How does South Africa stack up against such criteria? South Africa has a fairly minimal version of the zero pillar with its various grant programmes such as the old person’s grant and the Unemployment Insurance Fund (UIF). But it also has a surprisingly robust and mature third pillar solution. This means the private sector carries the bulk of the responsibility for providing protections beyond the most minimal. For the most part, these protections only apply to people who are employed.
Note that only one or two countries in Africa (Mauritius being an important exception) have all five pillars in place.
This lack of inclusiveness earns South Africa a C score in the Melbourne Mercer Global Pension Index3. This means the system “has some good features but also has some major risks and/or shortcomings that should be addressed. Without these improvements its efficacy and/or long-term sustainability can be questioned.”
As noted in the report: “Although it has some admirable features, it is not deemed to be a sustainable or comprehensive solution.” More troubling is that this score appears to be slipping as the reform process gets more muddied4. The report offers no further comment.
Consider, for example, the fact that we currently provide a highly evolved solution for retirement savings but there has been little progress made on creating a comprehensive social security system to address the needs of all South Africans. It is this aspect of our system that has most likely contributed to our score of C, in spite of the sophistication of our pension fund industry and the strong scores it receives for governance and integrity in the index.
In our next chapter, we address the question of coverage adequacy with our current government-provided social protections. More importantly, we try to illustrate just how much value our current system actually adds to both the government, in alleviating demands on the fiscus, and to employers, in enhancing employee attraction and retention. But the question we will repeatedly raise in this edition of Benefits Barometer is: Is this enough and could we not do more?
We agree wholeheartedly that long-term savings and social protections can be most effective when they are interlinked. We also believe that in a developing economy, a public-private partnership is most cost-effective in providing such a solution. The point we will challenge is whether placing retirement savings at the top of the list for a long-term savings drive serves the broader challenges of a developing economy best.
This question is particularly pertinent when that developing economy is South Africa, with its unique historical, political and social features. It means our employers and policymakers alike have very different challenges beyond retirement savings that urgently demand our attention. For employers and the country, these challenges are about financial stability, financial capability and a financial security that transcends more than just the retirement years.
