Global Courant 2023-04-30 10:00:16
South Africa has one of the worst pension systems in the world Allianz Global Pension Report 2023.
The report looks at 75 pension systems around the world using the Allianz Pension index (API), which consists of three pillars: analysis of basic demographic and fiscal conditions, determination of the sustainability – financing and contribution periods – and adequacy – degree of diffusion and pension level – of the pension system.
Despite the Covid-19 pandemic leading to a decline in life expectancy in several countries, with a baby boom recorded in some countries, Allianz said this is only a brief hiatus in the accelerating trend of societal ageing.
“The most recent data from China, Korea or Italy, for example, indicate acceleration of demographic change,” said Michaela Grimm, co-author of the report.
“The birth rates in particular are developing even worse than assumed, despite all the efforts of family policy. But it doesn’t help to complain; we have to face the facts: the intergenerational contract has become fragile.”
“The younger generations Y and Z in particular are called upon to provide (even) more for their old age. The inconvenient truth is: they have to work longer and also save more and in a more targeted way.”
South Africa has an overall score of 4.2, placing it in the bottom half of the global pension system ranking – 58th out of 75.
Allianz said the low coverage, low level of benefits and lack of pension savings put the adequacy of South Africa’s pension system at risk.
A small consolation for South Africa is that most other African countries also score low.
For context, Denmark has the best pension system in the world, with an API of 2.2, according to the report.
In addition, South Africa has the “poorest” pensioners in the world, with a gross benefit level of only 15%.
Kenya and Lebanon join South Africa with a meager score of 15%.
According to the report, the benefit ratio of a first-pillar pension should be between 40% and 60% of average wages by International Labor Organization standards, as public pensions are often the only source of income in old age.
According to the OECD, Brazil’s benefit ratio of 89% is the best in the world.
The gross payout ratio in percentages between countries is shown below (click to enlarge):
Some pluses
Despite the problems within the South African pension system, there are some positives.
The South African pension system scores slightly better in terms of sustainability, due to low contribution rates – this could facilitate future reforms.
In addition, South Africa has financial leeway, as government expenditure for the elderly is very low and the country remains relatively young.
With an old-age dependency ratio projected to increase by only 16.3% by 2050, South Africa will become one of the countries with the youngest population in the world.
However, Allianz stressed that reforms are needed for pensions in South Africa.
In addition, financial services and financial literacy need to be improved to support funded retirement provision.
Allianz said that all thriving pension systems – especially Denmark, the Netherlands and Sweden – set the course for sustainability very early on when the demographic boom started.
So these models should be used as a model for developing countries, which still have the opportunity to stabilize their pension systems.
Read: Warning for members of pension funds in South Africa
