It should not be left to government to manage a compulsory pension plan should it be introduced in South Africa, a pension fund expert has said.

According to José Piñera, Chile’s former minister of labour and social security, who reformed the country’s pension system in the early 1980s, government should instead only regulate the social security system.

"The private sector is much better at managing millions of accounts," he said at the Sanlam Employee Benefits Symposium, held at Spier outside Cape Town on Tuesday.

Governments are 'greedy'

He added: "Governments get very greedy when they see a lot of money accumulate", saying that government should also not ask the private sector to invest in a specific asset class, such as government bonds.

He said he "worries" over who will manage the compulsory pension plan in South Africa, as government has not offered any clarity as yet on the matter.

The idea of a social security system, which is set to provide retirement savings, death and disability benefits and unemployment insurance to South Africans, was first mooted by President Thabo Mbeki in February this year, who said government could introduce the contributory system to target low-income earners.

'Culture of savings'

During his 2007/2008 Budget speech, Finance Minister Trevor Manuel said the mandatory scheme “will be financed by a social security tax administered by the South African Revenue Service and collected in individual accounts in the name of every contributor".

According to Piñera, the Social Security Reform in Chile has created a “culture of savings”, has increased employment and has increased the rate of growth in the economy by one percent per annum.

In Chile the system has led to an annual average return on investment of 10 percent above inflation over the past 26 years.