While Minister of Social Development Lindiwe Zulu’s proposals to overhaul the country’s social security system shows willingness from government to address the fact that millions of South Africans find themselves in dire straits at retirement or after a life-changing event, it is poor timing, says Debt Rescue CEO Neil Roets.
Roets says Debt Rescue has seen a notable increase in South Africans unable to stay afloat and coming forward for debt counselling, a sure sign that the pandemic has pushed many more over the edge. The thought of yet another deduction and having to contribute to a mandatory pension is a step too far, notwithstanding the proposed ceiling of R2,760 per month.
“Let’s not beat around the bush. Millions are neck deep in debt, either formal or informal, simply to make ends meet. As the cost of living increases unabated, many are still reeling from retrenchments or salary cuts brought on by the pandemic. The idea that up to 12% of their already insufficient disposable income will go into a National Social Security Fund smacks of an executive out of touch with the reality on the ground. While it is desperately needed, at this stage it will be akin to squeezing blood from the proverbial stone,” he says.
Roets says the concept is a good one, and South Africans have needed a reliable and stable pension plan for a long time. However, he says, the situation on the ground has deteriorated so far that taking more than R1 out of every R10 someone earns will do more harm in the short term, which, he says, will have a lasting impact over the longer term.
“Everyone deserves to be able to look after themselves in retirement. We know that only a small percentage of South Africans will retire comfortably – recent reports suggest only 6% will have a decent retirement – with everyone else either likely to scrape enough to survive or be plunged into poverty, totally reliant on family or the state. This is exactly why the country needs an overhaul to instil a savings culture, and it is why the proposals have been made in the first place.
“However, taking a population that is stretched to breaking point, and putting even more pressure on them, will likely be the proverbial straw that breaks consumers’ backs. This should have been done a long time ago.”
Roets adds that it is good that the green paper is open for public comment until 10 December, because there needs to be a comprehensive relook that is not tone deaf to the lived reality of millions of South Africans.
“People and businesses cannot afford this in their current state, especially as the plan will still need to be supplemented with private retirement products to maintain a decent income during retirement. The focus should first be on attaining stability, then measures to increase economic activity so that people can get some air. Otherwise, as we are seeing, even more people will lose the ability to take and leverage credit productively to build up wealth over time,” he says. “This will certainly result in many placing themselves in an even more precarious financial situation and could result in even more consumers turning to debt counselling to escape a debt spiral.”
Roets added that in the current economic climate, managing debt is more critical than ever: “Failure to do so could affect your credit record which means you will not be able to access any debt in future, even for emergencies. If consumers have taken on more debt than they can manage, it’s worth contacting debt counsellors to see if they can help manage the situation. For those who qualify, debt counselling is a way to protect your credit record and your hard-won assets, not to mention your peace of mind.”