JOINT SUBMISSION BY COSATU AND NEHAWU TO THE PUBLIC HEARINGS ON THE REPORT OF THE COMMITTEE OF ENQUIRY INTO COMPREHENSIVE SOCIAL SECURITY SYSTEM

Portfolio Committee on Social Development
Parliament 9/10 June 2003
COSATU PARLIAMENTARY OFFICE
(021) 461 3835
NEHAWU PARLIAMENTARY OFFICE
(021) 462 5310/1

Table of contents
Introduction. 2
Overall approach 3
Overall strategy 4
Social Assistance & BIG 7
National Health Insurance 9
Labour Market Issues 12
Retirement Funds 15
Conclusion 16
 
1. Introduction
Our submission takes into consideration that there have been a number of developments since the Taylor Committee presented its findings, conclusions and recommendations to the Minister of Social Development in March 2002.
Some of these developments can be seen in regulations that have been subsequently promulgated, and in draft legislation. Whilst we shall comment on the recommendations, we shall also comment on developments since the release of the report that have a direct bearing on the recommendations.
Our response builds upon the submissions that we have made in October 2000 to the Taylor Committee and our June 2001 response on the final report of the Committee.
Our submission deals in the main, with key issues of principle and where necessary addresses a particular issue in some detail.
Our submission is part of an ongoing engagement both with the Ministry of Social Development and other Ministries on the implications of the report, and should therefore be seen as providing the basis for more detailed engagement on the issues.
Despite the reservations, which we identify in certain areas, the overall thrust of the report, and many of its recommendations, represent a breakthrough in the approach to setting up a system of comprehensive social protection. We commend the Committee of Inquiry into a Comprehensive Social Security System for South Africa (the Committee) for the excellent work it has done.
Our objections and proposals to those parts of the report, which we feel need to be reworked, are contained in our submission.
Overall, the recommendations propose substantial improvements in social protection through a combination of social security, social insurance and basic services that should in theory protect all South Africans from poverty.
Whilst we strongly support the proposals to extend the child support grant, followed by introduction of a basic income grant in the recommendations. The reality both prior to and since the report was presented in March last year has been different.
An overarching concern is that the thrust of some of the recommendations could easily be lost unless we have an agreement over the financial framework for Comprehensive Social Protection, and that the recommendations do not simply end up taxing the working poor more.
The health proposals as contained in the report will increase the cost of health care for low income-earners. The submission also highlights COSATU response to the proposals on the labour market and the retirement funds.
2. Overall approach to poverty and unemployment
The report paints a stark picture of poverty and unemployment, a reality our members experience every day. Above all, as it notes, rising unemployment has offset improvements in social services for the poor. As a result, deprivation and malnutrition persist.
We support the report’s argument that redistribution is necessary for growth. Mass poverty both restricts domestic demand and undermines the productivity of our people. From this standpoint, as the report points out, simply looking at the budgetary cost of expanding poverty measures is very shortsighted.
The report makes the valid point that high unemployment is the major cause of poverty. Poverty reduces incomes and increases inequality. The poorest receive most of their income from remittances, and wages comprise the most important source of income for the working class. Therefore poverty is exacerbated by lack of access to income or jobs. The share of workers in the national income declined from 1990 to 2002 from just over 57% to just over 51%.
Unfortunately, the report has no substantial proposals to alleviate unemployment. Whilst we welcome the support for active labour market policies, that approach will not do much to relieve unemployment where the job market is shrinking steadily relative to the labour force, and where we experience large-scale structural unemployment.
The official statistics point to a rapid worsening in unemployment in the past decade. Using the narrow definition of unemployment, that does not include those too discouraged to seek work, joblessness rose from 16% of the labour force in 1995 to just over 30% in September 2002.
During this period, the number of unemployed has risen from around two million to over four million. If discouraged workers (expanded definition), are included, the figure rises close to seven million (42% of the labour force).
This is far higher than any other middle-income country reporting to the ILO.
Growing unemployment has been accompanied by growing underemployment, with a shift to poorly paid insecure survival strategies. As a result the average income from work declined sharply between 1995 and 2001.
To find ways to reduce unemployment requires an understanding of the factors behind growing joblessness. These are, structural changes in the economy that have sped up job losses in the mines, farms and public sector; the opening of the economy to foreign competition without adequate direction for job-creating growth; the lack of adequate measures to direct investment and limit the export of capital; and massive inequalities in access to productive assets and skills, which drastically limit the options for most people.
This analysis points to the need for a broader development and job-creation strategy, which could ensure greater coherence between economic and social policies. That approach lay at the heart of the RDP’s strategy of growth with redistribution, which is echoed by the report’s argument for programmes to address poverty. On the one hand, the RDP assumed that economic policies would be geared to dealing with poverty as well as growth, by improving employment and equity, meeting basic needs as well as growing exports. On the other hand, social policies would expand domestic demand, including government expenditure on infrastructure, providing new openings for investment and job creation, as well as improving the overall productivity of workers by providing a more supportive environment.
Social grants and other measures can compensate to some extent for increased un- and underemployment. However sustainable livelihoods must in the main derive from socially productive work.
It follows that comprehensive social protection must be rooted in appropriate economic strategies. As a minimum, it would be important to situate the proposals within strategic guidelines on:
Modifications in economic policy required to promote job creation and, more generally, enhance income-generating opportunities for the very poor, and
Policies on basic infrastructure and social services to ensure that they do more to stimulate economic growth, labour productivity and job creation.

3.Overall strategy (Chapters 13-14 Institutional and Financial framework)

Financial framework
We strongly support the proposed elimination of means tests. As the Committee argues, these means tests effectively prevent the roll out of programmes, because they require excessive administrative capacity. As a result, they do not really assist with targeting, since many of the very poor cannot access grants.
In contrast, proposals to expand mandatory social insurance, particularly for health and retirement, need further refinement. The table below suggests that this recommendation would lead to a substantial increase in private sector spending by government on social protection, (from 58% in 2001 to 62% in 2015), despite the fact that private sector spending by government is already far too high and skewed towards the wealthy.
Unfortunately, the current proposals do not state unambiguously that the increased contributions will not be extracted from the working poor. In other words, in their current form, these proposals could end up adding to the financial burden on the poor. There needs to be an explicit commitment to avoid this outcome.

 Projected changes in expenditure as a result of Committee proposals

Source: Calculated from Report, page 148, Figure 23

Finally, we support in principle the proposed increase in social protection spending relative to the GDP from 30% in 2000 to 32% in 2015. However, we feel that this should be achieved in the context of an overall increase in expenditure, and not only through reprioritisation within current fiscal guidelines. The current fiscal framework would have to be rethought. If the recommendations are to be followed through by government, there would need to be a substantial overall increase in spending on social protection.
 Institutional framework
The report recommends the following institutional reforms for social assistance and social security; -
Establishing an independent board reporting to the Minister (policy development and determination stays with the Ministry)
An agency reporting to the board to operationalise various social security functions outside the public service, covering social assistance, social insurance, and intermediary services
Decentralised governance structures be introduced for existing and future social insurance structures, ultimately reporting to the social security board
A standing Social Protection Commission (SPC) representing key stakeholders, which would relate to NEDLAC, providing a forum for stakeholder consultation. Its function would be to review all issues relevant to social protection.
This would include monitoring and the review of public and private sector social security institutions, and monitoring and evaluating the performance of regulatory authorities. Key to this is to evaluate whether social security objectives are being achieved or undermined. And finally to monitor and develop employment policy.
A single adjudicator for all types of social security claims, complaints and appeals, including a court.
On the Social Security Board, whilst a board to advise the Minister is a helpful recommendation, its proposed powers extend well beyond this. Critically this extends to the proposed decentralisation of social insurance, whereby it is recommended that they report to the board. Essentially, this changes the board beyond one of being advisory. It means that in order to cover the vast range of social insurance funds the board would need to extend itself and the question then arises as to how much time will be absorbed in dealing with these reports as opposed to advising the minister.
It is our submission that any reconfiguration of decentralised social insurance structures should rather report to the proposed agency, than the board.
On the Social Security Agency.
It is our submission, that a dedicated unit within the Department, with its own organogram, own dedicated budget and HRM, can achieve what is intended by the Committee’s recommendations under an Agency that would be placed outside of the Public Service.
The answer to problems of service delivery are not to be found in creating more structures outside of the Department and at a future stage the loss of political control by the Ministry over such structures.
Problems of service delivery are essentially: -
Poor management and development of human resources;
inadequate infrastructure;
lack of resources;
shortages of staff;
regulatory barriers such as means testing;
assignment of social assistance to the provinces;
high levels of fraud that have been worsened by the outsourcing of delivery to private companies.
lack of binding norms and standards;
lack of public education and information on social grants and eligibility criteria.
We believe that the current problems in the delivery of social assistance will not be resolved by proposing a new structure such as an Agency. The proposals are largely driven by a new managerial approach, which rigorously separates implementation from policy development. This approach emerged in industrialised countries, where the results are at best mixed. In developing countries, there are even greater problems. In particular, experience in South Africa has been that the agencies take on a life of their own, leading to inappropriate responses, while governments lack the capacity required to regulate them.
Specifically with regards to social assistance our proposals to improve service delivery revolve around:-
Addressing the invalidity of the assignment of the Social Assistance Act to the provinces
Centralise social assistance delivery within the Social Development Ministry
Where necessary delegate social assistance delivery to the Provinces
Develop a focused human resources strategy through negotiation with the trade unions to improve service efficiency and staff capacity
Locate the social assistance budget at a national level, with allocations for social grants, in the form of conditional grants, to the provinces
The essential goal of these proposals is to establish a nationally organised social security system with standardised management, budgeting and communications systems.

On a Standing Social Protection Commission
We welcome this and we believe that this will greatly assist the department in its work and also manage issues with broader society where disputes may arise. It will also do much to ensure more effective and efficient programmes and delivery. In the interim until cabinet has resolved on the matter we would suggest that the Department needs to co-ordinate a process with civil society, to allow for more detailed engagement on a number of the proposals which require closer scrutiny.
On the single adjudication mechanism
We welcome this but more work would need to be done with in organised labour to sort out those areas, which could problems if extended to those aspects of social protection based in the labour market. The adjudicator would require special understanding of the issues around labour relations and labour laws.
4. Poverty, Social Assistance Grants and the Basic Income Grant (Chapter 5)
The proposal to introduce a Basic Income Grant (BIG), starting with extension of child support grant to all children is strongly supported and welcomed.
There are a range of detailed issues which are raised in the submission of the BIG Coalition (of which we are members) to this Public Hearing. We endorse this submission.
Instead of repeating the detail contained the BIG coalition submission we would refer the hearing to that submission on the issues dealt with in this Chapter. We shall therefore confine ourselves to making limited comments in this Section, more especially on developments since the release of the report.
As an initial measure, the Committee proposes immediately extending the Child Support Grant to all those aged under 18, without a means test. This would substantially reduce the poverty gap. It then recommends phasing in of a Basic Income Grant (BIG) which would give all South African adults around R100 a month, starting in 2005.
In December 2002, the governing party held its 51^st Conference and resolved to raise the child support grant to 14 years. Whilst this falls short of both constitutional requirements and the recommendations of the Taylor Committee, the decision of cabinet to further delay this by resolving to introduce a 3 year period of staggered introduction, has led to massive confusion across Provinces.
Claimants with children 9 years and over are being turned and told to wait the incremental roll out.
It is our submission that the 3-year roll out period is both wrong and will lead to legal challenges being brought to our courts. We submit that the outer two years of the 3-year roll out should be collapsed into one year. That immediately thereafter children between 14years and 18 years should become legible for the child support grant.
The following shortcomings in the current grants system apply:
Low uptake: The means tests act as a barrier, making it costly in terms of time and money for the poor to apply for a state grant.
Poor targeting: Uptake is still concentrated in urban areas and the less poor provinces. Only in Gauteng and the Western Cape does the share of the population receiving social grants come close to the share of the population living in poverty. In other words, those who need support the most fall through the net. Many poor households do not qualify for any social grant at all, because they have no child under nine, no senior citizens and no disabled.
Inadequacy: The current system of grants is simply not adequate to pull people out of poverty. Without any form of state grant, about 58 per cent of households fall below the income poverty line of R401 a month per person. However even with full take up of existing grants, 51 per cent of the population will still fall below the income poverty line. In other words, only around 850 000 people would get above the poverty line, at a cost of R27 billion.
In contrast, as the following table shows, introducing a BIG would substantially reduce the poverty gap, moving some 6,3 million people out of poverty. The Taylor Committee proposes a BIG of around R100 per person, offset against other grants. There would be no means test. 
Comparison of poverty gaps before and after the BIG

The universality of the BIG is a critical factor. It removes the stigma associated with receiving grants as well as any possible disincentive to work. It also vastly reduces administrative costs, makes it easier to reach the rural poor, and encourages self-reliance. In addition, as a grant per person, it favours larger households (which tend to be poorer) and empowers women and children. Richer people will pay back the Grant through the tax system. It would therefore effectively target the poor, without the inefficiencies and unnecessary restrictions associated with a means test.
We welcome these proposals, and urge their immediate adoption. In addition, we propose the following to strengthen the impact of the new grant system:

Government should urgently develop measures to accelerate the issuing of identification to children and to extend grants to orphans. There is considerable evidence that delays in providing identification for minor’s forms a major obstacle to access to the child grant.
The NEDLAC constituencies should be requested formally to develop campaigns and programmes to accelerate extension of the child grant, collapsing the current incremental approach to 14 years and setting a target for its extension to 18 years in the shortest time possible.
Every effort should be made to introduce the BIG, as proposed by the Committee, without a means test.
The report floats as one option, without discussing it, the idea of using an increase in the VAT to fund the new system. This proposal is entirely unacceptable, and we rather support the other option raised by the Committee, namely to recoup the BIG through income tax, supplemented by the fiscus. The VAT is highly regressive, as the Treasury itself admits. If it is increased, it would reduce the benefits to the very poor from the BIG – a counterproductive effect. We would, in contrast, support the introduction of a variable rate for the VAT, with a higher rate for designated luxury goods.
5. National Health Insurance (Chapter 8)
This is possibly the weakest part of the whole report. The proposal in the Taylor Committee report is misleading. What is actually being proposed is a Social Health Insurance (SHI) system not a National Health Insurance (NHI) system. This very important distinction has been acknowledged by the Department of Health. This has led over the years since the concept was first mooted in 1995, to the terms being used interchangeably. This is a very disturbing feature since any planning that must be done based on the recommendations of Taylor Committee will be substantially different depending on the model to be chosen.
In fact there are five (5) different variants of SHI that can be proposed, and the Taylor report does not pick these up.
It is our strong submission that our country needs a strong efficient and expanding Public Sector Health system and that this be funded through a NHI.
The terms of reference of Taylor Committee under health funding and insurance stipulate that the public and private sector environment must be examined with a view toward ensuring universal access to basic healthcare.
It is our submission that the report fails in this regard. Firstly no analysis is given as to the reasons for the problems that face the public health sector and using that analysis what conclusions should be drawn, upon which recommendations can be made.
When examining the findings its is clear that the report seeks to make a case for the retention of the private health service in its current form but within an increased regulatory environment.
It is our submission that the co-existence of private and public health in its current form is a vital factor behind the inefficiency of health spending in our country. R8 billion in the form of tax subsidy is given on an annual basis to the private health care sector.
This sector serves less that 20% of the population yet absorbs two-thirds of total health funding. In contrast the public health sector serves the majority but remains under-resourced resulting in poor service delivery. Only 7 million South Africans, of whom only 9% are African, are covered by private medical schemes.
The annual revenue of the private medical schemes comes to more than R29 billion per year, roughly the same as the total health budget.
The two-tier system promotes a mal-distribution of resources and wastage, inflates health costs and defeats the commitment to health care for all. The private health care system actively weakens the public health system by shifting the cost of caring for patients with serious illnesses onto the public sector, and by setting up a parallel system of expensive private hospitals that diverts potential paying patients from public hospitals.
We propose the NHI to end the two-tier system by incorporating all health resources into the public sector. A new NHI Authority would allocate the health budget to hospitals and practitioners. It would be funded by the existing budget plus a progressive dedicated levy equal to existing private health costs.
The levy would be on high incomes, both salaries and other, and would effectively replace the current cost of health insurance and medical schemes. Because it would replace the employee-employer insurance premiums and out of pocket expenditures, it should not increase the cost of health care to anyone currently accessing medical aid, or to society as a whole. In the long term, by reducing administration and procurement expenses, the cost of health care will ultimately fall.
NHI would not increase the burden of health costs on society in the short run, and will reduce the burden per person in the long run. This has great importance for controlling the costs of living and of production.
Initial cost estimates to run a NHI would be in the region of R19 billion per year.
The above proposal will of course lead to a major reduction in private health institutions since many are kept alive through government subsidisation. However the above proposal does not necessarily mean that there would be no private health institutions. These would be there but would no longer depend on the state for subsidisation, and if anyone wished to use such a system they would have to bear the costs of a strictly private health system which will be substantial.
Key in the recommendations of Taylor is to change the current environment of a general tax funded public sector and a private contributory environment to a broader contributory environment, replacing taxes as a source of revenue. We believe that this model, which can be found in certain European countries, is unrealistic. The levels of poverty in our country, which are borne out the Taylor report, do not allow even in the long term, a contributory environment.
This also raised the question, do we want the state to relinquish funding in the long run, and what are the political consequences for this to happen. It is our belief that a universal contributory system is not the appropriate model for our country.
In phase 4 of the Taylor recommendations on the implementation of a NHI, it states that medical scheme contributions would not be replaced but rather the contributory environment would fund the subsidy provided to medical schemes.
The proposals are not only complex, but place an onus upon working people to carry the costs of the proposals. The reality of our country is that not only do we have a massive unemployment but we also have a poverty of the employed, workers unable survive from month to month.
Means testing is introduced in the proposals in respect of entitlement to a subsidy equivalent to the risk-adjusted per capita average of all contributions, and revenue received into a Central Equity Fund.

The complexities of the system as proposed by the Taylor Committee, means that costs of purely administering their option will be high. These costs will be borne by a contributory environment. The Taylor report admits that the proposal is complex and multi-dimensional. There is an attempt to explain this away by stating that it is inherent in health systems’ reform.
It is our submission that the more complex the system, the more discriminatory it becomes, the more means testing will be required. Our submission on a NHI has the major advantage of its simplicity and long term cost saving.
The consequences for workers of the Taylor recommendations are huge, and we submit such proposals would need to go to NEDLAC to be discussed.
The proposal to restructure tax relief on employee contributions to medical schemes, while requiring all employees of larger companies and the public service to join medical schemes is a problem, and these proposals will lead to substantially higher costs for low-income workers.
As presented in the Committee’s Report, these proposals risk:
Increasing the cost of medical care for the working poor.
Major disruptions of wage negotiations if the changes in the tax subsidy on medical aids lead to higher health costs for large numbers of workers.
A major problem is that the Committee’s proposals do not specify critical parameters for the proposed contributory system.
The risk is that it ends up effectively improving funding for health by making the working poor pay more, rather than the rich. In particular,
The proposals emphasise both mandatory contributions and membership in medical schemes for workers in "large employers" and the public service. Many of these workers are not well paid at all. Some 20 per cent of public servants earn R2500 a month, while many miners earn even less. This approach contrasts with the comment to progressive mandatory contributions, so that "middle and high" income people paying the most.
The proposed changes to the medical-scheme subsidy are not well defined. Making the schemes take on greater risks will raise their costs, so even with the same subsidy members could end up paying more. The transition is even more worrying. The document does not say how government will ensure that the subsidy is passed on to members, rather than being absorbed by medical scheme managers.
In addition, the report does not deal with important issues beyond the financial framework. These include:
Access to and staffing for clinics
Labour relations issues and the brain drain, both from the public to the private sector and overseas
The structure of tertiary care and how that affects equitable access.




Finally, the Committee expects to maintain a strong private sector in health. It seems too optimistic about the ability of the state to regulate it in ways that will ensure efficiency and cost containment. The risk is that, if this project fails, we will see continued soaring health costs and a drain of personnel from the public sector. In addition, the agreement to establish privileged facilities for private users in the public sector could lead to a two-tier public health system. Like the two-tier fee-based system in education, this would prevent more equitable solutions.
We support of the Committee’s measures to enhance equity and control medical costs. The main proposals to achieve this end are:
Regulations to control costs and improve consumer protection in the medical schemes
Increased funding for public health through an increase in effective income taxes and/or the deficit, and through increased contributions by the rich
The definition of minimum standards of care for both the public and private sector, including treatment for AIDS, in order to improve equity
The restructuring of tax relief for medical schemes to reduce the benefits to the rich.
We cannot, however, accept proposals that would increase health costs for those low wage earners or impose excessive cost increases on middle income earners
Because of the likely impact on lower-income workers, we reject:
Mandatory membership in medical schemes for any group, including workers for large employers and the public service
Changes in the subsidy on medical schemes unless they are designed to ensure a substantial improvement in funding for public health, and that the new subsidy does not cause higher medical-scheme costs for ordinary workers.
Any reform scheme that does not substantially improve the public health budget.
"Contributions" for healthcare that are based on employment status rather than income.
 If these concerns are not addressed, the proposals could severely disrupt labour relations, as workers will recoup increased medical costs through wage negotiations.
6. Labour market issues (Chapters 6, 9 and 12)
6.1 The Unemployment Insurance Fund
The Committee argues that:
Because the majority of UIF claimants were poorly paid when they were employed, replacement income levels are correspondingly low. Even the progressive scale of benefits in the new Act will not solve the problem of benefit exhaustion.
The scheme is vulnerable to fluctuations in the level of economic activity to a point where it is non-viable. State support may be required to keep the scheme afloat.
Maternity benefits proposed in the new Act are inadequate.
The Committee concludes that comprehensive insurance against unemployment is impossible in the current circumstances of mass unemployment. It nonetheless recommends:
The level of contributions should be increased.
Maternity benefits: income replacement rate should be raised on the income replacement schedule. Mothers should become eligible for full benefit packages (17 weeks paid maternity leave) after 13 weeks contributions. Possibility of introducing maternity type benefits for those in casual, seasonal or insecure employment should be investigated,
Domestic workers should be included, with a modest tax rebate to their employers.
Public servants should be allowed to decide whether or not to join.
Government must underwrite the UIF in the final instance.
By and large, these proposals align with our positions. However we propose the following be amended: -
The proposal to let public servants themselves decide whether to join will undermine cross-subsidisation – a critical element in the financial stability of the UIF. The system must be compulsory.
The report fails to make specific proposals on benefits levels and periods of eligibility, despite its own argument that current amounts are inadequate.
In respect of the latest developments in the labour market, we need more time to assess the likely impact of the proposed tax relief on UIF contributions for employers of domestic workers.
In the course of the implementation of the Act, workers have raised several concerns that must be taken into consideration when considering the recommendation of the report: -
that workers will benefit once in a four-year cycle is seen as punitive and regressive, in that the old act allowed workers to benefit several times for a period of six months.
that workers would not benefit if they resign. While the underlying objective to discourage resignations is noted, there is a concern however, that workers, who are forced to resign for legitimate reasons would not benefit under the act.
If an employee resigns because of sexual harassment by an employer this will definitely be deemed a ‘constructive dismissal’, and a worker may then benefit from the UIF after a ruling that effect has been made. However, if a worker resigns because of being sexually harassed by a co-worker or the workplace has become intolerable, this will not be covered under constructive dismissals and as such the worker will not benefit from UIF. In this respect, the Act may have to be relaxed to permit workers under prescribed circumstance, to benefit from the Fund, in the event that they resign.


In the Nedlac negotiations on the UIF Bill, and the final Act, it was agreed that there would be a comprehensive review process after two years, which would finalise a range of questions, including level of contributions, level and period of benefits, state funding etc. It is important that detailed terms of reference are finalised for this Review and that the process is expedited.
6.2 Active labour market policies and job creation initiatives
The Committee proposes the establishment of an inter-departmental body to co-ordinate active labour market policies and job creation initiatives. In effect, this body would co-ordinate important elements of economic and social policy. We support this proposal, which should be complemented by a regular assessment of all government programmes in terms of their direct and indirect impact on employment.
To create jobs, the Committee proposes:
Support for current Department of Labour initiatives to create several hundred thousand learnerships in the public sector, and
Up to 2,6 million public works jobs, continued for a sustained period
While these proposals are critically important, the institutional mechanisms for implementing such huge programmes remain vague. We would like to see concrete implementation plans, which should be tabled at NEDLAC to ensure broad support from civil society.
The implementation plans should include Youth Brigades, which could perform community service as well as engaging on public works. Tens of thousands of positions could be created through programmes such as home-care for people with AIDS, ABET and childcare. Youth Brigades could, in this way, contribute substantially to alleviating suffering and building social integration, as well as creating employment for young people – the most affected by rising unemployment.
6.3 Occupational Injuries and Diseases (Chapter 12)
The Committee’s key findings are:
The current system excludes large numbers of people (domestic workers, and those in non-standard forms of work and independent contractors);
COIDA does not encourage labour market reintegration through for example rehabilitation and retraining. Prevention is also not accorded priority in the health and safety arena.
There is duplication with other forms of social insurance.
The legislative framework is still fragmented.
While the report acknowledges exclusion of domestic and other workers, it does not propose strong solutions. It is our submission that compensation must be available to all employees.
Further, when the COIDA amendment Bill was processed in parliament in 1997, the portfolio committee on labour referred a number of issues to the Department of Labour for further study. We expect the Department of Labour to act urgently on the proposal for an in-depth review of the main aspects of the compensation system.

7. Retirement funds (Chapter 9)
7.1 Coverage and benefits
The Committee recommends a compulsory minimum contribution for retirement for all formal employees, including casual and part-time workers, except where their incomes are very low. It also supports a national savings scheme for other workers.
Whilst we support a compulsory contribution system in principle, we recognise that poverty may make it unrealistic. We therefore request a more detailed assessment of the likely impact of this proposal on workers in different income categories.
The report notes that there is a proliferation of small funds, which is inefficient and costly. It suggests that provincial governments, together with unions and local business organisations and retirement funds administrators, should investigate the establishment of regional funds, which could be more efficient and democratic.
This proposal has two shortcomings.
It does not provide any compulsion to small funds to join in.
It excludes the Registrar, while including administrators. Administrators should only administer the funds, not get involved in this type of policy decision. It makes more sense to say that labour, business and the Registrar involved in such a process should be empowered to call on expert advice when the need arises.
Instead of regional funds, we would like to see more support for sectoral retirement funds. These can provide many of the benefits of transferability and wider coverage sought by the Committee. Moreover, they have an institutional base in existing bargaining councils and sectoral forums. The Department of Social Development should encourage relevant structures, including bargaining councils and sector job summits, to start putting mechanisms in place for engagement to establish sectoral retirement funds.
We support the proposals on transferability and on improved benefits for retired people, disabilities, and other groups. In addition, in light of the impact of the AIDS pandemic, retirement funds should review coverage for orphans.
7.2 Administration
We support the report’s argument in favour of empowering trustees and improving fiduciary responsibility, as well as the proposal for investigation of a single, specialised, well-funded Pension Complaints Tribunal.
7.3 Investment
The report proposes that funds:
Be required to invest certain portion of their assets in defined socially desirable investments, with a return equivalent to marketable assets, and
No further increases on offshore investments be permitted until better assessment of the risks are possible.
We strongly support these proposals. We have made specific proposals in this connection at the negotiations at NEDLAC in the run up to the financial sector summit. We hope that the Committee’s recommendations will inform government positions in that engagement.
7.4 Taxation of Retirement Funds
The Committee report deals with taxation of retirement funds at section 9.2.4. What has to be taken into consideration when looking at the proposals is that the impact of the tax regime on low income-earners can have a very negative effect. After government decided to tax retirement funds COSATU entered into negotiations with the then Deputy Minister of Finance, Honourable Alec Erwin, and secured an agreement that implementation of the tax would be subject to the ‘top-up’ arrangement recommended by the Smith Commission, which would compensate low income earners for the effect of the tax. This issue requires further examination and discussion and we should not move on any option until this is done.
8. Conclusion
We thank the Portfolio Committee on Social Development for the opportunity to present our proposals and comments on the Committee’s Report. We commend the Committee for a robust and thorough report as well as a participatory process. We trust that the report from these public hearings will find its way to the July cabinet Lekhotla and that the product of these public hearings will receive the timely and due consideration of cabinet.
There are areas that need far more consultation and we believe that this should be one of the recommendations of the Public Hearings.
We are willing to meet with the Department of Social Development and any other relevant department to discuss issues canvassed in our submission.