Transcript Committee of Inquiry into a Comprehensive System of Social

(Reform) The South African
Social Security System
05 December 2004
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Contents
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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
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Inequality: Household Incomes
0.4
0.3
0.3
0.2
R' billion
0.2
0.1
0.1
0.0
-0.1
-0.1
-0.2
-0.2
African
White
Coloured
Poorest 50 per cent
-11%
-16%
0%
-5%
Richest 10 per cent
17%
-0.30%
16%
28%
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Asian
Structure of the South African Social Security System
Non-Contributory
Means tested
Universal
Old age grant
Child support grant
Public hospitals
Primary health
care
Contributory
Voluntary
Private pensions
Private insurance
Medical schemes
Mandatory
Unemployment
Compensation on
work duty
Gov. pension
Road accident
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
South African Government
Lead Ministries
Social
Development
Health
Social
Assistance
Assistance &
Insurance
Income support
Healthcare
medical aid
Labour
Transport
National Treasury
SocIal Insurance
Unemployment
Insurance,
Survivors &
maternity
benefits
Road Accident
compensation
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Government
employee
pension
Regulating
“voluntary” and
private pension
industry
Social assistance
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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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Gaps in Coverage of Social
Assistance
100%
80%
Capital income
Other transfers
60%
Pension
40%
Self employment
b
h
Agriculture
20%
decile 10
decile 9
decile 8
decile 7
decile 6
decile 5
decile 4
decile 3
decile 2
0%
decile 1
Remittances
Wage income
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Social Security Expenditure in SA:
“social budget” (recent estimates)
140.0
120.0
R' billion
100.0
80.0
60.0
40.0
20.0
0.0
Expenditure
Voluntary:
Not
regulated
Voluntary:
Regulated
117.4
35
Mandatory: Mandatory:
Social
National
Insurance
Insurance
3.3
2.1
Means
tested:
Social
Means
tested: Inkind
Universal:
Social
transfers
Universal:
In-kind
benefits
22.8
32
0
58
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
The layers of
poverty
Livelihoods &
Assets:
Precarious, seasonal,
inadequate
Capabilities:
Places:
Lack of information,
education, skills,
confidence
Isolated, risky, unserviced
stigmatised
Organisations
of the Poor:
The Body:
Hungry, exhausted, sick
Poor appearance
Weak and
disconnected
Gender Relations:
Institutions:
Troubled and
unequal
Disempowering and
excluding
Behaviors:
Social Relations:
Disregard and abuse,
By the more powerful
Discriminating and
isolating
Security:
Lack of protection and
Peace of mind
Source : Deepa Narayan, Robert Chambers,
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
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)
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Comprehensive Social
Protection
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Broader than social security
Focuses on causality
Incorporates developmental strategies
Programmes designed to ensure
collectively a minimum standard of living
for all citizens
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 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.
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
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
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.
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Mandatory retirement cover
Retirement
and Old Age
Low-income
groups and the
indigent
Voluntary
retirement
cover
(suggested: for those earning more
than the tax threshold)
(low-income
and informal
sector)
Private Cover
(contributory)
State-sponsored
Retirement Fund
(contributory)
Universal State Pension (non-contributory)
SOUTH AFRICA -
Below tax threshold
contributorsOF SOCIAL
DEPARTMENT
Above tax threshold
contributors
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Health
Voluntary
Voluntary
cover
phases 1 - 2
phases 1 - 3
Mandatory
Non-contributory
or voluntary
Mandatory
for medical
scheme or
PSCF
All phases
phase 4
phase 3
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
groupsAFRICA
and the SOUTH
indigent
Low-income and
informal sector
DEPARTMENT
OF SOCIAL
Middle- to
high-income
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
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Concluding Remarks
Reform for a Comprehensive
social protection package
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT
Pillar 1
• Income poverty Minimum income support (1)
• Capability poverty (universal/eligibility criteria)
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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
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
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
SOUTH AFRICA - DEPARTMENT OF SOCIAL DEVELOPMENT