By Petri Greeff

Whatever the reasons for the release and subsequent withdrawal of the green paper on comprehensive social security & retirement reform, it has sparked important debate, particularly around its call for a mandatory, contributory state pension fund.

The many challenges facing the proposed National Social Security Fund (NSSF) have already been outlined by others. Nevertheless, about 6.2-million workers, primarily low-income in both the formal and informal sectors, are not covered by private pension schemes, according to the paper. So the real issue is, what are the alternatives?

The green paper proposed reforms to several tiers of the social security system. On the first tier these include the universalisation of the old age grant and the introduction of a basic income grant. Reforms to the second tier propose a state pension scheme, the NSSF, a defined benefit scheme sponsored by the government with contributions from all workers under a certain income threshold, which will be used to provide pension and insurance benefits to all. Reforms to the third tier propose certain standards for current private pension schemes and the introduction of a default state pension scheme.

One alternative to the NSSF that should receive serious consideration is decentralised micro pensions. They provide a viable alternative to the proposed centralised state pension scheme. With micro pensions, small amounts of money that informal and formal workers can individually save during their working lives are invested collectively not to only provide for short-term requirements, but also to yield returns in the long term. The concept of decentralised micro pensions has successfully been deployed in many frontier and emerging market countries, including India, Uganda, Ghana, Nigeria and the Solomon Islands.

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