The paper examines the cointegration between pension assets and economic growth in the presence of structural breaks in 1995 and 1999. The structural breaks are endogenously determined. This paper gives an extensive literature review of the theoretical and empirical framework of pension fund reform in relation to growth. The literature shows pension fund reform has been encouraged with some emerging market economies including South Africa shifting from Pay As You Go (PAYG) to Fully Funded Schemes (FFS). The Zivot Andrews and modified ADF unit root test are used, and empirical evidence suggests no evidence of a unit root. This paper examines the cointegration between pension assets and economic growth in the presence of structural breaks. We find that pension assets have a positive but minimal impact on growth in the presence of structural breaks. The direction of the results is similar for the model with or without structural breaks. The results show that pension reform in South Africa has not contributed to a redistributive growth agenda despite the financial sector sophistication coupled with the strong institutional and regulatory framework.
Pension Funds Reform, South Africa, structural breaks, PAYG to FFS, ARDL, Zivot Andrews