The Department of Social Development recently published a green paper on proposed social security and retirement reforms for public comment.
While much of the focus of the green paper has been on the introduction of a basic income grant and the formation of a National Security Fund (NSSF), the department has also proposed several new benefits for workers in South Africa, says professional services firm PwC.
“At this stage, the document has been released for discussion purposes only, and they have suggested a transition period of between five to ten years to align existing retirement funds with the NSSF,” the firm said.
“No immediate action is required other than to be aware of what the Department of Social Development’s thinking is on this matter. We suggest that you take note and stay abreast of any further developments in this regard.”
PwC outlined some of the key changes planned for workers that have not gained as much attention as the income grant and social security fund.
1. Disability and survivor benefit
If the worker becomes permanently disabled, the worker will receive an income based on the salary at the time of the event or the last year of employment.
If the worker dies before retirement, income support will be provided to each dependent based on the worker’s salary and the number of dependents.
Each child will be paid out until they are 25 years old.
The surviving spouse will be paid a benefit related to the salary of the worker.
The benefits will be paid out as a monthly income stream and will not be based on the number of years for which a worker has contributed to the NSSF.
2. Defined benefit pension fund for retirement
The worker will receive a pension based on a formula that considers the lifetime wages, length of service and accrual date to determine the proportion of average earnings (limited to the contribution ceiling) which the worker would receive for every year worked.
3. Unemployment insurance
This will continue to be credit-based, but credits will accrue at a faster rate.
The UIF has also extended the benefit for unemployed workers who remain unemployed after 238 credit days have been exhausted. This will be worth 20% of the worker’s income and last for a maximum of four months.
4. Funeral benefit and delinking retirement contributions
A flat-rate funeral benefit will be available to workers.
A further proposal is that consideration be given to replacing the current tax deduction for retirement fund contributions with a tax credit to delink the deduction’s value to the worker’s contribution.