Pension benefit design: flexibility and the integration of insurance benefits over the life cycle

It is suggested that South African retirement schemes ought to be designed around the financial life cycle and the risks faced by the families of members at various stages of the cycle. This paper reviews what we know about the life cycle and the non-investment risks: principally death, disability, dismissal and divorce. Providing for death and disability within schemes would allow for an offset of these costs against that of retirement, for less in the way of underwriting and for economies of scope. It would also allow for the elimination of those statutory and private schemes that give partial cover for accidental causes of death and disability. The paper also criticises insurance arrangements that conflate the heterogeneous causes of disability. It then considers arguments for making scheme membership and various elements of design a legislative requirement. Against the common view, it is suggested that a relatively low level of saving should be required, but that life and disability cover ought to be compulsory as should annuitisation at retirement.