The occupational pillar of the South African pension system

Abstract

In a study on pension reform, the World Bank recommended a multi‐pillar pension system to provide for pension needs. The South African pension system rests on three pillars: an occupational pillar, a voluntary saving pillar, and a redistributional pillar. The main focus of this article is on the first pillar. South Africa has a well‐developed occupational pension system, but several problem areas remain, such as limited coverage, lack of competition between funds, and the taxation of funds. To improve the occupational pension pillar it is recommended that licences should be made available to private pension fund administrators (PPFAs) to launch new open pension funds, as was done in Chile. Such PPFAs could extend coverage, promote competition between funds, and also cater for the specific needs of lower‐income individuals. If PPFAs do not perform satisfactorily, their licences may be withdrawn and made available to new bidders.