1. Introduction
The
World Labour Report of 2000 issued by the International Labour Organisation
defines Social Security as follows:
“Social
Security is the protection which Society provides for its members through a
series of public measures:
- To offset the absence or substantial reduction of income from work resulting from various contingencies (notably sickness, maternity, employment injury, unemployment, invalidity, old age and death of the breadwinner);
- To provide people with Health Care; and
- To provide benefits for families with children.”
South Africa has an extensive network of Social Security
provisions with 13m South Africans benefiting directly through state sponsored
grants and millions others either benefiting or standing to benefit from other
social security safety nets. This unit
examines the Social Security provisions provided by the state to its citizens
as well as other benefits that accrue to members during hardships by virtue of
their employment or resulting from road accidents.
A
summary of the operation of the following Funds is also provided:
a)
Occupational
Injuries Compensation Fund
b)
Road
Accident Fund; and
c)
Unemployment
Insurance Fund.
2 Challenges
The
South African economy has both first and third world elements. The third world
or subsistent economy is informal and poor. The informal economy can be defined
as that beyond state control: untaxed, unregulated and not using formal legal
or accounting systems. It includes subsistence farmers, micro-scale
traders and manufacturers, and many domestic workers.
The
disadvantages of the informal economy are obvious. Efficiency is low as the
division of labour is much more difficult and economies of scale impossible.
Access to credit and insurance is limited by the absence of records and formal
dispute resolution mechanisms. The latter is also associated with violence.
Literacy is of less value, and is therefore encouraged less in the young, which
also means that skills are less likely to be passed on. The smaller tax base
limits the ability of governments to develop infrastructure and provide social
services.
South Africa's very high
income inequality is driven largely by the differences between the larger
incomes in the formal sector and the very low cash incomes and the very low
value of subsistence production. Those employed in the formal sector largely
provide for their own insurance and retirement needs, albeit encouraged by tax
concessions and a degree of compulsion (in the case of workers' compensation
and unemployment).
The
informal sector, by definition, precludes formal pension and insurance
arrangements. Outside formal organizations, wage related contributions cannot
be collected; money cannot be securely invested, and structured payouts cannot
be managed. Informal institutions such as burial societies do provide some
limited protection but are limited in the security they can supply (See Thomson
and Podel (2002)
While
formal systems have clear advantages over informal arrangements, they place
significant demands on participants. If the demands cannot be met, the costs
and the disruption of attempting to create formal systems may outweigh the
advantages. Large numbers of unclaimed life insurance policies and pension
benefits, and ongoing reports about the difficulties faced by illiterate and
poor people in claiming state benefits illustrate this point.
There are also unstable
smaller employers on the fringe of the informal sector. These employers, and their employees, are reluctant
to contribute to formal arrangements because of their uncertain future, and the
expense of contributing on behalf of lower income individuals.[1]
The
difficulty of collecting contributions makes unfunded (pay as you go) benefits
much more efficient for the informal sector, even if they cannot be justified
on the grounds of needs or the desirability of redistribution.
3. Social
Welfare Benefits
3.1. Background
In
the 2009/10 financial year approximately R85 bn (or 3.5% of GDP) is expected to
be spent on government grants that are to be paid to about 13 million South
Africans. The provision of old age grants formally began in 1927 when the Old
Age Pension Act introduced pensions for Whites and Coloureds and excluded
citizens of other race groups. Coloureds then received 60% of the pensions
payable to Whites. In 1946 the Smuts administration extended benefits to
Africans on a means tested basis at 10% of the benefits payable to Whites. Race
based discrimination of benefits ended in 1993 just before the election of South Africa’s
first democratically elected government in 1994.
With
widespread poverty, a skewed income distribution and one of the highest levels
of HIV in the world, the South African Government now uses grants as part of
its broader poverty alleviation strategies. Whilst there is debate on the type
and level of benefits payable, government grants are too much of a political
“hot potato” to contemplate wholesale changes.
The
benefits are payable on a pay-as-you-go basis where current government revenue
is used to pay current grants. As such monies are not set aside to provide for
future potential shocks such as increased longevity of pensioners.
The
South African Social Security Agency Act of 2004 provides for the establishment
of the South African Social Security Agency (SASSA) to administer and pay the
benefits.
3.2. Current
Type and Level of Benefits
Government
grants are payable to permanent South African citizens on a means test basis.
In order to satisfy the means test the applicant must have a lower income and
asset level than prescribed from time to time.
The
table below provides details of the current* type of grants payable, the
monthly level as well as brief description.
|
|
Grant
|
Monthly
|
Payments
|
|
|
|
Level
|
|
|
1
|
Old Age
|
R 1,010
|
Women aged 60 and over
|
|
|
|
|
Age for men phased in from 65
to 60 over 2008 to 2011
|
|
2
|
Disability
|
R 1,010
|
Disabled persons below the age
qualifying for old age pensions
|
|
3
|
Child Support
|
R 240
|
Payable to primary caregiver of
a child below an age specified
|
|
|
|
|
by the Minister from time to
time.
|
|
4
|
Grant in Aid
|
R 240
|
Additional grant to persons
with severe mental or physical
|
|
|
|
|
impairments such that they
require regular attendance
|
|
5
|
Care Dependency
|
R 1,010
|
Paid to parent or foster parent
of children between the ages of 1
|
|
|
|
|
and 18 who suffer from severe
mental or physical disabilities
|
|
6
|
Foster Care
|
R 680
|
Payable to foster parents in
respect of children for whom the
|
|
|
|
|
courts deem are in need of care and compensates for costs
|
|
7
|
War Veterans
|
R 1,010
|
Must be over 60 or be disabled
and have fought in the First or
|
|
|
|
|
Second World Wars or the Korean
War
|
* 2009/10 budget year
Each
year the Minister of Finance announces adjustments to the level of grants. The
adjustments depend on the strength of the government's finances at the time,
but have been somewhat greater than inflation in recent times. The take up rate
varies from grant to grant with the highest take-up rate being for State Old
Age Pensions. Disability grants on the other hand are problematic in that they
require medical assessments. Other factors influencing the take-up rate of the
grants include accessibility to the SASSA offices (which may impact rural
communities) and the need for formal Identity Documentation.
3.3. Current
Scale of Benefits
3.3.1 Number
of Beneficiaries
The
following are the number of beneficiaries per category of benefit as per the
2009 Budget Review.
|
|
Beneficiaries by Type of
Benefit
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Apr-05
|
Apr-06
|
Apr-07
|
Apr-08
|
Apr-09
|
% growth
|
|
Grant
|
|
|
|
|
(estimated)
|
(annual)
|
|
|
|
|
|
|
|
|
|
Old Age
|
2,093,440
|
2,144,117
|
2,195,018
|
2,218,993
|
2,324,615
|
2.7%
|
|
War Veterans
|
3,343
|
2,832
|
2,340
|
1,963
|
1,649
|
-16.2%
|
|
Disability
|
1,307,551
|
1,319,536
|
1,422,808
|
1,413,263
|
1,404,884
|
1.8%
|
|
Foster Care
|
252,106
|
312,614
|
400,503
|
443,191
|
487,510
|
17.9%
|
|
Care Dependency
|
88,889
|
94,263
|
98,631
|
101,836
|
105,909
|
4.5%
|
|
Child Support
|
5,661,500
|
7,044,901
|
7,863,841
|
8,195,524
|
9,061,711
|
12.5%
|
|
Total
|
9,406,829
|
10,918,263
|
11,983,141
|
12,374,770
|
13,386,278
|
9.2%
|
|
|
|
|
|
|
|
|
|
No of beneficiaries split by
Province
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eastern Cape
|
1,743,007
|
2,094,642
|
2,244,303
|
2,291,898
|
2,507,094
|
9.5%
|
|
Free State
|
596,083
|
678,522
|
723,698
|
755,665
|
808,438
|
7.9%
|
|
Gauteng
|
1,165,679
|
1,318,981
|
1,406,445
|
1,451,967
|
1,571,129
|
7.7%
|
|
Kwazulu Natal
|
2,149,969
|
2,498,888
|
2,931,722
|
3,033,463
|
3,275,005
|
11.1%
|
|
Limpopo
|
1,412,882
|
1,640,032
|
1,751,512
|
1,798,859
|
1,956,601
|
8.5%
|
|
Mpumalanga
|
704,070
|
836,451
|
901,386
|
925,171
|
1,006,932
|
9.4%
|
|
Northern Cape
|
188,578
|
213,512
|
232,102
|
307,095
|
259,279
|
8.3%
|
|
North West
|
777,722
|
888,065
|
1,001,629
|
980,018
|
1,118,912
|
9.5%
|
|
Western Cape
|
668,839
|
749,170
|
790,344
|
830,634
|
882,888
|
7.2%
|
|
Total
|
9,406,829
|
10,918,263
|
11,983,141
|
12,374,770
|
13,386,278
|
9.2%
|
3.3.2. Costs
of Providing Social Grants
The
following are the total rand costs of providing social security grants and this
is further expressed as a percentage of GDP.
|
Social Grants Expenditure as a
% of GDP
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
2005/06
|
2006/07
|
2007/08
|
2008/09
|
2009/10*
|
2010/11*
|
2011/12*
|
|
|
R Mn
|
R Mn
|
R Mn
|
R Mn
|
R Mn
|
R Mn
|
R Mn
|
|
|
|
|
|
|
|
|
|
|
Social Grants
|
50,708
|
57,032
|
62,467
|
71,161
|
80,380
|
88,125
|
95,237
|
|
SASSA Administration
|
3,324
|
3,819
|
4,551
|
4,610
|
5,135
|
5,589
|
6,047
|
|
Total
|
54,032
|
60,851
|
67,018
|
75,771
|
85,515
|
93,714
|
101,284
|
|
% of GDP
|
3.4%
|
3.4%
|
3.2%
|
3.3%
|
3.5%
|
3.5%
|
3.4%
|
|
* Projected
|
|
|
|
|
|
|
|
4. Occupational
Injuries Compensation Fund
4.1. Legislative
Framework
The
Compensation Fund compensates workers who get injured or contract diseases as a
result of their employment but does not pay for pain and suffering.
Compensation Legislation can be traced back to 1914. In 1941 the Worker’s
Compensation Act was passed and included the establishment of a Workman’s
Compensation Commissioner. This stopped private compensation agreements between
workers and companies.
The
Compensation Fund is covered by the Compensation for Occupational Injuries and
Diseases Act (COIDA) and the Compensation for Occupational Injuries and
Diseases Amendment Act of 1997. The Act increased the pool of lives to also
include office workers, including professional staff. All employers must be
registered with either the Compensation Fund or a designated insurer.
The
designated insurers are Federated Employers Mutual who cover employees in the
construction industry and Rand Mutual Assurance Company which covers employees
in the mining industry. Both are mutual companies. Employers exempted from
paying contributions include the National Government, Provincial Government and
the Greater Metropolitan Councils.
Workers
injured prior to 1 March 1994 are covered by the Workman’s Compensation Act.
The current Act also states that the employer has to pay the employee benefits
for the first three months after the contingency but is re-imbursed by the
Fund.
4.2. Contributions
and Benefits
The
rate of contribution is calculated per industry sub-class and takes into
account the expected claims from that particular industry. The Compensation
Fund can apply loadings to employers to incentivise these employers to reduce
claims. The Compensation Fund and FEM use the same tariffs but Rand Mutual determines
its own tariffs based on actuarial assessments. Employers contribute but
employees do not have to contribute.
The
following benefits are covered:
a)
Temporary
Disability
b)
Permanent
Disability
c)
Death
d)
Medical
Expenses; and
e)
Additional
Compensation.
The
benefit for temporary disability is normally 75% of the income prior to the
disability payable for the duration of the disability. For permanent disability
the compensation will vary with the severity of the disability. For permanent
disability that is deemed less severe, the compensation is normally 15 times
the monthly earnings. For the most severe permanent disability, the
compensation is a pension of 75% of income prior to injury.
For
deaths, a surviving spouse is entitled to a lump sum equal to two times the
monthly pension to which the employee would have been entitled to if 100%
disabled and a pension equivalent to 40% of the pension to which the employee
would have been entitled if 100% disabled. In addition each child is entitled
to 20% of the pension if the employee was 100% disabled. There is an overall
cap on the pension payable. All reasonable medical and transport costs arising
from the accident are payable. Compensation is based on the salary prior to the
contingency.
Domestic
workers, members of the South African National Defence Force and South African
Police Services cannot claim from the Compensation Fund. In addition the
following exclusions apply:
a)
Claims
which are made more than 12 months after the accident or diagnosis of the disease;
b)
Claims
where the worker is off sick for three days or less
c)
Claims
resulting worker’s own misconduct; and
d)
Claims
where the worker refuses medical treatment.
5. Road
Accident Fund
5.1. Legislative
Framework
The
Road Accident Fund Act of 1996 governs the claims arising from motor vehicle
accidents.
The
Motor Vehicle Assurance Act of 1942 made it compulsory for motor vehicle owners
to take out Third Party Motor Vehicle Insurance. The object of this legislation
was to ensure that a victim of a road accident who sought compensation for
damages could rely on the State to make good these damages – rather than suing
an individual wrong-doer who may not have the financial means or insurance to
compensate the victim. The Road Accident Fund took over the Motor Vehicle
Accident Fund in 1997 through the Road Accident Fund Act of 1996.
The
Road Accident Fund of 1996 governs the broad framework of the RAF. Section 3
provides for the establishment of the Road Accident Fund which has as its
objective:
“The payment of compensation in accordance with this
Act for loss or damage wrongfully caused by the drivers of motor vehicles.”
The
determination of liability is based on the following broad principles:
a) The system of compensation is Fault
Based. The RAF is only obliged to pay compensation if an injury or death is due
to the negligence or wrongful act of the driver or owner of a motor vehicle.
Thus the basis of compensation is for the claimant to demonstrate that he or
she was not at fault or negligent in any
way.
b) The compensation is for losses suffered as a result of bodily injury or death – it does not cover losses to property such as those to the motor vehicle or goods carried.
b) The compensation is for losses suffered as a result of bodily injury or death – it does not cover losses to property such as those to the motor vehicle or goods carried.
c) Only accidents covered within the
border of South Africa
are covered.
d) The type of damages or losses is
described by the RAF Act.
The
Road Accident Amendment Act of 2005 was gazetted on 21 July 2008. The
provisions of the Amendment Act were suspended after a successful challenge in
the Transvaal Division of the High Court of the Republic of South Africa.
The Amendment Act has retained the fault based mechanism even though the Road
Accident Fund Commission headed by Judge Kate Satchwell recommended that a
no-fault system be implemented.
5.2. Benefits
and Contributions
Prior
to 1986 motorists had to purchase Third Party Insurance cover. From 1986
onwards, the collection of premiums for the Road Accident Fund was via a flat
levy on fuel purchased. The levy has changed from time to time. A particular
disadvantage of this mechanism is that the revenue for the RAF is a function of
fuel purchased. There is however the administration simplicity of collection of
monies via the fuel levy. The RAF has been running deficits over many years and
government has from time to time injected money into the RAF.
The
Road Accident Fund provides the following benefits:
a)
Special
Damages (Pecuniary Loss)
- Past and future hospital, medical and related expenses;
- Past and future loss of earnings;
- Past and future loss of support; and
- Funeral expenses
b)
General
Damages (non-pecuniary loss)
- Loss of amenities of life, pain and suffering, disability and disfigurement.
6. Unemployment
Insurance Fund (UIF)
6.1. Legislative
Framework
The
Unemployment Insurance Fund (UIF) which provides temporary financial assistance
during unemployment and other limited contingencies is governed by the
Unemployment Insurance Act of 2001 which took effect on 1 April 2002.
This
Act established the Unemployment Insurance Board and set out its functions and
also designated the Unemployment Insurance Commissioner. The Unemployment
Insurance Contributions Act of 2002 dealt with the employer’s obligations to
contribute to the Unemployment Insurance Fund.
6.2. Contributions
and Benefits
The
Unemployment Insurance Fund assists workers in the formal sector with financial
assistance for the following contingencies:
a)
Unemployment
Benefits – employees can claim if they have been dismissed or retrenched but
not on voluntary resignation;
b)
Illness
Benefits – employees can claim if they are sick for two weeks;
c)
Maternity
benefits – employees can claim benefits during maternity leave;
d)
Adoption
Benefits – employees can claim if they legally adopt a child younger than two
years and leave work to care for the child, and
e)
Death
benefits - the spouse or child of a deceased member can claim benefits from the
Fund.
Employees
contribute 1% of their salaries to the UIF and employers contribute a further
1% of salaries. Benefits and contributions are capped based on a salary
ceiling. It is the employer’s responsibility to ensure that employees are
registered with the Fund and also to deduct these contributions and pay them
over to the UIF. The contributions are mainly collected by SARS. All workers
who work a minimum of 24 hours per month (except public servants) must
contribute to the UIF.
Employees
can claim benefits for up to 238 days if they have contributed for at least
four years; otherwise they may only claim 1 day for every 6 days that they
worked. For maternity claims, this can be up to 121 days. There is a cap on the
benefits – this is 58% of the salary earned. Workers must claim within six
months of the date they stopped working and no tax is paid on the benefits
received. The Unemployment Insurance Fund may at its discretion extend the
period of the benefits.
A
criticism often leveled at the UIF is that a substantial portion of informal
workers are excluded from participation in the Fund and that the benefit period
of six months is regarded as being too short to provide meaningful benefits.
Those earning above the ceiling would only receive partial protection.
Potential reforms include the extension of the period of payment of benefits to
a year.
Benefits
payable from the UIF are tax free in the hands of the recipient.
7. Health Care
Government
expenditure on public health care is expected to exceed R80 bn in 2009/10. The
South African Health Review (2008), calculated that expenditure on public
health care as 3,5% of GDP and a further 5% on private health care. The same
publication reports that less than 20% of South Africans have private health
insurance, but the private sector accounts for some 25% of hospital beds and -
based on a relatively small sample - finds that over 40% of people using
medical services use the private sector. "The major
reasons given for dissatisfaction with the public sector facilities were long
waiting times, staff attitudes, prescribed medication not being available and
shortages of staff (doctors / pharmacists). Long waiting time was noted in both
public and private sector facilities."
Government
funded health care is given by local clinics and public hospitals. The strains
of under-funding, which occur even in the developed world, are aggravated by
South Africa's budget constraints and by the high prevalence of AIDS and
unnatural deaths (violence and road accidents), which are both amongst the
highest in the world. The Health Review reports that they account for 25% and
8% of deaths respectively, and it is likely that they account for a
significantly greater proportion of the load on the health care system.
8. Topical
Issues in Social Security Provision
As
with many elements of South African society, social security is widely debated
and subject to a variety of reform possibilities. The entire system was
recently subject to a Parliamentary Committee of Inquiry (Taylor, 2002) and its Subcommittee reports
(2002).
8.1
A Basic Income Grant (BIG)
One
of the main Taylor recommendations, which remains currently topical is the call
for the extension of Social Security Grants to include a BIG, which if
implemented would be payable at a flat rate to all citizens who would not need
to meet any specific eligibility criteria. Unions and other interest groups see
the lack of any specific grants to impoverished adults including those who are
unemployed as one of the major shortcomings of the existing arrangements.
A
minority view from the Taylor Committee was that the amount of BIG that could
be affordable was too small to be a desirable option.
8.2
Pensions
The
age at which men are eligible for State Old Age Pensions is being reduced from
65 to 60 over a three year period to bring it in line with the age at which
women qualify for State Old Age Pensions. In some ways this goes against international
trends of Governments wanting to increase retirement ages to counter the impact
of demographic shifts such an increasingly aging population and increased
longevity of pensioners.
8.3 Retirement Fund Reform
Retirement
Fund Reform proposals if implemented will have a fundamental impact on the
broader provision of Social Security Benefits. The National Treasury Issued a
Discussion Paper “Retirement Fund Reform – A Discussion Paper” in December
2004. After deliberation, The National Treasury released its second discussion
document in February 2007 entitled “Social Security and Retirement Reform –
Second Discussion Paper” The broader objective of these reforms is poverty
alleviation through increased savings. The Department of Social Development has
published a variety of Feasibility Studies considering these and other options.
Some
of the major provisions of the proposed Retirement Fund reforms are as follows:
a)
The
establishment of a National Social Security Fund (NSSF) and compulsory
participation for all employees up to a yet to be determined threshold level;
b)
Mandatory
supplementary contributions to an occupational retirement fund or individual
savings vehicle above the threshold level ;
c)
The
NSSF would also provide a moderate level of death and disability benefits;
d)
Compulsory
preservation of retirement fund savings;
e)
Compulsory
annuitisation at retirement whereby most of the accumulated retirement fund
savings would need to be taken as income at retirement as opposed to a cash
lump sum as is currently the case with Provident Funds; and
f)
The
provision of a wage subsidy to encourage lower earners to save for retirement
The
Government’s blue print suggests that an increasing number of South African’s
should ideally provide for themselves in retirement and thereby become less
reliant on the State for benefits.
There
is however a current debate on whether the State Old Age Pension should be
universally provided or should still be subject to the means test. The
arguments against the means test made in Asher (2006b) were accepted by the
Taylor Committee. Gluckman (2009) makes a case against a national retirement
scheme.
8.4 The Accident Funds
The
Taylor Committee also recommended that it be investigated whether the Road
Accident Fund and workers' compensation arrangements should be abolished. The
benefits that they provide for accidental death and injury are also required
for natural causes of death and disability as a consequence of illness. Such
cover could be provided by private insurance and public social security
arrangements.
9. Conclusion
In
addition to employment related benefits and those provided by the Road Accident
Fund, South Africa
has an extensive network of government sponsored Social Security benefits that
provides a safety net against extreme poverty. Research indicates that poorer
households benefit tangibly from government grants. The government needs to
balance the needs of poorer communities against fiscal constraints whilst
addressing inefficiencies and fraud.
In
the short to medium term, it is unlikely that social security benefits would be
reduced or eliminated. On the contrary benefits have been extended in the past
few years and government is unlikely to have the political will to re-consider
existing benefits.
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Actuarial Society of South Africa Social Security and
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