UNEMPLOYMENT INSURANCE FUND

BRIEFING FOR PORTFOLIO COMMITTEE

CAPE-TOWN 1ST JUNE 2004

UNEMPLOYMENT INSURANCE FUND

This new act is a product of an extensive research and an inclusive consultative process dating as far back as 1994.

Stakeholders who participated were drawn from the academia, labour, business, ILO, the public and other government departments.

PROCESSES INFORMING THE ACT Minister of Labour’s Five Year Plan 1995 Labour Market Commission Report Stakeholders Forum of 1996 Report of the Ministerial Task -Team DoL’s Position Paper Second Stakeholders Forum 1998 Public Representations Minister of Labour’s 15 Point Plan 1999

PROCESSESS INFORMING THE ACT CONT’

Detailed input from ILO. Detailed input from National Treasury.

OBJECT OF RESTRUCTURING THE FUND

To develop a new policy on Unemployment Insurance Coverage and the design of an institutional framework, to deal with both the administrative and legislative short-comings of the fund.

KEY ASPECTS OF THE NEW LEGISLATION

Coverage Compliance and Enforcement Measures Discrimination Entitlement to Benefits Benefit regime Actuarial inputs

KEY ASPECTS OF THE NEW LEGISLATION Employer-employee Database

COVERAGE

Learnerships Public Servants Company Directors & Members of a CC Migrant Workers

COMPLIANCE AND ENFORCEMENT

Compliance Orders SARS Interest and penalties Suspension of a contributor.

ENTITLEMENT TO BENEFITS

Ordinary Unemployment benefits Illness benefits Maternity benefits Adoption benefits Dependent’s benefits

AFFORDABLE BENEFIT REGIME

Sliding scale Top up

ACTUARIAL EVALUATION

Actuarial inputs Actuarial database Annual actuarial evaluations

EMPLOYER-EMPLOYEE DATABASE

Duty of the COMMISSIONER.

Maintain databse of Information to be supplied by employers

Feedback to employers

CONTRIBUTOR DATA EXTRACT

Commercial Domestic TotalTotal entries 3,324,778 589,587 3,914,365

Adjustment for duplicates 2,575,993 555,985 3,131,978

Entries with no salary information 596,444 13,057 609,501

Useful entries (with salary information) 1,979,549 542,928 2,522,477

Percentage with no salary information 23% 2% 19%

CONTRIBUTOR SALARY DISTRIBUTIONSalary distribution for contributor database

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Salary bands

Nu

mb

er

of

co

ntr

ibu

tors

INCOME AND EXPENDITURE

YEAR BENEFITS

MIL.

BENEFIC.

(000)

INCOME

ADMIN EXP

(000)

EMPLOYERS

1997 2685 870 2696 183 275400

1998 3051 842 2569 197 280470

1999 2984 769 2756 239 283200

2000 2905 674 2791 338 270440

2001 2838 637 3694 618 275435

FINANCIAL POSITION OF FUNDBalance sheet as at 31 March Original UPR

2003 2004 2004 2004R'000 R'000 R'000 R'000

Assets

Fixed Assets 43,409 39,836 39,836 39,836 Investments 44,023 6,254,934 6,254,934 6,254,934 Debtors and debit balances 499,816 483,380 483,380 483,380 Money market deposits 2,620,052 - - - Accrued interest 6,782 7,616 7,616 7,616 Bank balances and cash 140,886 219,561 219,561 219,561

Total assets 3,354,968 7,005,327 7,005,327 7,005,327

Accumulated deficit 393,781 993,553 - 184,553

Total assets and accumulated deficit 3,748,749 7,998,881 7,005,327 7,189,881

Equity and liabilities

Accumulated funds - - 934,447 -

Current liabilities

Creditors and credit balances 144,309 227,880 227,880 227,880 Provisions 3,604,438 7,771,000 5,843,000 6,962,000

Outstanding Claims reserves 1,296,000 2,484,000 2,484,000 2,484,000 Unearned premium reserves 2,308,438 5,287,000 3,359,000 4,478,000

Total equity and liabilities 3,748,747 7,998,880 7,005,327 7,189,880

Adjusted UPR 27/48

Adjusted UPR 36/48

PERIOD TAKEN TO APPROVE CLAIM PER REGION

Average period application to approval per region - 2001 and 2003

-

10

20

30

40

50

60

70

80

90

Region

Ave

per

iod

appl

icat

ion

to a

ppro

val p

er re

gion

(day

s)

2001

2003

PERIOD TAKEN TO APPROVE CLAIM PER SECTION

Average period application to approval per section - 2001 and 2003

-

20

40

60

80

100

120

140

160

Adoption Dependants Illness Maternity Unemployment

Section

Day

s 2001

2003

CHANGES IN CLAIM PATTERNS

Number of claims increased significantly from August 2003 onwards.

Claim patterns appear to be changingPeriod taken to apply - average increased from 45 to

75 daysPeriod to approve claim – average increased from 30

to 37 days Expect more IBNR claims to emerge in the future

due to the additional delay Major reason for the increase in outstanding

claims reserves

Claimants by termination reason and sex

Query 6M

Termination reason2001 2003 2004

Active 317 371 6 Business closed 27 8,302 8,816 Casual/Temporary 140 757 204 Constructively dismissed 1,382 3,937 898 Contract expired 7,506 142,845 109,635 Deceased 3,327 20,365 8,988 Dismissed (termination by ER) 538,000 136,643 58,919 ER's insolvency 334 10,414 4,584 Illness leave 1,444 19,336 12,249 Maternity/Adoption leave 2,583 62,255 43,584 Resigned (voluntary) 5,081 11,460 217 Retired 1,347 18,235 12,165 Retrenched 7,379 114,207 83,043 Transfer 59 478 8 Unknown 7,166 1,463 - Voluntary termination (good cause) 865 6,939 533 Absconded - 223 53 Grand Total 576,957 558,230 343,902

Total

Number of claimants by termination reason - 2001, 2003 and 2004