THE SOCIAL PROTECTION OF MIGRANT WORKERS IN SOUTH AFRICA
CHAPTER I: South Africa's social benefit package

Social protection in South Africa differs from that in many countries of comparable economic development.^{(Endnote 5)} Its distinctive features are the absence of a national pension scheme, a strong reliance on the private sector to provide benefits on an optional basis, and a consequent unevenness in the coverage of the workforce. Furthermore, the social protection which does exist is called on to meet a highly diverse set of needs. These have shaped and stretched existing schemes in ways that have important consequences for both workers and employers.

(a) Retirement and disability - South Africa's assistance to elderly and disabled individuals consists of a cash payment of R470 per month (approximately US$105). Known as the state pension, this payment is funded from general tax revenues; and eligibility is limited to individuals with low incomes and assets through the application of a means test. Program participation is high, and the grant constitutes a major source of income for beneficiaries as well as their immediate and extended families. In fact, 40 percent of South Africans who have private pension income receive more per month from the state pension than from these sources. All state pension recipients are eligible for subsidized medical care, including hospitalization and medication, at provincial hospitals. The state pension is administered by the Department of Welfare.

The South African government faces conflicting pressures related to the state pension. On the one hand, the scheme faces the prospect of a funding crisis driven by a combination of recent growth in program participation and the gradual aging of the population.^{(Endnote 6)} At the same time, there is growing recognition of the need to ensure retirement coverage of the entire workforce. Not only are large sectors without protection; lower-income workers face a perverse financial incentive to avoid saving for retirement or conceal their assets as a result of the state pension means test. These problems have led some to advocate a different national approach to retirement provision, one which relies on worker contributions and pays benefits as an earned right.^{(Endnote 7)} Discussions of reform are ongoing, with the Departments of Welfare and Finance taking lead roles.

(b) Private occupational pensions - In the absence of a national pension scheme, South Africa's private sector has developed a varied array of occupational pensions. Through them, employers voluntarily provide benefits which cover about 74 percent of formal sector workers. Those without coverage are concentrated in agriculture, small business, and household work, as well as in all areas of informal employment.

Two recent pension trends noteworthy. First, there has been a sharp increase in workers' exercise of their legal right to withdraw pension contributions upon termination of employment.^{(Endnote 8)} Industry observers believe this indicates that growing numbers of workers are moving their retirement savings from pensions to provident funds, which provide one-time lump sum payments instead of monthly benefits. A second, closely-related trend is the establishment of new provident funds, which increased by over 6,000 during 1992-94.

(c) Short-term benefits: unemployment, sickness, maternity, and death - South Africa's Unemployment Insurance Fund (UIF) serves a diverse set of purposes. In addition to providing unemployment benefits, it compensates workers for temporary loss of earnings due to illness, pregnancy, or the adoption of a child, and compensates surviving spouses and children in the event of a worker's death.^{(Endnote 9)} Coverage is generally limited to the formal sector, excluding household workers, casual workers, and temporary labour. The maximum period for which a person can receive benefits is 26 weeks, or six months. To qualify for the maximum, he or she must have been employed for at least three years. Benefits equal 45 percent of weekly earnings and are funded by a worker contribution of one percent of wages up to an annual ceiling (R82,992 in 1997), matched by the employer. The UIF is administered by the Department of Labour.

At present, there is strong public support for improving short-term benefits paid from the UIF, particularly for low-income workers. Both the Labour Market Commission and the ILO Country Review recommended coverage extensions, including part-time workers, household workers, piece workers, workers in the informal sector, and the self-employed. Organized labour is also seeking more comprehensive coverage, including improvements in maternity benefits provided by the UIF. At the same time, there is a need to strengthen the UIF's financial solvency. A chronic and largely unaddressed problem is weak financial controls over revenue intake. In recent years, solvency has also been eroded by high unemployment, which depleted reserves during 1992-4 by nearly R1 million.

(d) Workplace injury and disease - Workers who are injured on the job or contract an occupational disease may receive financial support from the Workers Compensation fund.^{(Endnote 10)} For disabilities which are 30 percent disabling or less, compensation is provided as a lump-sum payment which covers both medical expenses and lost wages. Benefits are set to replace 75 percent of wages for the period of lost work, up to a ceiling (R6064,5 in 1996, or about US$1,250 per month). When an injury or disease is permanent and severe (more than 30 percent disabling), workers can receive a monthly pension calculated in the same manner, as can the surviving spouses and children of workers who die from a work-related injury or disease. The fund is financed by employer contributions which are experience-rated to take account of average rates of injury and accident in particular industries. Like the UIF, Workers Compensation is administered by the Labour Department.

In recent years, this scheme has experienced a rise in claims without a commensurate increase in administrative resources. As a result, the agency is accumulating a large backlog of unprocessed claims; claimants are required to wait longer for eligibility decisions; and appeals of initial decisions are increasing.

Endnote 5:
These differences were illustrated by the so-called Smith Committee, a study commission established by the Minister of Finance to assess the adequacy of the nation's pension schemes. This group compared South Africa with 11 countries with comparable levels of per capital Gross Domestic Product -- Costa Rica, Panama, Czechoslovakia, Venezuela, Brazil, Turkey, South Africa, Chile, Hungary, Mexico, and Uruguay. Its findings were two-fold: first, that South Africa was the sole country in the group that lacks a social insurance scheme to provide retirement and disability benefits to the national workforce; and second, that South Africa's social assistance payment, the state pension, is relatively high in relation to the minimum benefit available under the contributory pension schemes in the other countries. Report of the Committee on Strategy and Policy Review of Retirement Provision in South Africa, December 1995, p. 40.

Endnote 6:
From 1990 to 1995, the cost of the scheme rose by 80 percent, from R4,4 to R8,0 billion. Projections indicate that the number of elderly will increase by 2,5 percent per annum over the period 1995-2010.

Endnote 7:
The Welfare Department, for example, has advocated compulsory provision for retirement by all employees in formal employment. Government Gazette, 2 February 1996, p. 28.

Endnote 8:
For the two decades between 1973 and 1993, so-called "early leaver leakage" hovered at about 10 percent of pension funds' annual income in the form of member contributions. In 1993, this ratio nearly tripled, rising to 29 percent. Smith Committee (December 1995), p. 14.

Endnote 9:
These survivors' benefits are short-term. In addition, long-term survivors' benefits are payable from the Workers Compensation fund to families of those workers who die from workplace illnesses or injuries. See (d).

Endnote 10:
There is both an accident fund and a fund for compensation of occupational diseases. For two industries, workers compensation is administered by private firms under government oversight. The Federated Employees Mutual Assurance Company serves the construction industry, and Rand Mutual Assurance Company serves the mining industry.

For further information, please contact the ILO Office at Pretoria at Tel: +27.12.341.2170, Fax: +27.12.341.2159 or by E-mail: pretoria@ilo.org