By: Blessing Utete of Old Mutual Corporate Consultants
Lessons France can learn from SA following France’s Violent Pension Fund Reform Protests
In October 2010 there were massive strikes across France against pension reform. Activist Jean-Baptiste Reddé’s slogan “Ecoutez la colère du people” (Listen to the people’s rage) became world famous as the symbol that epitomised public sentiment.
More than a decade later France is burning again because of President Emmanuel Macron’s proposed pension reform that plans to make the French work longer, by pushing back the legal retirement age from 62 to 64 or reduced pay-outs for early retirees.
South Africa at the same time is also going through its most significant retirement reforms -National Treasury in February 2021, tabled the proposed “two-pot system” which is scheduled to be implemented in March 2024.
The glaring difference though is that South Africa is not experiencing anything near the levels of violent dissent as France is getting from the unions, public or retirement fund institutions. A closer look at the primary reasons for the unrest in France reveals some interesting lessons.
Overall trust in the SA retirement system / Lack of Trust in the Government
The SA government retirement system reforms have been future focused with most changes not impacting any accrued benefits as at the date of the change, so members will keep their vested rights and benefits. In South Africa, retirement funds are well regulated by the Financial Sector Conduct Authority. By and large there have not been many significant governance failures in the sector and over time, due to the increased governance requirements, there has been a significant reduction in the number of stand-alone funds in South Africa with many funds moving into commercial umbrella funds.
Trust in “Government” depends on the approach adopted when reforms are proposed. The less democratic, inclusive, and transparent, the greater the probability that the reforms will be vehemently opposed and public confidence in its undertakings will be diminished.
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Furthering economic insecurity vs solving old age poverty
France’s defined benefit system is projected to dive into deficit in the coming decade amid France’s aging population. A deferred pension age is intended to sustain contributions for a longer period to mitigate the risk whilst recognising the extended lifespans of the population. The government’s rationale to alleviate the strain on the retirement system therefore seems wholly plausible. Why then has the reform been met with such resistance?
The proposed pension reform has come at a time when many French workers are already facing economic insecurity, high unemployment and inflation, and declining living standards. People think that they are being short changed. It touches on their pockets because working longer means more money paid in tax to subsidise retirees and with high inflation and cost of living, there is an erosion of disposable income for saving.
Our most recent significant retirement system reform which is the proposed “two-pot system” has been designed to mitigate South Africa’s retirement savings crisis.
The system seeks to strike a balance between two problems: maximising retirement savings by minimising early withdrawals; whilst simultaneously allowing for early access to a portion of one’s retirement savings to address the financial consequences of unforeseen events and emergencies, such as Covid-19.
Although pension coverage for older people is very high in South Africa (92.6%) due to the largely non-contributory state pension known as the Old Age Grant – 40% of the elderly are poor. This emphasis on better retirement outcomes while maintaining limited access therefore has led to the buy-in of the vast, majority of fund members.
Lack of Consultation
In France, the proposed pension reform is seen by many as having been imposed by the Government without adequate consultation with workers and the public. Consultation and engagement with stakeholders are critical in the reform process.
It must however be borne in mind that a consultative approach can lead to delays in reform because initially not all parties will be satisfied with the proposed reform. There is, however, a better chance that it will avert a situation where unions are protesting against change because they have not really bought into it.
The South African consultative process has been comprehensive with input obtained from industry and all stakeholders from the outset. This has meant that Government has received significant buy-in and advice. The process has been underpinned by cooperation and almost all of the major concerns of unions and industry have been taken on board and addressed in some form or another.
While the French system is feeling the pain, it’s highly unlikely that we can expect a similar outcome here.