What the South African State does for the poor: II Social Insurance

Elias Phaahla | Apr 09, 2015
This Brief is the second of a series tackling the question; what is the State doing for the poor?


The social insurance system consists of the Unemployment Insurance Fund (UIF), Compensation for Occupational Injuries and Diseases (COIDA), and the Road Accident Fund (RAF).   UIF and COIDA are occupational insurance, and play the role of a safety net for those beneficiaries currently in the formal labour market. 


UIF covers all workers, except those working less than 24 hours per month, learners, public servants, foreigners working on contract, workers who receive commission only and workers receiving an old age pension. The purpose of the UIF is to provide temporary payouts to workers in the event that they are unemployed, ill, or go on maternity.  It also pays a death benefit to survivors.  Workers are covered for a week for every six weeks they have been in employment, up to a maximum of 34 weeks. Payments are a varying proportion of last wage, ranging from 60% for the lowest paid to 38% for those at the ceiling level.  Workers earning more than the ceiling level are paid out as though they had been paid at the ceiling.
COIDA covers all workers except workers in private households, people receiving military training and employees of the SA Police Service and the SA National Defence Force.  A schedule to the Act specifies the level of payment applicable to various injuries and illnesses.
In both cases, informal sector workers are not included.
The RAF provides compulsory cover to all users of South African roads, citizens and foreigners, against injuries sustained or death arising from accidents involving motor vehicles within the borders of South Africa. This cover is in the form of indemnity insurance to persons who cause the accident, as well as personal injury and death insurance to victims of motor vehicle accidents and their families.


The UIF is funded by contributions of 1% of pay by workers and another 1% by employers.
COIDA is funded by levies on employers, determined by the risk profile of the sector in which they work.
The RAF is funded through the state, by means of a levy on fuel sold.

Private insurance

On the other hand, voluntary occupational insurance arrangements include medical aid schemes, insurance funds, and pension and provident funds. These insurance schemes are regulated by autonomous agencies: medical aid schemes are regulated by the Council for Medical Schemes (CMS), and insurance funds and pension and provident funds by the insurance and retirement funds division of the Financial Services Board (FSB).  State regulation focuses on safeguarding the interests of the beneficiaries in accordance with the law.


Table 1 sets out information about adults between the ages of 15 and 64 as background for assessing coverage:
Table 1: Employment distribution by sector (15-64) in 'Thousands'
Third quarter 2014

Employment status Number
Population   34 868
Not economically active 12 655
Discouraged workers 2 297
Unemployed workers 4 880
Employed workers
Formal Sector (Non-agricultural) 10 709
Informal Sector (Non-agricultural) 2 323
Agriculture 740
Private Households 1 264
Of which: public sector 1 578
Sources: Quarterly Labour Force Survey
South African Statistics 2013 (for public service employment)
Note: Unemployed workers are actively looking for a job.  Discouraged workers have given up looking, though they still want to work.
Table 1 indicates that about 9.8 million workers are covered by the UIF and 11.4 million by COIDA.  However, only 7.9 million reported subscription to the UIF.  6.3 million people reported subscription to pension and provident funds, and 4.1 million to medical schemes.   

Social insurance statistics

Table 2 sets out statistics on the three social insurance schemes, medical schemes and pensions and provident funds.

Table 2: Social Security Beneficiaries (Thousands)
Social Security 2006/07 2007/08 2008/9 2009/10  2010/11 2011/12 2012/13
1.Unemployment Insurance Fund (UIF)
Recipients per annum 572 527 611 779 732 706 731
Revenue (billions) c 8.1 9.0  10.3 11 11.3 12.4  14.0
Expenditure (billions) 2.8 2.9 3.8 5.7 5.4  5.6 6.1
2. Compensation Fund
New claims 213 210 204 201 215 141 197
Revenue (billions) c 3.3 3.9 4.5 4.4 4.8 5.3 8.0
Beneficiaries 887 777 815 781 868 825 935
Value of Payments (billions) 1.4 1.2 1.5 1.4 1.9 1.8  1.5
3. Road Accident Fund (RAF)  
Claims registered 446  341 297 261 270  226 228
Revenue (billions) c 8.1 7.2 8.4 11.9 14.5 17.1 17.6
Expenditure (billions) 4.8  6.1  8.9 11.1 12.9  12.2 15.2
4. Medical schemes
Members 2 985 3 233 3 389 3 464 3 730 3 815 3 878 
Dependents 4 142 4 372 4 486 4 637 4 795 4 864 4 898
Expenditure (billions) a 51.3  64.7 76.3 84.9 93.2 103.7 112.9
5. Pension and Provident Funds
Active Members 7 370 7 274 8 557 9 133 9 654  - b - b
Pensioners 1 972 2 138 1 939 2 547 4 095 - b - b
Expenditure (billions) a 85.9 108.8 142.3 136.2 141.4 147.9 - b
Sources: National Treasury, Budget Review (2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014);
Council for Medical Schemes, Annual Report (2006/07, 2007/08, 2008/09, 2009/10, 
2010/11, 2012/13, 2013/14); Compensation Fund, Annual Report (2007); Financial Service Board, Annual Report (2006 - 2014); SASSA, Annual Report (2010 – 2013)
a. Expenditure refers to all costs incurred as a result of claims 
b. Note that data are not available for some schemes
c. Refers to contribution revenue
Pension and provident funds have the widest reach, with the number of active contributions standing at over 9.7 in 2010/2011. This means membership had increased by a little over 30% since the 2006/2007 financial year and the number of pensioners soared by 108 % over the same period, with an increase in yearly expenditure of 72%. 
Medical aid schemes have also recorded substantial increases, both in principal beneficiaries and expenditure, between 2006/2007 and 2012/2013 period. Most notably, the number of people covered grew by 23%, with claims increasing by 120%. 
UIF claims-related expenditure increased by 116% between 2006/2007 and 2012/2013, while the number of claims increased by 28%.  The Fund has run up an increasing actuarial surplus.  The Minister of Labour has announced that this will be applied to a longer maximum claim period.  
The Compensation Fund, which covers expenditure for injuries or disabilities resulting from work-based accidents, recorded a 5% increase in claims between 2006/2007 and 2012/2013, and a similar increase in payments. This means that the average payment per claim has been roughly constant in nominal terms, implying a substantial real decrease. The payments schedule is in need of revision.
The Road Accident Fund recorded an increase in expenditure of 213% between 2006/2007 and 2012/2013. This increase has been happening despite the 49% decline in claims in between the same period.
The statutory funds are pay-as-you-go funds, as are medical aids. However, pension and provident fund contributions build up entitlements which may pay out many years into the future. At present, the UIF and Compensation Fund are far from paying out all the contributions received.

Table 3: Expenditure as proportion of revenue, 2012/2013

  Revenue (billions Expenditure (billions) As proportion of revenue (%)
Statutory Schemes
1. UIF 13.6 6.1 45
2. Compensation Fund 8.0 1.5 19
3. RAF 17.6 15.2 88
Voluntary Schemes
4. Medical aid schemes 117.0 112.9 96
5. Pension and Provident Funds 521 148 27
Sources: Council for Medical Schemes, 2012/2013 Annual Report, Financial Service Board, 2013 Annual Report


The only fund which has universal coverage is the Road Accident Fund. The Minister of Finance, in his 2015 Budget Speech, reported that the RAF has a large actuarial deficit and the Minister announced a surcharge on the fuel levy to wipe it out.
The UIF and COIDA specifically relate to formal sector workers and there are exclusions, as indicated above.
Private sector medical aid beneficiaries and pension and provident fund contributors are likely to be formally employed. 
Social insurance fills a major welfare hole for millions of beneficiaries in the workplace.  However, most social insurance leaves all informally and some formally employed workers, as well as most of the unemployed, discouraged workers and the not economically active, out in the cold without any social insurance.  For instance, while the UIF plays an important of role of providing occupation insurance when out of work, this measure can only do so much. Swathes of the labour force exhaust the funds before they can secure the next job, and 65% of the unemployed have been out of work for more than a year.   
Elias Phaahla