Issue: September/November 09
Edutorials
ABSA

Social Security Provisions in South Africa



Krishen Sukdev

Krishen Sukdev
Consulting Actuary: Absa Consultants and Actuaries

Introduction
This article briefly examines the major social security provisions that are provided by Government. There are other elements of the social security net that are provided for by the Road Accident Fund, Unemployment Insurance Fund as well as the Occupational Injuries Compensation Fund. All of these funds as well as government grants are designed to assist those in need of financial assistance in the case of various contingencies.

Scale of Government Grants
The 2009 budget review provided an update on the number of beneficiaries. Whilst beneficiaries need to satisfy a means test to qualify for government assistance, over 13 million South Africans will receive some form of benefit in this financial year. The detailed number of beneficiaries is provided below.

With an estimated population of 49,3 million, just over one in four South Africans is thus receiving some type of assistance from Government. In the 2009/10 financial year, the projected costs are R8s,5 Billion or 3.5% of GDP. Whilst the scale of the provision of government grants and the accompanying costs are somewhat staggering, the numbers have to be seen against a background of widespread poverty and unemployment. The payment of grants represents the most direct means of getting monies to families.

Number of beneficiaries by benefit

Grant Apr-OS Apr-OS ApMff Apr-08 Apr-09 (estimated) % growth (annual)
Old age 2,0911440 2,144,117 2,195,018 2,218,993 2,324,615 2.7%
War veterans 3,343 2,832 2,340 1,963 1,649 -16.2%
Disability 1,307,551 1,319,536 1,422,808 1,413,263 1,404,884 1.8%
Foster care 252,106 312,614 400,503 443,191 487,510 17.9%
Care dependency 88,889 94,263 98,631 101,836 105,909 4.5%
Child support 5,661,500 7,044,901 7,863,841 8,195,524 9,061,711 12.5%
Total 9,406,829 10,918,263 11,983,141 12,374,770 13,386,278 9.2%

Number of beneficiaries split by province

Grant Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 (estimated) % growth (annual)
Eastern Cape 1,743,007 2,094,642 2,244,303 2,291,898 2,507,094 9.5%
Free state 596,083 678,522 723,698 755,665 808,438 7.9%
Gauteng 1,165,679 1,318,981 1,406,445 1,451,967 1,571,129 7.7%
Kwazulu-Natal 2,149,969 2,498,888 2,931,722 3,033,463 3,275,005 11.1%
Limpopo 1,412,882 1,640,032 1,751,512 1,798,859 1,956,601 8.5%
Mpumalanga 704,070 836,451 901,386 925,171 1,006,932 9.4%
Northern Cape 188,578 213,512 232,102 307,095 259,279 8.3%
North-West 777,722 888,065 1,001,629 980,018 1,118,912 9.5%
Western Cape 668,839 749,170 790,344 830,634 882,888 7.2%
Total 9,406,829 10,918,263 11,983,141 12,374,770 13,386,278 9.2%

Sustainability of Government Grants
There would inevitably be debates around the sustainability of such large scale intervention. Additional questions would be posed around whether potential beneficiaries are not sufficiently incentivised to provide for themselves and whether Government has a handle on fraud and corruption.

Whilst there may be some unintended consequences of providing grants on such a large scale, empirical research has shown that these grants are playing a very positive role in assisting impoverished communities throughout South Africa. For many impoverished households, government grants provide a substantial portion of their total income and in the absence of such grants, they would be destitute. The consolidation of the administration of the grant payments under the Social Security Agency has also placed Government in a stronger position to reduce inefficiencies and fight corruption.

In addition, a great challenge that Government could face in wanting to downscale benefits is that it may lack the political will to do so. For many citizens, grants have become an accepted part of South African life and the idea of taking benefits away from voters could become too much of a political "hot potato." On the contrary benefits have recently increased with the age at which child support grants a re paid having been increased, and the age at which men qualify for State old age pensions has been reduced from age 65 to age 60 over a three-year period in order to equalize the retirement ages of men and women. This somewhat bucks the international trend of seeking to increase retirement ages in order to compensate for the expected higher longevity of pensioners.

There is currently a lot of discussion around the provision of a Basic Income Grant that could be universally paid and that would be of great assistance to constituents, such as those persons who are unemployed. Affordability and sustainability of the Basic Income Grant would be key factors in deciding on whether such a grant would eventually be paid.

Conclusion
In the long term, the government needs to find a delicate balance between providing financial assistance to those in need and maintaining fiscal discipline. Making more South Africans less dependent on the state would be a key ingredient of the long-term plan. This can best be demonstrated in the retirement fund reform initiatives where two of the major benefit design proposals are for compulsory preservation and compulsory annuitisation. Members of funds would therefore have to preserve their monies on switching jobs and on retirement they would need to invest a large portion of their retirement proceeds into purchasing annuities, rather than only taking their benefits as a lump sum.

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