Africans are already facing extraordinary financial pressure in a shrinking economy, as millions have lost jobs or had their businesses shut or looted. The tax base is shrinking.”