A contributory pension system, subsidised for poor South Africans, will impact both poverty and inequality, Parliament has heard – driving “forced savings” and helping people build assets that can be invested.

Speaking to Parliament’s Standing Committee on Finance (SCOF) on Tuesday, Marek Hanusch, a senior economist for the World Bank’s global practice for macroeconomics, shared the organisation’s proposed model to address poverty and inequality. The model is based on research in the World Bank’s book An incomplete transition: Overcoming the legacy of exclusion in South Africa, published in April 2018.

According to Hanusch, a contributory pension fund as a form of redistribution will empower poor South Africans to build assets, if it is subsidised.

“We agree that building assets for poor people in South Africa is extremely important,” he said. “A contributory pension is one way of doing it.”

According to the research, only one-third of SA’s 32 million working-age people are covered by an occupational pension scheme. This means the unemployed, informal workers and those who are not part of the labour force are not covered.

The elderly, however, can draw a pension in the form of a grant, not as an asset.

Economic growth

The contributory pension fund would positively contribute to economic growth, as it is a “forced saving” that can only be accessed at pension age, Hanusch explained.

The asset can then be invested, in the JSE, for example.

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