By Kaya 959 Reporter
Social Development Minister Lindiwe Zulu has proposed that all employees and employers must pay mandatory pension and insurance contributions into a government social security fund.
The proposal, which features in a green paper published by the department, could see workers paying up to 12% of their earnings into the state-run fund.
The green paper on ‘Comprehensive Social Security and Retirement Reform’ was gazetted on Wednesday.
Officials say the proposed fund will help address gaps in South Africa’s social security system.
“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.
“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.” the green paper states.
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National Social Security Fund
The paper notes that several countries already have “mandatory schemes that provide retirement savings for their citizens”.
The department has proposed that South Africa introduces a mandatory public social security fund called the National Social Security Fund (NSSF).
“All employers and employees will be obliged to initially contribute between 8 and 12 percent of qualifying earnings up to a ceiling, based on the Unemployment Insurance fund (UIF) ceiling, which is currently at R276,000 per annum”.
Those who earn over R276,000 per year or R23, 000 per month will not have to contribute on income above that level.
This means they will only have to pay a maximum of 12% on R276, 000, which works out to R33, 120 per year or R2, 760 per month.
“A default rule is proposed, under which employers will be obliged to auto-enroll 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 (the publicly offered competitive option).
“Employees will be allowed to opt‐out of the employer scheme in favour of the default fund should they deem it more suitable. They would also be able to switch back to a private option if they wish.”
The green paper also recommends that government subsidises the contributions of low-income workers.
This, it says, will “minimise disruptions to the demand or supply of labour associated with the introduction of mandatory contributions”.
Employees who earn below an income threshold of R22,320 per month will only be obliged to contribute to UIF.
“A simplified contribution arrangement for self-employed individuals and informal workers will also be established.”
Members of the public have until December 10 to comment on the Green Paper.
Main image credit: GCIS