According to the data, for every 100 working-age adults, 10 older adults required support.
Deputy Minister of Finance David Masondo. Picture: Gallo Images/Brenton Geach
Deputy Finance Minister David Masondo has warned that South Africa’s ageing population will place growing pressure on public finances and private sector resources, as the old-age dependency ratio continues to rise. He said this presents a major economic challenge for a country already grappling with sluggish economic growth.
The deputy minister was speaking at the launch of the Impact of Longevity on Fiscal Sustainability in South Africa report on Friday. The report was compiled by the Inclusive Society Institute and Nedbank.
According to the International Monetary Fund (IMF), longevity is the risk that actual lifespans of individuals or entire populations will exceed expectations.
Challenges associated with longevity
The report highlighted that over a 30-year horizon, there is a significant risk of additional pressure on government expenditure from longevity. South Africa’s overall risk level, including the impact of longevity, was found to be between medium and high.
“We must be mindful of the social and economic challenges that come with longevity,” said Masondo.
“Insurers and private pension managers are concerned about its impact on retirement finances, and as pensioners live longer, these schemes face growing demands on their resources. You have seen that the report made significant points associated with this, which will further put pressure on government expenditure.”
Old age dependency ratio grows
According to the report, South Africa’s old-age dependency ratio (elderly to working-age population) rose from 8 in 2011 to 10 in 2022, meaning that in 2022, for every 100 working-age adults, there were 10 older people requiring support.
Masondo noted that the old-age dependency ratio continues to grow, saying it has a “negative impact on productivity as more resources now go to support retirees as opposed to, for example, investing in new money and investment”.
He added that growth in the old-age dependency ratio is not necessarily good for a country like South Africa, which has low economic growth.
“And more importantly, as longevity increases, not only do the patient payouts increase, but also elder care costs rise, and to address this, the government should either decrease the benefits, raise taxes or borrow more to finance the resultant deficits,” added Masondo.
Raise taxes to deal with longevity?
The deputy minister said raising taxes is not really economically feasible without suffocating growth.
“You can increase tax rates, you can have more revenue, but there’s a tipping point: when your tax rates are high, it makes it difficult to grow the economy because economic agents find it irrational to engage in, economic activities because larger part of their money will be going to the tax.
“There’s a limit to what we can do insofar as this is concerned. There is a limit on how much we can borrow. Borrowing in itself is not bad. If you’re borrowing just for consumption, you are going to have serious problems.
“The second [question]: are you going to be able to service that debt, and if your debt is not sustainable, it has implications for the debt-to-GDP ratio. It has huge implications for the wider economy if your debt is too high,” he added.
SA’s population to grow at slow rate
The report forecasts that the country’s population will continue to grow for the foreseeable future, but at a slower rate.
“The World Population Review, based on data from the United Nations (UN), indicates that South Africa’s population could reach around 80 million in 2055 and 93.5 million by the end of the century. As far as the growth rate is concerned, they estimate some deceleration in the speed with which the population is growing to around 1.0% in the mid-2030s, and then further to 0.7% around 2024 and 0.65% around 2050,” the report read.
“Using the long-term average, the population aged 65 and higher is estimated to increase from 6.5% of the population to around 9.0% in 2055. The short-term trend shows a more dramatic rise to 11.2% of the population in 2055 – that is almost double its current size.”
