Gap fund to fill SA's retirement void

Johannesburg – South Africa's private retirement fund industry is taking up the cudgels to fill the massive void in retirement  coverage, where up to two million employed people have no provision for retirement.

Backed by the Association for Savings and Investment South Africa (ASISA), the proposed Gap fund will attempt to provide a single price and policy transparency, with the main features being a central multi-managed investment fund, scale benefits, investments in inflation-linked bonds, professional investment managers, cost of 1% or less of assets, catering for ad hoc contributions via a debit order, a contributions booster on early death, and quarterly reporting via SMS.

Members will need a bank account and must prove IDs.

One of the researchers of the proposed fund, Johan Schreuder from Investec, says: "This can work. It will take 6-12 months to implement." He recommends government and any other stakeholders become partners.

The proposal will offer a pension that wasn't there before as well as the normal old age pension grant of R1 000.

But Schreuder recommends government incentives in a 1+1+1 plan – where 1% comes in form the employers, 1% employee and 1% from government, similar to the 1+1 of the existing Unemployment Insurance Fund.

He says what will be critical is to make it compulsory and to gett auto-enrolment by employers, who are incentivised to do this.

But he says the propensity of South African to withdraw early must be limited – and only around 15% per year should be allowed for withdrawals, ensuring 85% is preserved.

Andrew Donaldson, head of public finance at the National Treasury, said at the ASISA event that the proposal "needs to be taken seriously".

He says in light of the proposed national social security system it is debatable whether a Gap fund would be needed, but then again he says maybe that is a solution for hard to reach parts of the labour market.

"It could work alongside a standaridised tier 2 social security system," he said.

Leon Campher, the CEO of ASISA says: "With the Gap Fund our industry is putting forward a transparent, cost efficient and accessible concept aimed at helping to address the current retirement and social security provision gap experienced by low
income earners not part of the pension system. The proposed fund is best compared to the Fundisa Fund, which is a joint ASISA /Department of Education initiative aimed at encouraging South Africans to save for their children's higher education."

Campher said that as with Fundisa, the Gap Fund would only work if accepted by all stakeholders and run in partnership with Government.

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