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UNEMPLOYMENT INSURANCE REFORM PROPOSALS AND DEBATES

National civil society consultation August 2008

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Acknowledgement

This input is largely informed by

The presentation ‘Unemployment Insurance Fund - Existing provisions and Gaps’ (Kruger National Park consultation, July 2008)

Creating our Future: Strategic Considerations for a Comprehensive System of Social Security (Social Security Branch, Department of Social Development, June 2008).

Consultation report: Observations on Social Security Reform in South Africa – Social Security Department International Labour office – July 2008

Please note the proposals are not necessarily positions of the Black Sash.

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THE UNEMPLOYMENT INSURANCE FUND (UIF)

The Unemployment Insurance Fund (UIF) has about 7,2 million contributors

– Contributions of 1% from the employee and 1% from the employer– Domestic and seasonal workers included since 2003– Excludes public servants and migrant workers

The UIF provides short term insurance for at a progressive replacement rate of 38% to 60%. Annually the UI pays benefits to:

– 30 000 sick people – 96 000 women on maternity leave– 24 000 to dependants (death benefit)– 420 000 unemployed people This is about 10% of the approximately 4 million unemployed people

Maximum benefit period is 238 days (1 days credit for 6 days worked)

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THE UIF: FINANCIAL PICTURE

The UIF was virtually bankrupt but following systemic reforms in 2002/3 it has successfully turned the situation around

Now the fund is financially sound with billions in reserves - about R21 billion at the end of 2007

This reserve is about 7 times its annual expenditure – ‘several times higher than is needed for a prudent reserve.....social insurance schemes are risk pooling and redistributive mechanisms not capital accumulated schemes.” ILO consultation report

Wide ranging consensus that up to R18 billion can be allocated to redistributive measures to alleviate hardship caused by unemployment

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Proposal: Extending the impact of UI

UIF and The Social Security Branch of the Department of Social

Development propose: Increasing the maximum number of benefit days from 236 to

300 days (1 days credit for 4 days worked) De-linking the different benefit categories (e.g. a beneficiary

can receive full maternity and unemployment benefits) Inclusion of civil servants (important for national solidarity) A progressive replacement rate of 45% to 60%. This increases

the lower limit. The UIF can afford a reduction in the contribution paid by

members. This would allow increased contributions to the proposed health and pension funds

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Advocacy issues: Including more people

Should self employed people, fixed term contract and informal workers be included in the UIF?

There are arguments that there will be difficulty in ensuring compliance and may lead to fraud? At the same time many informal workers are very vulnerable to unemployment

Migrant workers currently contribute to UI but are seldom in a position to claim their benefits.

Bi-lateral and multilateral arrangements are needed to guarantee unemployment insurance to migrant workers

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Advocacy issues: Coverage for partial employment

The UI currently covers domestic workers for partial unemployment e.g. if the worker loses one of several employers a claim can be made

This coverage needs to be extended to other situations where work hours are reduced for reasons beyond the worker’s control

Coverage is needed for suspension or reduction of earnings due to temporary suspension of work due to economic, technological or structural factors

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Proposal: Provision of continuation benefit

UIF and The Social Security Branch of the Department of Social Development propose:

A continuation benefit be implemented for any person whose unemployment insurance credits are exhausted and who has not found employment

Benefit value be 50% of a minimum wage (set at R1 000 in 2007) The beneficiary participates in a labour activation programme (skills

assessment, training and placement ) Reduce the need for people (particularly low-income groups) to draw

down on retirement savings when losing employment Advocacy issues: Should the continuation benefit be provided on an indefinite basis or

for a prescribed period of time after which the beneficiary might be eligible for a social grant

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In conclusion

The existence of a large UI surplus provides a unique opportunity and civil society should advocate for the most progressive utilisation of the available funds