Best+retirement+policy+-+job+creation,+Makgetla,+BDay




 * Business Day, Johannesburg, 29 July 2005**

=Best retirement policy for workers is job creation=


 * Neva Makgetla**

A LONG-STANDING paradox of modern capitalist economies is that relatively poor workers collectively own a substantial chunk of capital through their pension and provident funds.

In SA, too, blue-collar workers have hundreds of millions of rand in retirement savings.

This situation raises two questions. Why don’t workers use their control over retirement assets to transform investment patterns and consequently the economy? And what role should retirement funds play in enhancing national savings and household security?

To understand the challenges, we need to start with some history. Before 1994, many employers excluded lower-level African workers from pension funds. Often, they put black workers in segregated funds with worse benefits. Most pension funds provided disproportionately high payments for senior management, and relatively little for lower-level black workers. After retirement, most ordinary workers had to depend on family members.

At the same time, fund management remained firmly in the hands of employers and financial advisors. Ordinary workers had virtually no say in how their savings were used.

This history continues to shape the retirement industry.

To start with, according to the labour force survey, about 5-million workers — half of all employees — still don’t have a pension or provident fund. In the formal sector, 90% of union members belong to a retirement fund, but only half of nonmembers.

Membership of pension funds varies tremendously by sector, depending largely on the level of unionisation. Until the National Union of Mineworkers emerged as an unstoppable force, black miners were usually paid off with a pittance after decades of service. Today, nine out of 10 miners have contractual retirement savings. By contrast, in agriculture and domestic work, which remain poorly organised, three quarters of workers still have no retirement fund.

Access to retirement funds remains discriminatory, in large part because whites continue to dominate higher-level jobs. Thus only half of African workers have retirement funds, compared to three quarters of whites.

Finally, workers still don’t control their retirement savings, despite changes in the pensions laws to install worker trustees. Union-controlled funds generally ensure more socially responsible investment. Even so, surveys suggest these funds have only between 5% and 10% of their holdings in developmental projects.

Some commentators believe that weak worker control reflects a simple failure of will. But objective factors intervene.

First, most financial advisers see their job as maximising returns on retirement funds — partially because that is how they make their profits, and partially because of their training.

This simplistic equation doesn’t hold for many workers. Most must now support unemployed relatives. Their retirement position would be better if they had a slightly lower pension but fewer dependants. For workers, then, investing in ways that can address the jobs crisis is not only about social solidarity. If it succeeds, in the long run it will be their best retirement strategy. But how many worker trustees feel competent to contradict their slick financial managers?

Second, a real shift in investment will require much greater state support. The regulatory framework guides retirement funds into shares and bonds, leaving little scope for innovative holdings. Even more important, government has not indicated what kinds of investment it would prefer. That pushes the entire risk of defining the national development strategy onto worker trustees. Currently, the unions are working with the Financial Services Board to establish a trustees’ forum — a critical step in helping workers assert greater control over their savings.

A second debate revolves around the role retirement funds should play in enhancing national savings. Many workers simply can’t afford to save substantial amounts. Even in the formal sector, 25% of all workers earn under R1000 a month.

According to the Financial Diaries Project, based at the University of Cape Town, most poor households have informal savings, for instance through funeral societies and stokvels. But continual minor crises and persistent debts prevent the accumulation of financial assets in the long run.

Certainly it would help to develop formal savings instruments that give greater certainty and returns to workers. But the main way to enhance household savings remains overcoming the massive unemployment and low pay that still condemn most South Africans to poverty.


 * **Makgetla is a Congress of South African Trade Unions economist.**


 * From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A74555