Immediate priorities are creating employment, whether through public works programmes or private-sector assistance and stimulus packages, and providing relief to the poor and the growing numbers of workers being laid off each month.
A confluence of factors, including the national elections, real electoral competition to the ANC for the first time, and the global financial crisis, have put welfare on the top of the agenda - and rightfully so.
In line with this, finance minister Trevor Manuel's largest spending increases are in poverty reduction. The budget for social assistance grants has been increased by 20% to R80bn. The maximum age for child support grants has been raised to 15, the social old-age pension has been increased 5%, and the eligible age for pensions reduced to 60.
Though resolute about its long-term aims and objectives, government appears to be taking a more cautious and pragmatic approach to social security reform.
The ANC election manifesto is clear about the need for a contributory social security system to provide for guaranteed retirement, disability and survivor benefits. However, it firmly commits itself to consulting closely with a wide range of stakeholders to achieve substantial consensus.
The main aims of a national social security fund are noble and in line with international trends. It would widen the retirement funding net and make better provision for the poor. Adding insurance benefits would reduce the cost of coverage for the poor because of the large risk pool and forced cross-subsidies between high- and low-risk participants.
But the complexities of any system are daunting and there are pitfalls.
After the recent market collapse, the Australian national defined contribution system has come under sharp criticism as retiring members have seen their benefits (and long-term financial security) decline significantly.
Australian workers now typically belong to four or more separate retirement funding arrangements, which has multiplied the overall cost of administering the system.
Critics argue that the complexity of such structures, together with the risk of things going wrong, makes them inferior to large, well-governed traditional fund structures, which could cost as much as 75% less. Over a working lifetime, the impact of such cost differences can be vast.
Government will soon arrive at a critical juncture where it will decide the role that the private sector will play in the national s ocial security fund. The challenge is for the system to deliver in a context where there will be considerable competition for public-sector resources, given pressing priorities in areas such as public works programmes, fighting crime, health care and education.
Though the track record of the SA retirement fund industry has been mixed, international evidence suggests a well-designed and -regulated system using public-private partnerships can be effective in harnessing the best of what the private sector can offer.
It is, however, critical that the system eliminates duplication of effort as far as possible, promotes competition, and eliminates unnecessary layers of cost. It must also be well-regulated to avoid the high long-term cost of poor governance.
That does throw the gauntlet at the retirement industry to showcase its capabilities while the national social security plan is being developed. The industry's future may rest on its ability to meet that challenge.
Melville is chief executive of Metropolitan's Corporate Business Unit
