Lessons for South Africa’s Proposed Social Security Retirement Reforms from the Experience of Other Sub-Saharan African Countries

The South African (SA) government intends reforming its social security system, including retirement. Views vary on how to do this. Proposals often consider international experience, but seldom that of fellow African countries. Africa is experiencing demographic change, especially reduced infant mortality, reduced fertility and increasing old age longevity. SA is advanced relative to other African countries, despite high unemployment levels. SA’s informal sector is large relative to developed countries, but smaller than Africa’s norm.  African countries have tried different reform approaches. SA’s non-contributory pensions are advanced relative to Africa’s norm. Most African countries have mandatory national schemes; closest SA equivalent is the Unemployment Insurance Fund (UIF). DB design is the norm. These schemes are experiencing financial strain, leading to increased contributions/reduced benefits.   SA’s well established occupational retirement funds have experienced significant reforms recently. Occupational fund coverage is not mandatory but is high relative to other African countries, even those with compulsory coverage. SA is new to introducing informal sector contributory pensions. Other countries have tried various approaches without finding perfect solutions.  Maximising coverage requires all pension types. Pension reform is iterative, phasing-in change is best. Government should start with incremental improvements. Sequencing of reforms is important, changes at each pension provision level influence what can/should be done at subsequent levels. SA should move towards cost-effective universalisation of non-contributory pensions. African countries’ experience should be considered when targeting informal sector coverage. Compulsory formal sector contributory pensions are recommended. Consider expanding the UIF to cover retirement instead of creating a new scheme.