Unless you live in France, you might think that recent mass strikes over the proposed pension reforms in the country have nothing to do with you. But given how fast age demographics are changing across the globe, it is almost safe to say that you are wrong.
According to IMF research, if you live in Europe and your parents are getting ready to retire at the age of 65 (the statutory retirement age in many countries), you should know that today there are, on average, 3.4 working-age people to support the retirement of every person 65 and older. By 2050, the IMF projected the number to dwindle to just 2. Japan and South Korea are nearly at that point. “By 2050, more than 35 other countries (about 7% of the world population) will join Japan,” it said. South Korea is almost there.
This implies a significantly higher burden on workers to support retirees. This dramatic change will have important economic and social implications that cannot be ignored either by governments or by individuals.
“Countries in advanced stages of transition face a shrinking labour force, meaning fewer people to pay into pension systems, while still needing to ensure that people have decent living standards in retirement,” the research paper stated. “On the other hand, countries in the early stage of demographic transition need to create a large number of new jobs every year to absorb a rapidly growing working-age population. By 2050, there will be a stark contrast between, for example, Europe and sub-Saharan Africa.”
And that is where the South African scenario steps in. In 2022, the estimated population of South Africa included more than five million people aged 60 or older. This represents a 9,2% share of the overall population. According to a recent report released by Statistics South Africa titled Marginalised Groups Series VI: The Social Profile of Older Persons, 2017–2021, the increase in the proportion of older persons in the population, known as population ageing, is one of the most significant social changes of the twenty-first century.
“The increase in the ageing index confirms that SA’S elderly population has been increasing over time, and refers to the number of the elderly population (aged 60 years and over) per 100 individuals younger than 15 years old in a specific population. Thus, the higher the index, the older the population. The ageing index in SA increased from 30 in 2017 to 33 in 2022.”
So for the broader ageing population, savings and investments have become luxuries they can ill-afford. So the onus has come to rest on the shoulders of government to determine what housing and services older people would need. Where housing for the elderly should be located? And what impact an increasing number of older persons would have on the health and social security system?
In South Africa, approximately half of older persons live in households where nobody is employed and are more likely to be found in non-metro than metro areas for both years of reporting (55,3% in 2017 and 57,3% in 2021), according to Stats SA. For these households, social grants, which include old-age pensions, play an important role in sustaining families. In SA, 73,0% of the older persons are beneficiaries of an old age grant.
There is also the matter of skip-generation families, in which grandparents raise children and parents are absent from the household, which further puts further pressure on spending power.
About 53% of older persons still live in extended households, where they are likely to receive some psycho-social and economic support, according to StatsSA. Households headed by older persons are more likely to live with their grandchildren as the skip-generation households still accounted for at least 12,4% of all households in 2021.
Extended households were more prevalent (above 50%) amongst older persons than they were for all other South African households.
Increased longevity and improved health in older persons are already presenting significant challenges to both the public and private sectors. It is already affecting the ability of the government to provide adequate resources for the elderly and the frail, not to mention the risk of dealing with age-related chronic diseases and disability. Let’s not forget about the Life Esidimeni incident, where the government is still trying to determine whether anyone can be held liable for the deaths of 140 mental health patients. Everyone involved is already seven years older than the tragic event back in 2016.
It highlighted the inequalities in access to private medical care or public health services. Less than a quarter (23,8% in 2017 and 23,3% in 2021) of the older persons in South Africa were members of medical aid schemes or private health insurance.
Analysing and tracking these changing patterns of disability and mortality for older persons should help in facilitating better policies and programmes towards reducing the dependency rates of older persons in our society. However, is an amplified unemployment rate recorded in the first quarter of 2023. It clocked in at 32,9 %, and is considered one of the highest levels in the world. This is according to the Quarterly Labour Force Survey , also issued by Stats SA.
So the ongoing ageing process and increase in unemployment in large parts of the country implies less saving. Generally, saving behaviour follows a life cycle pattern: in their early years of employment, people tend to borrow; during their prime working-age years, people save; and once they are out of the labour force, they spend some of their savings. But as things stand in South Africa, this is not remotely possible.
While this pattern may not be as pronounced as in other lower-income countries, it means that our society is at a more advanced stage of ageing and more likely to see lower aggregate savings.
Indeed, recent IMF research showed that in even advanced economies, both private and public savings (effectively the government fiscal balance) are projected to decline as a result of more pension spending during the next 30 years.
This trajectory will need to be urgently addressed, if younger people in South Africa are to enjoy any form of pension benefits similar to those of some of today’s retirees and families overseas. With a current average gross savings rate of 13.0%, and two-thirds of combined household income going towards servicing debt, according to SA Reserve Bank numbers, it looks like most South Africans are too broke to ever retire.
PERSONAL FINANCE
