Address by the Minister of Social Development, Dr Zola Skweyiya, on the second reading of the Social Assistance Amendment Bill

Honourable Chairperson
Honourable delegates
Ladies and gentlemen

Of the many Imbizos that I and other ministers have attended there has always been one recurring question. It is a question that has irked us and disheartened us. It is a question we have come to expect and one which we have not been able to provide a satisfactory answer to until now. The question is: Why if the Constitution stipulates equality between men and women, have men been handed the short end of the stick in terms of the pension by only being eligible for the old age grant from the age of 65 years, while women receive the grant from the age of 60 years. I can assure you as I have reassured many that it is not want, but rather economic necessity that dictates the rules of eligibility for the old age grant. We have ridden roughshod over the rights of older men as we have perceived them to be the stronger sex and more able to handle life's hardships than older women. It is a liberty we have taken reluctantly and one which the Social Assistance Amendment Bill seeks to remedy.

Our system of social security has expanded significantly in respect of social assistance, growing from a coverage rate of 2,5 million in 1994 to over 12,7 million in 2008 amounting to about 3,4 percent of the Gross Domestic Product (GDP) and covering at least 28 percent of the population. It is therefore unquestionable that social grants are the cornerstone of our present social security system.

Honourable members, this growth in coverage for social assistance is occurring in an environment which characterised by social and economic disparities where at least half of the population is unable to enter into the mainstream economy.

The recent Income and Expenditure Survey still shows that income inequality as measured by Gini-coefficient continues to worsen with 10 percent of the population receiving 50 percent of the income. The impact of social transfers on the Gini coefficient is substantial and plays a significant role in reducing inequality. We must thus make an effort to remove all access barriers to social assistance with the view of expanding access and coverage. Following the findings of a study undertaken by the Economic Policy Research Institute (EPRI) we have discovered that the means test acts as a deterrent to retirement saving among the poor and I will be announcing changes to this in due course.

In continuing to improve access to social security, let me now turn my attention to the Social Assistance Amendment Bill. The Bill has two objectives. The first is to equalise the ages of eligibility for men and women over a period of time. Once again financial necessity prescribes that this will occur progressively in the following manner with men being eligible for the old age grant after:

* after 1 April 2008, from the age of 63 years
* after 1 April 2009, from the age of 61 years
* after 1 April 2010, from the age of 60 years.

It is envisaged that a potential 450 000 men will benefit from the passing of this legislation, with approximately 121 000 coming on board this year. These are mainly black males who were excluded by the apartheid regime from obtaining benefits that would prepare them for their retirement and protect them against poverty. In conjunction with National Treasury we have allocated R1,2 billion during this financial year to accommodate these new recipients.

This legislation acknowledges the strategic role that older persons play in society. Older persons are instrumental in caring for the needs of their children, grandchildren and orphans as a result of the HIV/AIDS pandemic that is crippling our nation. We cannot just simply regard them as grants recipients but also need to recognise and appreciate their role as providers of care and ambassadors for moral regeneration.

However, this added responsibility has created a burden especially for men aged 64 years and younger as they lack income support to continue to build the nation through their role as primary care givers. We are well aware that poverty and unemployment has caused many families to rely on social pensions for their survival especially where a social grant is the only source of income in a household. To this end we must continue to reform the retirement industry in a consistent and coordinated manner.

Let me point out that in the area of social insurance, we are making steady progress in the development of proposals for the reform of our retirement provisions and issues relating to this. In particular, we have developed concrete proposals on the introduction of a mandatory contribution for all those in employment. The over-arching goal of this reform work is about ensuring that no citizen of this country is forced to live in poverty, and to prevent everyone from falling into poverty. For those who have the means to contribute or save, we must create a system that provides income-smoothing over their lifetimes, and protects against severe reversals of income due to unavoidable events such as death, disability and old age.

Our view is that the contributory system must be as inclusive as possible without severely reducing the disposable income of low-income earners. For this reason, we would like to see the mandates applying to all those earning R1 000 per month and above, with government providing some assistance in the form of a contribution subsidy to those who earn very low incomes. In order to provide reasonable income protection in retirement, we would like to see a large proportion of the contribution going towards a defined benefit at retirement. At a minimum, our income replacement rates must be well above the current levels of 28 percent offered by the private retirement industry. Given the low income levels in this country, we think that a responsible government should be able to guarantee a minimum income of at least 40 percent of lifetime earnings at retirement.

As most of us are aware, mortality rates are extremely high especially at the income levels we are targeting, and there is a likelihood that a significant proportion of our contributors will either die or become disabled before they reach retirement age. This has important ramification for the financial sustainability of our proposals, and this is why we are carefully investigating the feasibility and affordability of providing for death and disability benefits as part of the mandatory contribution. Initial indications are that this will not come cheap, and may require an estimated for percent of the mandatory contributions to be dedicated to this. Our modelling work in this regard is due for completion at the end of this month, and further details will obviously be thoroughly discussed along with the rest of our proposals in a transparent manner.

Unemployment poses an important constraint on our ability to create a well-functioning social insurance system. In our context, the rate of unemployment stands at an uncomfortable 40 percent, while the ability of our formal sector to absorb new job-seekers has been declining. Those who lose their jobs in the current climate have a high risk of staying unemployed for extended periods. As a result, the benefit provided by our Unemployment Insurance Fund (UIF) have been shown to be woefully inadequate, with the maximum benefits only providing cover for up to 234 days (about eight months). For this reason, we are working in collaboration with the Department of Labour to examine the feasibility of linking our social assistance benefits to enhance the benefits available to UIF beneficiaries, while providing support to ensure quicker re-absorption into the labour force. Much analysis has been done, and we are now considering some specific proposals that we will publish for consideration during this year.

Of course, the reforms under consideration will necessitate a re-examination of our tax system and the level of income cross subsidies provided for within the social insurance framework. For our part, we have made specific recommendations for the introduction of a contribution subsidy which can be financed by removing the existing tax expenditure subsidy. Our view is that the existing system is regressive, in that it favours the rich while condemning the low income earners to rely on the state old age pension.

In attempting to create a comprehensive and inclusive social security system, government will have to examine the current institutional environment to ensure that we improve its performance and coherence. The current fragmentation and gaps in the system will require a total reconfiguration of the whole institutional framework, including the administration, management, governance and oversight of both private and public participants in the system. This is one of the more vexing challenges facing us, as we will need to challenge some vested interests while protecting legitimate rights and vesting rights of those who have contributed to date. We will also need to "fix the car while it moves", as we take into account the significant capacity of the private retirement industry and other public social insurance schemes, while considering the appropriate location and institutional design of the new National Social Security Fund (NSSF). Clearly, we will have to create a fund to act as the key vehicle for mandatory contributions from low-income members who are currently not covered.

On the subject of existing funds, I must take this opportunity to stress that government has no intention of raiding any existing retirement funds or absorbing them into the new NSSF. On the contrary, we would like to ensure that all those who have previously contributed receive the full benefit of their contributions when they reach their retirement age. In fact, I wish to applaud all those employers and unions and other stakeholders who had the foresight to establish their retirement funds, be it provident or pension funds before government embarked on this initiative.

International evidence suggests that we are all myopic and tend to only save for old age when compelled. The fact that some stakeholders took the responsible measures they did to encourage saving for retirement is worthy of praise rather than punishment. I must therefore assure all provident and pension fund members that their savings are safe, and the reform proposals under consideration will look at how to improve and enhance these savings, rather than reduce them in any way. If anything, we are exploring various scenarios of how government can contribute to people's savings, and what mechanisms can be employed to improve the benefits they receive at retirement.

Government is prepared to invest in the establishment of the new National Social Security Fund, and provide contribution subsidies to those who have very low incomes, while preserving the benefits of those who have made contributions through other vehicles. We will even be bringing proposals to all stakeholders on possible exemptions for specific funds where adequate risk pooling is occurring, and the funds are meeting the desired criteria for accreditation in the new environment. The accreditation criteria under consideration will be geared towards protecting the interests of members and ensuring minimum performance standards for all funds. This process is also a reflection of government's commitment to promoting high performance in the industry in order to protect the savings of all members.

The passing of the Bill will go a long way in ensuring that there is consistency between the retirement age in social assistance and social insurance thus paving a way for a universal non contributory pension system in future.

I would like to take the opportunity to thank men who are 63 and 64 years old for their patience. Unfortunately in terms of the grants system there will be no retrospective payments as applicants are only eligible from the date of application.

Honourable Members,

The second objective of the Bill is also focused on ensuring that access to grants occurs in a fair and equitable manner. Presently the South African Social Security Agency (SASSA) is responsible for the process of grant applications. The Minister and Department of Social Development have no say in this process and are unable to review the rejection of grants. This Bill allows the minister to appoint an independent tribunal that will consider all appeals against the decisions of SASSA. A centralised model of a tribunal has been set up at the national office, and this is being piloted in KwaZulu-Natal. The independent tribunal consisted of two sections: appeals officers to develop policies, while the adjudication was done by enlisted panel members. There were two phases of adjudication. At the pre-adjudication phase a matter would be investigated by medical practitioners and attorneys. Civil society would then usher in specific contexts, for example poor socio-economic conditions. From an administrative point of view this was how it is operating at present. The independent tribunal will serve as a mechanism that will allow the poor the opportunity to appeal the rejection of their applications, without undertaking a costly legal process.

The passing of this seemingly innocuous piece of legislation is a milestone in the history of grant provision in South Africa. It eradicates a state of inequality that has existed for decades and one that has been blight on our Constitution. Honourable Members, I urge you to pass the Social Assistance Amendment Bill so that we take a step closer to achieving the Millennium Development Goal (MDG) of eradicating extreme hunger and poverty and realise the future we envisaged for our people in the Freedom Charter.

I thank you.

Issued by: Department of Social Development
16 May 2008