The Private Affairs of Public Pensions in South Africa: Debt, Development and Corporatization

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 villion was domestic debt and only R2 billion was foreign. By 1996 it had grown phenomenally to R308...