Getting by on an old-age pension

A recent international study conducted in South Africa confirms that social pensions play a significant role in alleviating poverty. The pension system is a firmly entrenched feature of South Africa's social welfare framework. But the country has an unemployment rate of more than 40 percent, making a conventional, contributory pension scheme unworkable. In the study, funded by the British Department for International Development, the researchers observed that extending non-contributory pension programmes in other developing countries could reduce poverty, but conceded that poorer countries with weak revenue flows would need external support. The research was conducted in South Africa and Brazil - both middle-income countries with significant non-contributory state pension schemes. The South African leg of the study, "Getting By", found the pension both effective in tackling poverty and financially viable, while pensioners saw it as an entrenched right. However, the report also noted that pensioners, particularly those in the poor rural areas, did not always enjoy the full benefit of the payment. Researchers suggested that household incomes be bolstered by ensuring better access to other social grants, and extending free education, health and basic services to all disadvantaged communities. Close to 1,200 interviews were conducted during October 2002 in rural black households in South Africa's impoverished Eastern Cape province, and urban black and coloured (mixed race) households in working-class neighbourhoods in the Western Cape. Comparing the position of rural black pensioners to that of their coloured counterparts in urban areas, the report highlighted that the latter had started to move out of "abject poverty", mainly because their income was supplemented by their own contributory pensions and other government transfers. South Africa is one of only four African states to have a well-established non-contributory pension, one of the largest in the developing world - the others are Namibia, Mauritius and Botswana. South Africa's state pension mirrors the history of the country. The first pensions were paid to whites in 1928 and extended to blacks in 1940, but huge disparities in the amounts paid to different race groups remained until a year before the first democratic elections in 1994. Some 1.9 million of South Africa's elderly receive a monthly pension, compared to 5.3 million in Brazil, where the population is almost four times larger. Brazil also runs a far more extensive contributory state pension scheme. The most important similarity is that in both countries the impact of the pension goes way beyond the pensioners. Some 83 percent of Brazilian respondents said they shared all the money with others in their household. In South Africa, 64 percent on average and up to 81 percent in the rural areas said the money was pooled with income from other members of the family. "The widespread custom of mutual support through pension sharing in black households [in South Africa] ensures that pension benefits are widely distributed," the study noted. "In the poorest households covered in the survey, pension income was pooled with all the other sources of income and contributed to the health and education costs and, thereby, to the empowerment of the next generation," it added. Substantial numbers of older people, particularly in the rural areas where the incidence of AIDS-related deaths had been highest in the past two years, often have to take on the job of caring for other household members who fall ill. The responsibility of raising orphaned children is also increasingly shifting to these grandparents. Homes in rural black areas tend to be large (on average five people and up to 22 in extreme cases) and "multi-generational", comprising young children, economically active adults and pensioners. Despite having to share their money with other members of the household, the poorest pensioners interviewed still rated their pension as "one of the good things in life", although they had to spend more than half the monthly grant of R740 (US $109) on food. According to the study, chronic poverty in some parts of the Eastern Cape would have resulted in far more fatalities were it not for the pension. In rural black households, 75 percent of total income was derived from the pension, and only 13 percent from wage earnings. By contrast, in poor urban homes, pensions contributed no more than 30 percent. However, the survey also indicated that, aside from buying seed for vegetable gardens which sometimes produced a very small cash crop, the state pensions didn't go very far. There was seldom any money left for pensioners or their dependents to save or invest in small businesses, particularly in the rural Eastern Cape where the informal business sector is virtually non-existent. While the regular income flow pensioners enjoyed gave them access to credit, it also made them easy prey for loan sharks and so-called microlenders, who charged interest on small short-term loans at more than double the rate of commercial banks. After food, which comprised 50 percent of spending, the second biggest expenditure item in rural homes was the servicing of debt. The study was published amid an ongoing debate in South Africa around the so-called Basic Income Grant (BIG) - a monthly transfer that would effectively extend the benefits of the pension and other social transfers to all poor families, regardless of whether they qualified for pensions, child care or disability grants. BIG is supported by the government's trade union allies, and is also a plank in the election platform of the main opposition Democratic Alliance. The government, however, has waved the proposal aside in favour of ensuring better access to the existing social security net and beefing up job creation through increased spending on infrastructure.