Assessing pension-related tax expenditures in South Africa: Evidence from the 2016 retirement reform

In 2016, the South African government introduced a comprehensive reform to simplify
and harmonize the pension system in order to incentivize pension savings and increase the fairness
of the retirement system. Using administrative tax micro-data, we assess the impact of the 2016
reform and find that it triggered a positive impact on the extensive margin (the number of people
contributing to pension funds) and a less sharp yet positive effect on the intensive margin (the
average value of contributions). The reform was not effective at mitigating the regressive impact
of the retirement system because the number of individuals contributing to retirement funds
increased relatively more for top earners, and it has also exacerbated the gap between low- and
high-income individuals on the intensive margin side. In addition, more resources were allocated
to pension-related tax expenditures, which have been proven to be highly concentrated among
rich earners, both before and after the reform, hence exacerbating inequality.