Programme director
Ladies and gentlemen
Members of the media
Good morning
I am pleased to welcome you all to this briefing on the report on the review of children’s access to employment-based contributory social insurance benefits.
This research was commissioned by the Department of Social Development and done jointly with United Nations Children's Fund (UNICEF) as part of our work of ensuring that the welfare of our children is maintained including on matters of social security. It is a proactive way of identifying where the leakages and weaknesses in the social security system may be so that remedial measures can be introduced.
As you are all aware, South Africa’s democratic government inherited a social security system that was fragmented, unco-ordinated and skewed towards meeting the needs of the few. As a result of these disparities, the majority of people were locked out and continue to receive only limited access to social security programmes.
The past decade has seen significant increases in the coverage of social assistance benefits, with children being the primary beneficiaries as the number of children receiving the child support grant grew from some 2,5 million in 2001 to 8,6 million today. While we are of course very pleased with the significant gains in this regard, government has also taken keen interest in how children access those savings benefits for which their parents have saved in various pension funds.
While we have made significant strides in extending social assistance benefits, the development of the social insurance component of our social security system has lagged somewhat behind.
It is for this reason that an interdepartmental team of our government has over the past few years been putting greater focus on the social insurance provisions, with a specific focus on pension provisions, and the related disability and survivors’ benefits.
The report I am presenting today confirms that there is a need for the reform of the system of pension provisions and the other areas of social insurance. The report has found that many children and families struggle to access pension benefits to which they are legally entitled resulting in many continuing to live in poverty.
The deficiencies in the pension and provident funds place significant burdens on the social assistance system, requiring government to foot the bill. This is even more serious during this tough period of recession which unfortunately hits the poorest harder.
We acknowledge that there is a place for a meaningful role for pension funds in our national developmental path: for both poverty prevention and alleviation measures aimed at contributors and their families.
A well functioning comprehensive social security system must therefore have as one of its cornerstones an operating and responsive private pension system that provides adequate benefits. However, and despite the well-intended role of the private markets, the protection of children and their families remain a serious concern and a priority for government.
This focus is what informs our continued participation as members of government’s interdepartmental team on social security reform.
Given the foregoing circumstances, the Department of Social Development and the United Nations Children’s Fund (UNICEF) recommended the review of children’s access to employment-based contributory social insurance benefits. The study was aimed at closely examining obstacles that children encounter in accessing their legal right to benefits as dependents of contributors.
There are some 12,500 retirement funds registered in terms of the Pension Funds Act and approximately 10 statutory retirement funds that cater mainly for state or parastatal functionaries.
For the purpose of this study, three statutory social insurance schemes and eight major pension funds were selected to provide a broad spectrum of issues on the subject. This was augmented by individual case studies of individual claimants.
Before turning my attention to the findings, let me inform you that the findings of the study only apply to the larger pension funds registered in terms of the Pension Funds Act. The private life insurance industries was not covered, nor were the disability schemes, including the disability schemes of the funds that were reviewed. In summary these are the findings of the study:
* Cumbersome or unjustifiable claim procedure
Of all the reviewed funds, the Unemployment Insurance Fund (UIF) has the simplest claim procedures. With the other scheme, the list of documents required for a claim is considerable. In some instances, the funds administrators pass the administrative burden to claimants. The study found that communication between the funds and beneficiaries (mostly widows and children) is generally poor. This means that instead of receiving the benefits to which they are legally entitled, many children will continue to live in poverty.
* Failure to investigate claims
Whereas in some cases funds are legally obliged to investigate lodged claims, the review found that this is not a common practice among the funds. There is a tendency by the funds to shift the duty to obtain and verify required information onto an employer. Thus, the funds become passive recipients of information. These result in unnecessary delays which constitute failure to allow the beneficiaries access to social security. This is a major concern as it causes endless frustrations for claimants.
* Hidden costs
Due to the cumbersome claim procedures and unnecessary administrative delays, the claimants have to undertake a number of visits over a protracted period of time, as some funds do not have regional or local offices which claimants can interact with in their respective areas. This has huge financial implications for the claimants who in most cases do not have any other source of income. In contrast labour-based registered funds have developed extensive regional networks that interface with claimants in a language of their choice. This appears to be the best available practice in the industry.
* Failure to properly monitor unclaimed benefits
The study brings to the fore the vexed question of unclaimed benefits; an issue that affects most communities. It is a national disgrace that today there are hundreds of millions of rands still lying unclaimed in funds, while intended beneficiaries live in dire poverty.
The study found that none of the funds correlated claims with deaths or stoppages in contributions. There was also a general lack of detail on unclaimed benefits. This implies that many members and potential beneficiaries do not know that the funds have benefits waiting for them to claim. The registrar of pension funds has expressed concern in respect of this particular issue.
* Children who lose their guardians
Most of the reviewed funds allow a pension benefit to continue to the child when the guardian passes on. However, the continued pension pay out is dependent on whether the new guardian has knowledge of the pension and will claim it. If the guardian is not the surviving spouse and the funds have no knowledge of him/her, the guardian has to lodge a fresh claim. A primary concern is that if the pension payouts continue under the claim of the new guardian, there is no duty on the part of the funds to investigate the claim. None of the funds interviewed for this study has actively established who the child’s new guardian is.
* Inappropriate trust arrangements
What this study highlights is that trusts for poor children’s benefits are expensive and inappropriate vehicles to cater for such funds. As a result South African children are not fully accessing and benefiting from the pension fund benefits. We need urgent interventions to ensure this that trend is reversed. As I stated earlier, pension funds should assist government to achieve the aspirations set out in our and contribute to wealth redistribution, not to enrich the administrators of the pension system only.
* Management of benefits by guardians
One of the serious challenges is that the funds have no control over the use of the benefits. It is not known to what extent children are denied the benefits of the funds intended to support them. We are of the view that the payment method can either promote and protect children’s interests or invite abuse. All the reviewed funds fail to distinguish between guardian and caregiver. In some cases, the rulings of the pension fund adjudicators have lent credence to this matter.
The study found that funds, in this particular case, the Mines and Works Compensation Fund tend to pay out benefits as lump sum, which the researchers view as a main reason for the abuse of benefits. The assumption that payment of benefits to a spouse meets the needs of children is not necessarily in keeping with the best interest of the child. This is an area where even we in government have to do a lot of improvement regarding child care support grants.
* Payments to foreign workers
With the exception of the Mines and Works Compensation Fund, the majority of the funds do not have reliable systems in place to pay compensation and other benefits to workers and their dependents in foreign countries. Where such systems exist they are tedious and prone to fraud and unnecessary bureaucratic delays. In this age of advanced information and communication technology and diplomacy, it is unacceptable that compensation and retirement payments cannot be made to workers and their child dependents in foreign countries.
* Payments to minors
All the funds, with the exception of the Unemployment Insurance Fund, require a guardian over the age of 18 years, and only make payments to people over 18 years. This is inconsistent with the banking sector regulations which allow a minor to either deposit or withdraw money from a bank account issued in his/her favour. This practice inadvertently disadvantages child-headed households and children who do not have a reliable adult caregiver.
The Children’s Act recognises child-headed households and we should work towards the harmonization of this legislation with our practices in order to ensure that children can easily access these benefits.
* Access to independent adjudication
As you all know, some claims have often resulted in protracted disputes between the claimants and the funds. It is therefore disturbing to learn that of all the reviewed funds; only two have internal appeal or objection procedures. Given the low levels of functional and financial literacy in our country, coupled with the high cost of litigation, claimants or complainants rarely take their cases to court. In cases where complainants get free legal service, it is not always of good quality and sometimes even erratic.
This study continues to indicate to us what has already been our assertion that the current pension funds system requires some serious attention as it is somewhat at variance with international trends. Not only are the services prohibitive, but these funds needed to implement significant service delivery improvements. Experience and common sense lead us to one conclusion, this is unsustainable and it should not be allowed to continue.
The findings of the study support our resolve to take measures to reform the current system of retirement provisions as we have already begun, in order to ensure that all South Africa’s poor, marginalised and vulnerable also benefit from the new comprehensive social security system. Working with our Treasury, Labour, other departments and all role-players in this industry, we will find a mechanism to these reforms. Our main objective is also to improve the efficiency, equity, transparency and fairness of the pension funds industry.
We have no doubt that we will get the support of the private sector in this regard. They have already shown their support for the proposed reforms.
Today's report provides invaluable insights into a critical aspect that must I believe should be addressed in the reform of our pension provisions.
Government is fully supportive of the proposals and I will submit this report to the Ministers of Finance and Labour within the next few days so that we can work together to prioritise the matters raised in the report.
Let me conclude by extending my heartfelt appreciation to UNICEF for their commitment to work with South Africa; to the researchers, the management team and all organizations that participated in this landmark study.
I thank you
Enquiries:
Phindulo Raphulu
Tel: 012 312 7381
Cell: 078 601 3914
Issued by: Department of Social Development
6 August 2009
