The South African Government is becoming more and more aware of the fact that hundreds of South Africans are unable to support themselves when they reach retirement. Basic needs, such as housing and safety, become virtually impossible to gain access to and many are forced to live an unsustainable and poverty-stricken lifestyle.
Previously, South Africans were encouraged to make contributions to provident funds. However, the government is neglecting these funds and pushing people towards the newly-introduced National Social Security Fund.
The reason for this is because employees are currently able to withdraw their retirement savings from the provident funds if they resign from their jobs. This results in early access to a lump sum benefit and often, due to largely increasing living-costs, people spend the money which is intended to support them during their old age.
In addition to this, because the majority of South Africans do not have adequate knowledge on investing money, the lump sum benefit is completely consumed before they reach the retirement age. These citizens find themselves in financial, social and economic dilemmas. Often, they are unable to supply basic needs; they are too old to find good jobs; and continuous inflation makes their purchasing power decrease significantly.
The South African Government has also realised that the means test (a test which takes income, age and marital status into account when determining whether or not a pensioner qualifies for a monthly old-age payment from the government) does Not encourage people to contribute a portion of their income into a retirement fund. If people know that they will qualify for the monthly grant, then many citizens, particularly low income earners, do not see a pension contribution as vital. They would rather use the money now, because the government would supposedly take care of them when they reach retirement. Or, once the lump sum benefit from their provident fund is completely consumed, then these pensioners will easily satisfy the means test and qualify for the government grant.
In order to prevent all of this from happening, the Government is attempting to make it compulsory for all income earners to invest in retirement structures. They will be required to contribute a portion of their income in this structure, called the National Social Security Fund, that only gives them access to one third of the accrued amount in the event of resignation. Citizens will also be required to invest the rest of the accrued amount in a pension fund, also known as an annuity.
With the proper implementation of National Social Security Fund, pensioners will not only be able to live sustainably and without poverty during their retirement, but they will be able to enjoy the benefits of years of hard work.