south africa - department of social development (reform) the south african social security system 05...

SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT

(Reform) The South African

Social Security System 05 December 2004


Contents• Socio-economic situation analysis • Structure of the social security system• Institutional Arrangements • Strategic shifts • Social Assistance• Social Insurance – Second Pillar• Comprehensive Social Protection• Concluding Remarks


Poverty, inequality & Unemployment • Democratic government inherited an exclusive,

fragmented, discriminatory social security system• Income inequality high between “population groups”,

while it is now decreasing it is increasing within “population groups”

• 50- 60% of South Africans estimated as income poor• Unemployment high and increasing: 27% to 35%

and informal employment growing• Unequal and inequity in healthcare provision


Inequality: Household Incomes

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Poorest 50 per cent -11% -16% 0% -5%

Richest 10 per cent 17% -0.30% 16% 28%

African White Coloured Asian


Structure of the South African Social Security System

Non-Contributory Contributory

Voluntary MandatoryMeans tested Universal

Private pensionsPrivate insuranceMedical schemes

UnemploymentCompensation on work dutyGov. pensionRoad accident

Old age grantChild support grantPublic hospitals

Primary health care


Lead Ministries

South African Government

Social Development

Health Labour Transport

Social Assistance S o c I a l I n s u r a n c e

Regulating “voluntary” and private pension

industry

Healthcare medical aid

Road Accident compensation

Unemployment Insurance,

Survivors & maternity benefits

National Treasury

Government employee pension

Assistance & Insurance

Income support


Social assistance

• The non contributory system is stretched• 9 million of 43 million South Africans receive social grants• 2.2 million elderly gets old age grant, of 2.9 million elderly, • 1-1.3 million disabled adults receive disability grant• 5,6 million of 11 million children under 14 years in poor

house holds, access social assistance• Foster care is provided to over 130 000 children, and• Care dependency grant to 90 000 severely disabled children


Gaps in Coverage of Social Assistance

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20%

40%

60%

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0

Capital income

Other transfers

Pension

Self employment

Agriculture

Remittances

Wage income

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Social Security Expenditure in SA: “social budget” (recent estimates)

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Expenditure 117.4 35 3.3 2.1 22.8 32 0 58

Voluntary: Not

regulated

Voluntary: Regulated

Mandatory: Social

Insurance

Mandatory: National

Insurance

Means tested: Social

Means tested: In-

kind

Universal: Social

transfers

Universal: In-kind benefits


The layers of poverty

Livelihoods &Assets:

Precarious, seasonal,inadequate

Capabilities:Lack of information,

education, skills, confidence

Organisations of the Poor:

Weak and disconnected

Institutions:Disempowering and

excluding

Behaviors:Disregard and abuse, By the more powerful

Places:Isolated, risky, unserviced

stigmatised

The Body:Hungry, exhausted, sick

Poor appearance

Gender Relations:Troubled and

unequal

Social Relations:Discriminating and

isolating

Security:Lack of protection and

Peace of mind Source : Deepa Narayan, Robert Chambers, Meera Shah and Patti Petesch Voices of the Poor. Crying out for Change, page 249


Strategic Shifts

• Move from inappropriate and inefficient means testing toward universal options– Social assistance has limitations , both in coverage

and administrative efficiency– Retirement provision limited, lack portability, not

sustainable and creates poverty traps– Health (administrative efficiency, access and equity)


Comprehensive Social Protection

• Broader than social security

• Focuses on causality

• Incorporates developmental strategies

• Programmes designed to ensure collectively a minimum standard of living for all citizens


Social safety net is expanding• Social assistance covers 18% of population and

will be 25% in two years time• Total cost to government will be R55 billion next

year, that is 2rd highest non-interest expenditure item education

• Reaching 4% if GDP and raises concerns, but against the need an poverty, coverage will continue to be limited

• Second Pillar therefore becomes an important issue for policy consideration, especially if next slide is anything to go by.


Social Insurance

• 2nd Pillar or Contributory system has many gaps• Pensions, Medical schemes, Death and disability provisions are by nature mostly voluntary •In the employment sector a large portion of the population is not covered for structural reasons and there is a growing informal sector• Move from voluntary toward mandatory systems being considered• Consolidation and integration of delivery institutions


Pensions - Retirement

• The system is unique, but also an anomaly• Pension funds account for R600 billion of

institutional investor assets, the major provider of the equity listed on the JSE.

• Pension fund contributions from 80 per cent of the formally employed amount to R54,3 billion a year

• South Africa rates fourth in the world for pension fund assets, after UK, Switzerland and the Netherlands.

• In terms of private pension fund assets to GDP, South Africa is first in the world.


Pension, Retirement challenges• According to FSB, there are 11 million members,

i.e. 80% of workforce• 1,7 million retired, but there are number of

duplications.• Portability does not exist• Limited mandatory system is problematic• The concern is how to improve and utilise the

retirement provision• Increase in informal employment poses a

challenge• Consumer protection is increasing


Private Cover(contributory)

State-sponsored Retirement Fund

(contributory)

Voluntary retirement

cover

(low-income and informal

sector)

Universal State Pension (non-contributory)

Mandatory retirement cover

(suggested: for those earning more than the tax threshold)

Above tax threshold contributors

Below tax threshold contributors

Low-income groups and the

indigent

Retirement and Old Age


Health

• 80% of citizens access public health care at cost lower than that of 20% using private healthcare

• 14 million South Africans fall outside of the present means test for subsidized access to public hospital care.

• Only around 7 million of this group is presently a member of medical scheme

• Reforms are underway to create a national health insurance system, starting with a single system for public sector employees


Private Medical Scheme

Cover(contributory)

State-sponsored Medical SchemeIntroduced phase 2

(contributory)

Voluntary cover

phases 1 - 3

Mandatory for medical scheme or

PSCFphase 4

Universal per capita subsidy phases 2-3 non-contributory (general tax funded with additional funds

provided via a redirection of the employer tax subsidy)phase 4 contributory (mandatory)

Voluntary phases 1 - 2

Mandatory phase 3

Middle- to high-income

Low-income and informal sector

Low-income groups and the

indigent

Non-contributory or voluntary

All phases

Health


Health care

• Common Features– Consideration from a holistic point of view

• Integration of public and private

– Universal minimum subsidy– Mandatory environment starting with higher

income groups and large employers– State sponsored voluntary options– Civil service mandated


Unemployment• Broader measures than conventional safety-net• Move to extend social insurance where feasible

has started with low income domestic and farm workers

• Indirect social protection – creation of an active labour market through public works programs

• Regulatory regime is being enhanced.• Limitations, as informal employment is

increasing


Concluding Remarks

Reform for a Comprehensive social protection package


Way forward

• Setting of a poverty line• Prioritise development/institutional capacity to

deliver • Policy determination/co-ordination in

Organisational framework for social security and protection


Pillar 1• Income poverty Minimum income support (1)

• Capability poverty (universal/eligibility criteria)– Free and adequate publicly provided healthcare– Free primary and secondary education– Free water and sanitation (lifeline)– Free electricity (lifeline)– Accessible and affordable public transport– Access to affordable and adequate housing– Access to jobs and skills training


Pillar 2

• Social insurance & private sector regulation (3)• Reform of Scope and Governance structures for

social insurance funds• Private sector regulation and enforcement

– COIDA, – RAF, – Health insurance, – Unemployment insurance, and– Retirement funds


Institutional framework

• Creation of inter-departmental policy coordinating structures in the following areas:– Old age and retirement, Disability, Maternity

benefits and support and Children• Creation of a Social Security Agency to provide

holistic view and institution to look at double dipping• Realisation of market failures and need for

government intervention

south africa - department of social development (reform) the south african social security system 05...

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