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(Reform) The South African Social Security System

(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

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(Reform) The South African Social Security System

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  1. (Reform) The South African Social Security System 05 December 2004

  2. 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

  3. 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

  4. Inequality: Household Incomes

  5. Structure of the South African Social Security System Non-Contributory Contributory Means tested Universal Voluntary Mandatory Private pensions Private insurance Medical schemes Old age grant Child support grant Public hospitals Unemployment Compensation on work duty Gov. pension Road accident Primary health care

  6. South AfricanGovernment Lead Ministries Social Development Health Labour Transport National Treasury Social Assistance Assistance & Insurance S o c I a l I n s u r a n c e Incomesupport Healthcare medical aid Unemployment Insurance, Survivors & maternity benefits Road Accident compensation Government employee pension Regulating “voluntary” and private pension industry

  7. 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

  8. Gaps in Coverage of Social Assistance 100% 80% Capital income Other transfers 60% Pension 40% Self employment h b Agriculture 20% Remittances 0% Wage income decile 2 decile 5 decile 8 decile 1 decile 3 decile 4 decile 6 decile 7 decile 9 decile 10

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

  10. The layers of poverty Livelihoods & Assets: Precarious, seasonal, inadequate Capabilities: Lack of information, education, skills, confidence Places: Isolated, risky, unserviced stigmatised Organisations of the Poor: Weak and disconnected The Body: Hungry, exhausted, sick Poor appearance Gender Relations: Troubled and unequal Institutions: Disempowering and excluding Behaviors: Disregard and abuse, By the more powerful 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

  11. 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)

  12. 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

  13. 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.

  14. 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

  15. 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.

  16. 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

  17. Mandatory retirement cover (suggested: for those earning more than the tax threshold) Retirement and Old Age Voluntary retirement cover (low-income and informal sector) Private Cover (contributory) Low-income groups and the indigent State-sponsored Retirement Fund (contributory) Universal State Pension (non-contributory) Below tax threshold contributors Above tax threshold contributors

  18. 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

  19. Voluntary phases 1 - 2 Mandatory phase 3 Voluntary cover phases 1 - 3 Mandatory for medical scheme or PSCF phase 4 Health Non-contributory or voluntary All phases Private Medical Scheme Cover (contributory) State-sponsored Medical Scheme Introduced phase 2 (contributory) 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) Low-income and informal sector Middle- to high-income Low-income groups and the indigent

  20. 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

  21. 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

  22. Concluding Remarks Reform for a Comprehensive social protection package

  23. 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

  24. 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

  25. 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

  26. 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

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