By Ruan Jooste

Three of the agencies – the UIF, Road Accident Fund, and Compensation Fund – face their own challenges. And unless a new cohesive system is implemented, this will put pressure on all private funds, including pensions and medical aids.

SA’s system of social security is creaking under the weight of an increasingly brittle economy – and there’s no better time for an overhaul than now. Covid exposed many of these fault lines, but this reckoning had been coming long before the pandemic swept into town in March 2020.

Many of the country’s most fragile citizens depend increasingly on social protections for healthcare, help when they lose their jobs, injuries at work and old age. And a number of institutions were set up precisely to meet these needs, most notably the Unemployment Insurance Fund (UIF), the Compensation Fund (for occupational injuries or disease), as well as the Road Accident Fund (RAF).

Alex van den Heever, a professor in Wits University’s school of governance, wrote in a research paper how the hard lockdown of Covid exposed the government’s lack of machinery to provide emergency support to people – despite the presence of these agencies set up precisely to fill those gaps. For instance, the UIF and the Compensation Fund have no information on who contributes to their coffers, only the beneficiaries. The same goes for the SA Social Security Agency (Sassa).

While President Cyril Ramaphosa announced a special Covid grant (which, at R350, was minimal but something at least), this also ran into the difficulties around identifying people. Perhaps more disturbingly, Van den Heever argued that the institutional integrity of SA’s social security system is deeply fragmented and poorly governed – even corrupt.

“The UIF and Compensation Fund are effectively departmental sub-structures that operate without independent supervision. Similar weaknesses apply to Sassa,” he said. “In all instances, administrative structures are outdated and there is no apparent innovation to improve benefits or the quality of services.”

Covid puts the squeeze on the UIF

The UIF seems equally chaotic. For 2019/2020, its financial statements were “qualified” by the auditors, and it remains underfunded by about R143bn. But despite that, it is yet to release its statistics around how many people claimed from the Temporary Employee/Employer Relief Scheme (TERS) during Covid.

Thobile Lamati, the director-general for the labour department, said in the UIF’s annual performance plan that continued funding of the Covid TERS benefit beyond the initial three months was a concern. As it was, the Covid benefits paid through the UIF were extended a number of times during the past three years. National Treasury’s budget in February revealed that a staggering R61.5bn was paid out through the UIF TERS scheme to about five million workers, while another R10.1m was paid to 2700 workers affected by the unrest in KwaZulu-Natal in July 2021.

Projected benefit payments are set to decrease from R40.7bn in 2021/22 to R23.3bn in 2024/25 as temporary Covid relief winds down,” the budget stated.

This seems optimistic, given how unemployment hasn’t reduced markedly. But either way, the UIF’s future is looking precarious right now. As the budget put it: “the fund will incur an average annual cash deficit of R8.6bn over the medium term due to higher benefit payments … exceeding the contributions received.” Still, Treasury said the net asset value of the UIF was expected to grow to R132.9bn by 2024/25, due to an increase in technical reserves to cover potential payments.

Government employees do not contribute a cent to the fund, even as 13% of all workers in the country (1.2 million people) received some payment from the UIF during Covid. This seems like a pretty unbalanced equation likely to place more pressure on the agency.

Civil servants want it both ways

Jan Mahlangu, a UIF board member as well as Cosatu’s retirement fund policy coordinator, says civil servants are meant to be contributing to the fund, ever since the UIF Act was amended in 2017 to allow them to claim from the fund too.

But National Treasury is pushing back on complying with that legislation, Mahlangu says.
He has similar concerns around the Compensation Fund, which he also joined as a board member in January. He applauds the Standing Committee on Public Accounts (Scopa) for refusing to tolerate the Compensation Fund’s incompetence any further, and for actively tightening the noose around the necks of corrupt officials, he says.

In March, the Compensation Fund released its annual report for 2020/21, which showed it only achieved 52% of its targets. Still, the report argues, this is “an improvement in performance, compared to the 33% for the [previous year]” — though this still “remains a concern.”

Chaos fuels RAF disaster

Another problem with SA’s social security system, according to Van den Heever, is that “departments and associated agencies operate in silos, entrenching its inability to coordinate and integrate responses.”

What’s needed, his report suggests, is an overhaul that creates cohesion. “A comprehensive approach to unemployment protection should consider an integrated approach to social insurance, social assistance and labour activation,” he said.

Creating a cohesive entity won’t be easy, but it’s possible. As it stands, these three agencies raise money in very different ways, and have different financial models. The UIF and Compensation Fund have, at one point or another, run up large surpluses, while the RAF has clocked up gaping deficits. The RAF is probably the weakest of the three agencies. Most people know how much of a fiscal basket case it is – in theory, the fund is there to pay out people injured in vehicle accidents, but it has become a cash cow for corrupt lawyers.

The RAF has actually been technically insolvent since the 1980s, and it remains a giant albatross around the state’s neck. The 2022 budget revealed that last year, the RAF accounted for 83.7% (or R374.6bn) of all the liabilities of the government’s social security funds.

A need for a consolidated social security system

Van den Heever suggests that the institutional shortcomings in social security could be addressed by the creation of a single large system, consisting of several components. Wayne Duvenage, CEO of the Organisation Undoing Tax Abuse (Outa), agrees that there could be much greater efficiency when it comes to collecting tax and spending it.

“We require a centralised body or entity where professional strategists can be brought in to … ensure systems speak to each other. We would have a bigger pool of funds to invest and create social wealth.”

In recent years, there have been attempts to overhaul the system – but the initial efforts seemed to be going rapidly in the wrong direction. One thing Van den Heever’s research makes clear, it’s that the existing social security system is far from optimal. And if it splinters any further, this will put greater strain on all the existing private retirement funds and medical aid schemes out there.