Global trends

In the past few years, there appears to be an international wave of social security and retirement fund reforms sweeping across most nations. Ageing population, socio-economic and developmental needs, and national fiscal deficits consequent to the global economic crisis, are some of the reasons for these reforms.

Current social security and retirement fund reforms across nations range from a subtle approach in most countries to more aggressive ones that includes nationalisation of pension funds such as seen in some Latin American countries149.

Most developed countries faced with ageing population and huge fiscal deficits are forced to cut back on traditional social security provision, and have had to implement various reform measures such as:

Increasing retirement ages Increasing contribution rates Reducing benefits

Move towards private, defined contribution provision150.

Even though it is beyond the scope of this research work to delve into social security and retirement fund reforms in detail, it will be beneficial in this chapter to give a snap shot of some international trends:

Asia –

The Chinese government recently approved a social insurance law which consolidates all hitherto fragmented legislations. The new legislation introduced a numerous provisions including old-age pension; basic medical; unemployment; maternity; and work injury insurance. The law introduced a one pillar system which also allows foreign nationals to participate.

In Malaysia, a new private pension plan was introduced to offer more options for retirement savings. The private pension plan will enjoy the same tax relief for contributions into the existing National Employees Provident Fund. This is to provide additional retirement savings for the dwindling benefits from the public fund.

Americas -

149

As in the case in Argentina

150

In the United States, further regulations were put in place to broaden the circumstances under which a person is considered to be a „fiduciary‟. This is in line with overall changes in the financial industry.

Argentina in 2008 nationalised all private pension funds in a reaction to the financial and economic crisis of 2007/2008, which saw a great depletion in pension fund assets globally that rendered majority of the country‟s pension funds unable to provide adequate retirement income for a large number of fund members and dependants.

Europe -

The UK recently published a report confirming the government‟s plan to increase the state pension age to age 66. It also aims to simplify the pensions system by eliminating the means-tested and earnings-related top-ups. Eligibility will henceforth be based on residency rather than years of contributions. It also introduced the implementation of the auto-enrolment into the work place pension fund.

The Russian government increased total social contribution rate from 26% to 34%. And in Slovenia, the parliament intends to increase the retirement age from age 63 to 65 with 15 years of contributions. Eligibility for early retirements would be age 60 with 40 years of contributions.

In France, the recently (2011) passed Pension Reform Law has sparked off series of public protests. The French government announced in June 2010 that it intends to review the existing pension fund system in a bid to urgently address the financial costs of the rising number of older people relative to the younger ones in France.

This phenomenon puts pressure on the pension system which is based on a PAYG system, and with fewer people available for work, the government is faced with a growing pension liability, which could see the country‟s public deficit increase by at least 5% of GDP over the next 30 years, and public debts could also double if nothing is done.

As tax burdens in France are already one of the highest in the European Community, and besides, raising taxes could have a negative impact on jobs

and growth, government is forced to take the option of keeping people longer in employment.

The Law provides for increase in minimum retirement from age 60 to age 62, and increase in the retirement for full pension from age 65 to age 67, regardless of number of years of contributions. It is claimed that this measure would save the government about $96billion in pension liabilities.

Africa -

Nigeria seems to have pre-empted the global economic crisis when the federal government passed the new Pension Fund Act in 2004, a product of a reform process that begun in 2003.

Prior to the reform, most pension schemes in the private and public sector were under funded or in most cases unfunded. The industry was plagued with an unsustainable outstanding pension liabilities and inefficient and corrupt pension fund administration system, particularly in the public sector, a situation that further aggravated the old age poverty rate in the country. There was also the issue of low coverage for workers in the formal sector, whilst that a large percentage of informal sector workers were left with no retirement plan or any social welfare plan.

The 2004 Pension Fund Act introduced a contributory system featuring Individual Retirement Accounts in line with the Chilean pension fund system. This system replaced the controversial pay-as-you-go public fund system. It is a defined contribution plan, membership is compulsory and all employers with more than five employees are obliged to set up retirement plans.

100 percent of pension fund assets can be invested in government securities, while a maximum of 20% can only be invested in listed equities. And more recently, government has indicated that pension funds will be required to invest a minimum of 20% in infrastructure development projects (Hewitt 2010, 2-4, OECD Observer 2010 and Barrow 2008, 18).

The impact of the above mentioned social security and retirement fund reform in these countries are far reaching, especially on the ability of the average worker to achieve adequate life - style sustainability in retirement151.

Reduction in social and pension benefits threatens the very essence of the successes of many of these countries socio-economic development plans, and consequently there are widespread mass protests in some of these countries as the reforms are being rolled out.

Thus, social security is no longer taken for granted as it were, and now more than ever, the World Bank‟s „prescription‟ for basic social security and retirement benefit arrangements has become quite relevant not only for developing nations but for the entire globe, and has renewed calls for countries to implement safety nets for its citizens in the face of a severe global poverty.

The next sub section therefore looks at the structure of the World Bank‟s global „prescription‟ for social security arrangements, and how South Africa‟s current system compares with these models.