Large Cash Transfers to the Elderly in South Africa

Abstract

We examine the social pension in South Africa, where large cash sums-about twice the median per capita income of African households-are paid to people qualified by age but irrespective of previous contributions. We present the history of the scheme and use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers, documenting who receive the pensions, their levels of living, and those of their families. We also look at behavioural effects, particularly the effects of the cash receipts on the allocation of income to food, schooling, transfers, and savings. In South Africa, a large 'social pension'-about twice the median per capita income of African households-is paid in cash to people qualified by age irrespective of previous contributions. We present the history of the scheme and explain how such large transfers could come about in an economy in which the recipients were not only politically weak, but without any political representation whatsoever. We then use a 1993 nationally representative survey to investigate the redistributive consequences of the transfers, documenting who receive the pensions, their levels of living, and those of their families. We also look at behavioural effects, particularly the effects of the cash receipts on the allocation of income to food, schooling, transfers, and savings. The pressing policy issue for South Africans is whether it makes sense to target seven billion rand (nearly $2 billion) of social expenditure through the current pension schemes. Our analysis contributes to the discussion by documenting the redistributive and behavioural effects of the transfers. We find that, at least as far as immediate incidence is concerned, and without allowance for behavioural effects, the social pension is an effective tool of redistribution, and that the households it reaches are predominantly poor. Because so many of the elderly among South Africa's African population live with children, the social pension is also effective in putting money into house