Loading...
Tthe private affairs of public pensions in south africa
Hendricks, Fred
Hendricks, Fred
Author(s)
Author(s) (Additional)
Illustrator(s)
Producer(s)
Contributor(s)
Contributor(s) (Other)
Editor(s)
Advisor(s)
Contact(s)
Data Collector(s)
Collections
Files
Loading...
n3816_PP_SPD_38.pdf
Adobe PDF, 356.32 KB
Research Projects
Organizational Units
Journal Issue
Online Access
Abstract
"Toward the end of its rule, the apartheid government in South Africa converted its contributory pension system for employees in the public sector from one that effectively functioned as a pay-as-you-go (PAYG) scheme to a fully funded scheme. This paper explains the reasons behind this change and reveals its contemporary consequences within the context of the enormous development challenges facing South Africa, and the inadequacy of the social policy responses of the democratic government. The most far-reaching effect of the adoption of a fully funded pension scheme is that it led directly to a dramatic increase in national debt, as the public servants of the previous regime consciously indebted the state in order to safeguard their own pensions and retrenchment packages in retirement. In 1989 the total debt of the South African government stood at 68 billion rand (R), of which R66 billion was domestic debt and only R2 billion was foreign. By 1996 it had grown phenomenally to R308 billion, of which R297 billion was domestic and R11 billion was foreign debt. The servicing costs for these debts rose from about R12 billion in 1989 to more than R30 billion per annum in 1996. During the same period, the assets of the Government Employees Pension Fund (GEPF) grew from R31 billion to R136 billion. Unlike other indebted governments, the major portion of national debt in South Africa is internal rather than external. In effect, the government is indebted to itself through the fully funded pension system, as the transition from a PAYG system to a fully funded one implied that former contributions to the public pension schemes had to be securitized via government bonds that were deposited in the newly created pension fund. Furthermore, contributions of current employees were directed into the pension fund while current pensions had to be financed out of the budget. This costly transition had detrimental implications for social investment, especially in the areas of education, health and welfare."(pg 3)
Note(s)
Topic
Type
Book
Date
2008-12
Identifier
ISBN
DOI
Copyright/License
With permission of the license/copyright holder