South-Africa Expat Pensions

  • A) South-African Pension System


    The South-African pension system is composed of a Pillar 1 non-contributory means-tested public benefit program, a Pillar 2 various pension and provident fund arrangements and a Pillar 3 voluntary savings.

    The Old Age Pension provided by the government under Pillar 1 used to be the main source of income for 75% of the elderly population in retirement. Thus 75% of the population reached retirement age without a funded pension benefit.

    The employer-based retirement funding system has been in place since 1956 when the Pension Funds Act was passed. But occupational retirement plans are limited to those employed in the formal sector. Among those, the coverage rate is quite high by international comparison and is estimated to be between 66% and 84%.

    For some professions, employers are free to define mandatory membership as an obligatory condition of employment.

    System Reform

    However, many people lack effective access to an affordable retirement funding plan due to the economic structure of the country. South Africa has a high rate of unemployment and a substantial part of the working-age population is informally employed, that is, they are involved in non-standard forms of work.

    In order to address income poverty among the elderly, the government has proposed a social security and retirement reform. The key objective is to set up an appropriate social security concept that prioritizes the needs of people without any incomes, with insufficient incomes or who are engaged in informal activities leading towards the creation of a comprehensive social security system.

    In line with international practice, the government is considering the introduction of a mandatory earnings-related contributory system administered on a payroll-tax basis. In the context of a comprehensive social security framework, a basic social security arrangement is proposed to complement the redistributive social assistance.

    The proposed mandatory contributory earnings-related savings and benefits system will be a funded system with contributions accumulating in individual accounts rather than financed on a pay-as-you-go basis.

    Principles of Reform

    The following principles form the framework for the proposed system:

    • Equity uniform rates of contribution and benefits for all participants;
    • Risk pooling collective funding arrangements;
    • Mandatory participation for employees in the formal sector, the self- and irregular-employed should be encouraged to participate voluntarily in system;
    • Administrative efficiency part of the social security reform will be the consolidated administration of basic social benefits;
    • Solidarity minimum benefits assured through redistribution and cross-subsidization.
  • B) South-African State Pensions


    The requirements are as follows:

    • You must be a South African citizen and a permanent resident or an official refugee;
    • You are older than age 60;
    • Unmarried people or married couples jointly must comply with a specific Means Test;
    • You must not be maintained and funded by a party funded by the state: prison, rehabilitation centre, state old-age home, etc.

    While people are not obliged to claim the public pension on reaching the qualifying age, there is no advantage in deferring a claim.

    Eventual public pension entitlement is not affected by periods of unemployment.


    • Apply at the offices of SASSA (South-African Social Security Agency) in the area where you live. Or visit their website at
    • Certain documents have to be submitted. These documents must be originals or certified copies. They include: identity document, proof of marital status, sworn statement regarding income, a list of assets, supporting documents as proof of income and assets, proof of income of dependent children.

    The Means Test

    It is a test that the State looks at before it grants anybody a pension.

    This test first assesses a person’s income and assets to determine whether he or she qualifies for a state pension.

    If the person is married, one half of the joint income will be taken into consideration, in other words the total income is divided to see whether the person qualifies for pension. Therefore, if the wife is a homemaker but her husband works, the husband’s income is divided in two to see whether the wife may apply for pension.

    The value of properties in the name of the applicant will be taken into consideration, except for the property in which the person lives.

    If you are unmarried, your income may not exceed R 73.800,- a year (R 6.150,- per month) and your assets may not be worth more than R 1.056.000,-.

    If you are married, your joint income may not exceed R 147.600,- (R 12.300,-) per month and the joint assets may not be worth more than R 2.112.000,-.

    Exclusion from Pension if:

    • circumstances change, e.g. your financial circumstances change and your income increases;
    • the person refuses to cooperate in a review, e.g. the proposal is fraudulent;
    • the grant was awarded in error;
    • the person leaves the Republic of South Africa for more than 90 days.

    Please note that SASSA must give you three days’ notice of a review of the grant.

    Amount of Pension

    The pension is means-tested with individuals having an income of under R 73.800,- for singles and

    R 147.600,- for couples and no more than R 1.056.000,- in assets for a single person and R 2.112.000,- for a couple.

    The benefit amount is up to R 1.600,- per month for singles and R 3.200,- for couples.

    The benefit is increased to R 1.620,- for those aged over 75.

    If an individual is admitted to an institution that has a contract with the state to care him/her, the social grant is reduced to 25% of the maximum amount.


  • C) South-African Occupational Pensions

    Only for Formal Employees

    The employer-based retirement funding system has been in place since 1956 when the Pension Funds Act was passed. But occupational retirement plans are limited to those employed in the formal sector. Among those, the coverage rate is quite high by international comparison and is estimated to be between 66% and 84%.

    Sometimes Mandatory

    For some professions, employers are free to define mandatory membership as an obligatory condition of employment.

    However, many people lack effective access to an affordable retirement funding plan due to the economic structure of the country. South Africa has a high rate of unemployment and a substantial part of the working-age population is informally employed, that is, they are involved in non-standard forms of work.

    Type of Coverages

    Pension schemes can be pure guaranteed Defined Benefit (DB) or not guaranteed premium based Defined Contribution (DC) or some Hybrid of the two.

    The industry saw a large shift from DB to DC during the 1980s and 1990s. Today, the majority of employees in the private sector are covered by DC schemes, whilst DB arrangements are more common in the public sector.

    DC arrangements appear in the form of either a Pension Fund or a Provident Fund.

    The difference between the two is drawn with regards to tax-exempt contribution limits and retirement benefit options.

    Provident Funds may provide retirement benefits in one Lump Sum payment.

    Pension Funds are only allowed to provide one third of the total value as a Lump Sum.

    Underwritten Funds, i.e. policies issued by registered insurers, have been the predominant form of pension provision.

    Self-Administered Funds, where the trustees perform either all the functions themselves or outsource one or more of these functions, have however experienced strong growth.

    The South African environment has also seen considerable growth of multi-employer or “umbrella” funds, which are DC in nature. One of the reasons thereof is that for many smaller funds it is not financially possible to meet all regulation demands which keep increasing and adding costs.

    Amount of coverage

    The average contribution rate for occupational schemes is around 15% of earnings, divided between employers and employees.


    Employer contributions to approved Pension and Provident Funds are tax-deductible up to 10% of the employee’s remuneration. In practice, the Commissioner of the Inland Revenue allows up to 20%, with even higher limits allowed if justifiable.

    Employee contributions to Pension Funds are tax-exempt up to the greater of 7.5% of remuneration and R 1.750,-. Employee contributions to Provident Funds are not tax deductible and are therefore normally non-contributory.

    Lump sum amounts are tax-free up to a certain level after which a progressive tax system is used.

    Benefits from a Retirement Fund to which contributions did not qualify for tax-exemption may be paid out tax-free.

    There is a higher tax rebate for those over the age of 65 than for the working age population. Workers are entitled to a tax rebate of R 13.257,- with an additional R 7.407,- for pensioners.

    The tax system is under review and changes are expected to align the tax treatment of different retirement savings vehicles.


    There are a large number of occupational pension plans and some of them are mandatory. But this only applies to employees with a formal contract which often have the better wages.

    As due to the bad economy many workers do not have a formal employee contract or are even unemployed, many lack occupational pension coverage.

  • D) South-African Pension Age Flexibility

    Receipt of the Old Age Pension is not dependent on retirement.

    It is therefore possible to combine pension and employment as long as the recipient’s income does not exceed the Means Test Threshold.

    While people are not obliged to claim the public pension on reaching the qualifying age, there is no advantage in deferring a claim.

  • E) South-African Oversight on Occupational Pensions

    Oversight by FSB

    Underwritten and Self-Administered Retirement Funds are regulated by the Financial Services Board (FSB) and governed by the Pension Funds Act.

    More in general the FSB oversees the non-banking financial services industry, which includes retirement funds, short-term & long-term insurance, companies, funeral insurance, schemes, collective investment schemes (unit trusts and stock market) and financial advisors and brokers.

    The FSB’s mission is to promote the:

    • Fair treatment of consumers of financial services and products;
    • Financial soundness of financial institutions;
    • Systemic stability of financial services industries;
    • Integrity of financial markets and institutions.

    Oversight by other Agencies

    Official funds (i.e. funds established by special laws for State employees, certain parastatal institutions and special sector funds) are supervised by other governmental agencies and governed by acts other than the Pension Funds Act.

    General Investment Regulations

    Boards of retirement funds should establish an investment strategy which should be monitored and reviewed regularly.

    Overall, prudential limits apply, with the following maxima in broad terms:

    • 75% in ordinary and preference shares (less for investment in smaller companies);
    • 25% in property, property shares and property trusts;
    • 90% in shares and property combined;
    • 25% in claims secured by mortgage bonds on immovable property;
    • 10% in commodities;
    • 25% in assets outside South Africa, with a further 5% allowed for investment in Africa.

    There are also overall limits, e.g.:

    • 15% in unlisted equity and private equity funds;
    • 25% in any single company;
    • 10% in the business of a participating employer.

    Latest news about Oversight Regulations

    Despite the fact that it is a slow and sometimes painful process, government is still committed to reforming the local retirement landscape.

    Finance Minister Malusi Gigaba announced during his budget speech that government has directed the FSB to proceed with measures to modernise and improve the governance of all retirement funds, starting with a proposed requirement that all retirement funds will have to submit audited financial statements annually in future.

    Currently all retirement funds have to submit annual financial statements to the regulator but for smaller funds, the requirement that they should be audited is waived.

    In an information circular issued by the FSB, Olano Makhubela, deputy registrar of pension funds, notes that it is in the process of implementing a more pro-active approach to the supervision of retirement funds, with a dedicated focus on member protection.

    “This process and approach necessitates comprehensive and timeous reporting by funds.”

    As a result, the Registrar intends to withdraw the audit exemption for smaller funds for all financial years starting after January 1, 2019.

    Makhubela also notes that the current practice – where certain funds submit annual statements six to eighteen months after their financial year ends – is not conducive to effective supervision. As a result, it intends to propose to National Treasury that legislation be amended so that funds have to submit their statements within three instead of six months after year-end.

    Government is looking a lot more closely at the governance of retirement funds – how they are run, controlled and managed. Late submission of annual financial statements is often an early indicator of problems at a fund.

    While the FSB doesn’t have the financial statements to review, problems can be arising in the fund.

    For smaller funds, however, a requirement that statements have to be audited will have cost implications.

    Smaller funds, therefore, should consider the viability of continuing as self-standing funds or alternatively consider transferring to an umbrella fund that will be suitable to meet the needs and requirements of the fund, employer and its members, and by ensuring that such an umbrella fund offers good value.

    A lot of funds are already having difficulty meeting the six-month deadline and may struggle to adhere to the proposed deadline.

    The final proposal is that retirement funds will no longer be allowed to use the non-accrual basis of accounting. It is the Registrar’s view that funds have now been allowed sufficient time to change their accounting basis to accrual accounting and funds will therefore not be allowed to apply the non-accrual basis for financial years commencing on or after January 1, 2019.

  • F) South-African Private Pensions

    Additional tax-incentivised saving for retirement occurs through voluntary savings vehicles.

    Mainly in the form of Retirement Annuity (RA) fund policies, which are primarily offered by the insurance sector.

    In the case of RAs, benefits become available from age 55 onwards. They are subject to the same regulations as Pension Funds in that a maximum of one third may be taken as a cash Lump Sum and the rest used to purchase an annuity.

  • G) News November 2018

    Threats to the Public Investment Corporation are a concern for all South Africans

    South Africa’s Public Investment Corporation, which has R2 trillion of assets under management, is in the news for all the wrong reasons. If the stories doing the rounds now are true, it might well be a concern for all South Africans, not just government employees.

    The principal asset manager of the country’s public sector’s savings is the single largest institutional investor on the Johannesburg Stock Exchange and the largest fund manager in Africa. With so much at stake, clients want to hear about the quality of oversight, strong processes and excellent returns. They do not want to hear suggestions that it might become a victim of state capture, or reports about plans for its funds to be used to prop up failing state-owned enterprises, such as South African Airways. But those are the stories doing the rounds now.

    The PIC is supposedly a financial service provider like any other. It is registered with the FSB and is governed by the Financial Advisory and Intermediary Services (FAIS) Act. It’s subject to the Companies Act and FICA.

    But there are notable differences. For one, it’s wholly-owned by the state and reports to the Minister of Finance (Malusi Gigaba). It plays by its own rules – the PIC Act, 2004. The Auditor-General signs off on the accounts. The PIC board is automatically chaired by the Deputy Minister of Finance (Sfiso Buthelezi) and clients aren’t directly represented.

    This doesn’t sit well right now. Tax revenues are falling, but not government spending. Some state-owned enterprises need finance, yet little is forthcoming from the private sector. Mr Gigaba is enthusiastic but unproven, with peccable credentials in the context of our ‘state capture’ saga. The previous chairman of the PIC Board, Mcebesi Jonas, went public on attempts to ensnare him.

    Mr Gigaba appears to be making moves on the PIC, calling for a forensic investigation into its unlisted investments. He plans to publish the full list of beneficiaries. Such transparency should be applauded, but cynics see an attempt to discredit PIC CEO Daniel Matjila. The rumour mill foresees the return of former CEO Brian Molefe.

    Notwithstanding the emphasis on transformation, job creation and impact investing in the 2017 PIC Annual Report, 91% of its assets are invested in traditional listed securities, local and international.

    Still, that leaves 9% hiding out in a black box called “unlisted investments” which, in a R2 trillion fund, is not small change. The annual report lacks real transparency as to how this money is invested, who benefits and what returns have been generated. While there is no shortage of detailed case studies, there is no detailed recon of holdings. With a fund this size, and reporting of this nature, money might slip through the cracks very easily.

    So there is understandable concern that, with undue influence, institutional funds could be misappropriated to further the cause of corrupt and connected individuals. Or, less extreme but no less harmful, that monies will simply be invested unprofitably, for example in our dysfunctional state-owned enterprises.

    Time will tell whether these concerns are valid. But if there’s worrying to be done, who should do it?

    The most obvious candidates are the members of the Government Employees Pension Fund (GEPF). Almost R1.7 trillion in the PIC coffers is theirs. A further R135 billion belongs to the Unemployment Insurance Fund (UIF). The balance is held on behalf of various smaller clients.

    Although most exposed, GEPF members can relax, according to Abel Sithole, the GEPF’S Principal Executive Officer. The GEPF is a defined benefit fund, which means that pension benefits are paid according to a formula – mainly referencing the service period and the final pay scale – rather than the returns earned on contributions. These benefits are guaranteed; if the GEPF runs out, the state steps in. In theory, it should therefore not matter to members how and where the PIC invests.

    In practice though, it probably will. Other than service years and pay scale, the GEPF benefit formula includes an “actuarial factor”, which changes from time to time, on the advice of the GEPF’s actuaries. Inevitably, poor fund returns will lower the “actuarial factor” and cause lower pay-outs.

    It does require the buy-in from relevant employee organisations, however. If that is not forthcoming, and the benefits are maintained, then it’s on government to fund any shortfall, or rather the government’s sponsor i.e. taxpayers.

    The point is, someone will have to foot the bill eventually, so it is in everyone’s interest that the PIC invests prudently. To claim that its investment decisions are inconsequential is folly.

    With all eyes on the PIC, South Africans can hope for stronger governance and investment vetting, and a reduced chance of a sweetheart deal for anyone. Anyway, the things that bite us on the bum tend to creep up from behind. The real danger lies in the unexpected.