HISTORY OF RETIREMENT FUNDS, THEIR PURPOSE AND THE FRAMEWORK OF RETIREMENT FUNDING IN SOUTH AFRICA Presented at the Pensions Seminar hosted by the Black Lawyers Association and The Pension Lawyers Association By Francisco Khoza Senior Associate HISTORY OF RETIREMENT FUNDS AND THEIR PURPOSE The industrial revolution served as the impetus for income-protection schemes. Two distinctive approaches initially developed: the Bismarckian approach from continental Western Europe. The Beveridge approach which originated from Britain. BISMARCKIAN SYSTEM Favoured a number of employment based public schemes, devised to achieve income maintenance by providing earnings related benefits, derived from employees and employers. The aim is the achievement of social solidarity. Essentially the social insurance component of social security. BEVERIDGE SYSTEM Emphasis placed on minimum income protection (a safety net) for the entire population (encompassing social assistance). Essentially the social assistance component of social security. THE PURPOSE OF SOCIAL SECURITY M Olivier et al in Social Security: a legal analysis (2003) write that: “Social security, as an income replacement or adjustment system, refers to a variety of policy instruments set up to compensate for the financial consequences of a number of social contingencies” In the South African context it is clear that in two of the most important areas of social security coverage, namely retirement and health, private schemes and insurance arrangements are the order of the day. BROADER OBJECTIVE TO SOCIAL SECURITY The triple aim of the social security is as follows: To guarantee an adequate living standard and minimum income protection. To safeguard the acquired standard of living. To contribute to the re-integration of the individual into the Labour Market. THE CONSTITUTION Section 2 of the Constitution of the Republic of South Africa Act No 108 of 1996 provides that the Constitution is the supreme law of the Republic. One of the primary characteristics of our Constitution is the importance attached to socio-economic rights. In S vs Mahlangu (1995)(3) SA 867 (CC) it is stated that : “ The constitution introduces democracy and equality for the first time in South Africa. It acknowledges a past of intense suffering and the injustice, and promises a future of reconciliation and reconstruction.” In essence social security addresses past injustice, particularly the country’s legacy of poverty and inequality. SECTION 27 Section 27 (1)c provides that “Everyone has the right to have access to social security, including, if they are unable to support themselves and their dependants appropriate social assistance.” Section 27 entails the following: Obliges the state to develop a comprehensive social security system. Affirms the universal right of access to social security, including appropriate assistance for those unable to support themselves and their dependants. Orders the state to take reasonable legislative and measures within the available resources to achieve the progressive realisation of those rights. RETIREMENT PROVISION IN SOUTH AFRICA Our retirement funding framework is constitutional and rights based. Realising it is not a task which falls on the shoulders of the state alone. The role of the occupational based and private retirement industry has to be recognised as part of the social security system of South Africa, due to the social security role fulfilled by these systems. Outside of the social assistance framework, retirement provision is effectively all private. The state supervises the system through regulation. Retirement funds are based on formal employment. RETIREMENT PROVISION IN SOUTH AFRICA - follow The first pillar of South African Retirement Provision is the social age pension regulated by the Social Assistance act no 59 of 1992. The eligibility conditions include the following: residence in South Africa South African citizenship Proof of inability to support and maintain oneself. Not being in receipt of a another social grant in respect of him or herself. Not be maintained or cared for in a state institution. 65 years if male and 60 years if female. RETIREMENT PROVISION IN SOUTH AFRICA - follow The second pillar of retirement funding constitutes of private retirement funds. Private retirement funds are private vehicle for ensuring financial support in old age by workers. The common feature of retirement funds is that they are all contributory, with contributions forthcoming from employees and the employers. Most retirement funds are regulated by the Pension Funds Act 24 of 1956. Others by laws partly dealing with funds under the auspeus of the Minister of Finance and partly funds under the control of the Minister of Social Development.(eg Transnet Pension Funds) Separate retirement funds have also been established for specific environments.