proposed retirement & healthcare reform and financial advice proposed retirement &...
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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