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

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Presentation on theme: "Proposed Retirement & Healthcare Reform and Financial Advice Proposed Retirement & Healthcare Reform and Financial Advice Duduza Khosana 23 October 2008."— Presentation transcript:

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

2 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

3 Principles of Social Security Reform Equity Pooling of risks Mandatory participation Administrative efficiency Solidarity/Wider support

4 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

5 State Old Age Pension (SOAP) - PAYG - Means test Social Security Grants Childrens 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

6 Basic Proposal TIER 1 National Social Security Fund National Social Security Fund Basic Retirement Benefit - State Admin - Funded - Mandatory Death Unemployment Disability 15-18% of salaries 3-6% risk, 10-12% retirement Wage/Conts Subsidy TIER 2 Private Mandatory (ARIs) Private Mandatory (ARIs) Additional Retirement Benefits - Private Admin (ARIs) - Ind. Accounts - Mandatory Preservation 10-12% of salaries TIER 3 Voluntary Additional Retirement Death Disability % of salaries R 0 paR paR pa TIER 0 Social Security Grants Social Security Grants State Old Age Pension (SOAP) - PAYG (DB) - Universal Childrens Grant Disability Grant Taxes * Source Jaques Malan Consultants & Actuaries

7 Suggested Wage Subsidies for Employers Rebate or credit in PAYE system Related to gross wage paid to employees earning below R pa < R / 3 x wage amount = R15 000R5 000 pa (maximum subsidy) > R & R43 000R7 500 pa less ( 1 / 6 x wage amount) > R43 000No subsidy

8 subsidy Example 1 R pa SOAP NSSF 10-12% of R pa % of R pa Example 3 R pa NSSF ARI 12% of R pa Voluntary 10-12% of R pa 10-12% of R pa Example 2 R pa SOAP NSSFARI 10-12% of R pa * Source Jaques Malan Consultants & Actuaries Examples

9 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

10 SAs 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:- –Societys 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:- –Societys housing needs –Education –Poverty rates

11 The Future of Health Solutions in South Africa

12 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 Governments Healthcare Vision

13 Attaining Governments 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

14 Social Health Insurance and REF

15 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)

16 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

17 Attaining Governments Vision

18 Standardised Benefit Structures

19 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

20 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

21 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 Advisors 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 Advisors co-ordinates implementation of the process Continued monitoring of the financial plan Advisor monitors progress towards agreed goals Provision of periodic reports on progress

22 Thank you


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