1. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT (Reform) The South African Social Security System 05 December 2004

2. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT

3. 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

4. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

5. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Inequality: Household Incomes

6. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Structure of the South African Social Security System Non-ContributoryContributory VoluntaryMandatory Means testedUniversal Private pensions Private insurance Medical schemes Unemployment Compensation on work duty Gov. pension Road accident Old age grant Child support grant Public hospitals Primary health care

7. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Lead Ministries South African Government Social Development HealthLabourTransport 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

8. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

9. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Gaps in Coverage of Social Assistance 0% 20% 40% 60% 80% 100% decile 1decile 2decile 3decile 4decile 5decile 6decile 7decile 8decile 9 decile 10 Capital income Other transfers Pension Self employment Agriculture Remittances Wage income hb

10. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Social Security Expenditure in SA: “social budget” (recent estimates)

11. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

12. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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)

13. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

14. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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 2 rd 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.

15. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Social Insurance 2 nd 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

16. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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.

17. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

18. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

19. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

20. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Private Medical Scheme Cover (contributory) State-sponsored Medical Scheme Introduced phase 2 (contributory) Voluntary cover phases 1 - 3 Mandatory for medical scheme or PSCF phase 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

21. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

22. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

23. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT Concluding Remarks Reform for a Comprehensive social protection package

24. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

25. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

26. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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

27. SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT 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