Proposed Retirement & Healthcare Reform and Financial Advice Proposed Retirement & Healthcare Reform and Financial Advice Duduza Khosana 23 October 2008.

Proposed Retirement & Healthcare Reform

and Financial Advice

Proposed Retirement & Healthcare Reform

and Financial Advice

Duduza Khosana

23 October 2008

NSSF - Factors Behind Reform

• Poor coverage of current system

• Problems within the private sector: High costs – erosion of value Lack of transparency Governance and compliance issues High profile problems: bulking, fraud Lack of preservation

• Identified a need for: Inflation-linked benefits Replacement ratios of at least 40% Redistribution Diversification Economies of scale

Principles of Social Security Reform

• Equity

• Pooling of risks

• Mandatory participation

• Administrative efficiency

• Solidarity/Wider support

Government Proposals

A Social Security System represented by 4 tiers:

Tier 0: Non-contributory social assistance for poverty alleviation

Tier 1: Mandatory contributory - state tier

Tier 2: Mandatory contributory - private tier

Tier 3: Voluntary contributory - private tier

State Old Age Pension (SOAP)

- PAYG- Means test

Social SecurityGrants

Children’s Grant

Disability Grant

TIER 0

Taxes

TIER 3

Voluntary Provisions

Retirement:

Occupational Funds, Industry Funds, Individual Retirement Funds

Death Benefits

Disability Benefits

% of Salaries

Current System

* Source Jaques Malan Consultants & Actuaries

Basic ProposalTIER 1

National SocialSecurity Fund

National SocialSecurity Fund

Basic RetirementBenefit- State Admin- Funded- Mandatory

Death

Unemployment

Disability

15-18%of salaries

3-6% risk, 10-12% retirement

Wage/ContsSubsidy

TIER 2

PrivateMandatory

(ARIs)

PrivateMandatory

(ARIs)

Additional RetirementBenefits

- Private Admin (ARIs)- Ind. Accounts- Mandatory Preservation

10-12%of salaries

TIER 3

VoluntaryVoluntary

AdditionalRetirement

Death

Disability

%of salaries

R 0 pa R 80 000 pa R 700 000 pa

TIER 0

Social SecurityGrants

Social SecurityGrants

State Old Age Pension (SOAP)

- PAYG (DB)- Universal

Children’s Grant

Disability Grant

Taxes

* Source Jaques Malan Consultants & Actuaries

Suggested Wage Subsidies for Employers

• Rebate or credit in PAYE system

• Related to gross wage paid to employees earning below R43 000 pa

< R15 000 /3 x wage amount

= R15 000 R5 000 pa (maximum subsidy)

> R15 000 & R43 000 R7 500 pa less (1/6 x wage amount)

> R43 000 No subsidy

subsidy

Example 1R20 000 pa SOAP NSSF

10-12% of R20 000 pa

% of R100 000

paExample 3R800 000 pa

NSSF ARI

12% of R625 000 pa

Voluntary

10-12% of R80 000 pa

10-12% of R80 000 paExample 2R140 000 pa

SOAP NSSF ARI

10-12% of R60 000 pa

* Source Jaques Malan Consultants & Actuaries

Examples

Post Implementation

• Impact on employers:

Employers are going to have to contribute to funds regardless of their size

SMMEs are going to be impacted but should start moving in the right direction

• Impact on employees:

Employees are going to have less to spend on a monthly basis

Consumerism will apply

• Impact on employers:

Employers are going to have to contribute to funds regardless of their size

SMMEs are going to be impacted but should start moving in the right direction

• Impact on employees:

Employees are going to have less to spend on a monthly basis

Consumerism will apply

SA’s Socio-Economy

• SMME sector representation in the process

• Short employment tenure in sector vs compulsory preservation conditions

• Alignment of UIF and Preservation Policies

• Effect on predetermined factors:-

– Society’s housing needs

– Education

– Poverty rates

• SMME sector representation in the process

• Short employment tenure in sector vs compulsory preservation conditions

• Alignment of UIF and Preservation Policies

• Effect on predetermined factors:-

– Society’s housing needs

– Education

– Poverty rates

The Future of Health Solutions in South Africa

The Future of Health Solutions in South Africa

• Definition of Social Health Insurance (SHI)

Compulsory contributions for all employed in formal sector

Based on ability to pay and not need for insurance

All that contribute are eligible for medical scheme coverage

• Three pillars for SHI implementation

Pillar I: Equal contributions for the sick and healthy (risk cross-subsidies)

Pillar II: Contribution as percentage of income vs equal Rand amounts (income cross-subsidies)

Pillar III: Compulsory membership for the formally employed

• Definition of Social Health Insurance (SHI)

Compulsory contributions for all employed in formal sector

Based on ability to pay and not need for insurance

All that contribute are eligible for medical scheme coverage

• Three pillars for SHI implementation

Pillar I: Equal contributions for the sick and healthy (risk cross-subsidies)

Pillar II: Contribution as percentage of income vs equal Rand amounts (income cross-subsidies)

Pillar III: Compulsory membership for the formally employed

Government’s Healthcare Vision

Attaining Government’s Vision

• Risk Equalisation Fund (REF)

Purpose: To equalise differences in claims costs of schemes due to differences in age and sickness profiles

Not intended to equalise due to inefficiencies and differences in non-PMB benefits

Schemes with older, sicker profiles will receive payments from REF

Schemes with younger, healthier profiles will contribute to REF

• Risk Equalisation Fund (REF)

Purpose: To equalise differences in claims costs of schemes due to differences in age and sickness profiles

Not intended to equalise due to inefficiencies and differences in non-PMB benefits

Schemes with older, sicker profiles will receive payments from REF

Schemes with younger, healthier profiles will contribute to REF

Social Health Insurance and REF

Basic Benefits- Amendment Bill

Key objectives of Amendment Bill:

Provide for risk equalisation among schemes (Pillar I SHI)

Reduce complexity of scheme benefit designs and enhance cross-subsidisation

Enhance benefit and contribution comparability between schemes

Allow for establishment of Low Income Medical Schemes (LIMS)

Basic Benefits- Amendment Bill• Basic benefits

One standard set of compulsory benefits (including PMBs)

Contributions not set according to age or sickness profile per option

Basic benefits and contributions thus the same for all members on a scheme

Contributions may reflect more efficient and affordable provider arrangements

• Supplementary benefits Limited number allowed per scheme (three or four)

Differentiated contributions

Attaining Government’s Vision

Standardised Benefit Structures

6 Steps to Professional Financial Planning

• Establish and Define a professional relationship Introductory process: FAIS Compliance

Professional qualifications and accreditation disclosure

Definition of duration of professional relationship

Agreement on method of decision making

• Gather information and set objectives Definition of personal and financial goals

Gather of all necessary information and documents

• Establish and Define a professional relationship Introductory process: FAIS Compliance

Professional qualifications and accreditation disclosure

Definition of duration of professional relationship

Agreement on method of decision making

• Gather information and set objectives Definition of personal and financial goals

Gather of all necessary information and documents

6 Steps to Professional Financial Planning

• Conduct Financial Needs Analysis (FNA) Analyses of current financial situation

Determination of required action to meet goals

This includes analysing:

― Assets

― Liabilities

― Cash flow

― Current insurance cover

― Investments and/or tax strategies

• Conduct Financial Needs Analysis (FNA) Analyses of current financial situation

Determination of required action to meet goals

This includes analysing:

― Assets

― Liabilities

― Cash flow

― Current insurance cover

― Investments and/or tax strategies

6 Steps to Professional Financial Planning

• Report preparation Offer recommendations that address goals Recommendations based on information provided

• Implementation of financial plan Agreement on how the recommendation will be carried out Advisor’s co-ordinates implementation of the process

• Continued monitoring of the financial plan Advisor monitors progress towards agreed goals Provision of periodic reports on progress

• Report preparation Offer recommendations that address goals Recommendations based on information provided

• Implementation of financial plan Agreement on how the recommendation will be carried out Advisor’s co-ordinates implementation of the process

• Continued monitoring of the financial plan Advisor monitors progress towards agreed goals Provision of periodic reports on progress

Thank you