Minister of Employment and Labour Thulas Nxesi has provided new information around the financial sustainability of South Africa’s Unemployment Insurance Fund (UIF).
Relief payments from the UIF are part of the basket of services which government has laid out to different sectors as a means to ride out the worst of the Covid-19 pandemic.
Responding in a recent written parliamentary Q&A, Nxesi said that the UIF has not commissioned actuarial research into its financial sustainability in the event of mass-scale job losses.
However, he noted that the fund’s internal actuaries have presented the following scenarios for mass job losses in the country.
1. Unemployment rate peaks at 41.4% and Covid-19 TERS benefits cost R48 billion
In this situation, the UIF becomes financially unsound as there is no insurance capital left and it is required to “borrow from future” by using 5% of accumulated credits.
Sufficient funds should be available to pay benefits on a pay-as-you-go (PAYG) basis, it said.
In this scenario, it is possible that the fund could return to financial soundness in 10 years.
2. Unemployment rate peaks at 41.4% and Covid-19 and TERS benefits cost R68 billion
In this situation, the UIF becomes financially unsound as there is no insurance capital left and it is required to “borrow from future” by using 60% of accumulated credits.
In this scenario, it t is unlikely that the fund could return to financial soundness in 10 years without a contribution increase and will essentially operate on a PAYG basis.
3. Unemployment rate peaks at 53.7% and Covid-19 and TERS benefits cost R48 billion
All accumulated credits will be depleted and the UIF would also need to borrow against beneficiaries and service providers to pay claims.
Taking liquidity of assets into account, the fund will not be able to pay all claims when due and may need to put Road Accident Fund-style measures in place to prioritise/structure payments.
4. Unemployment rate peaks at 53.7% and Covid-19 and TERS benefits cost R68 billion
Possible remedies for the dire financial position of the fund under this scenario could include:
- Additional funding from Treasury;
- Temporary increase in contribution rate;
- Reduction in benefit.
An increase in job cuts could affect the UIF’s ability to provide much-needed coronavirus support to employees, says UIF commissioner Teboho Maruping.
Maruping said in a statement on Friday (19 June), that the ‘biggest worry’ the fund now faces is the number of jobs that are being shed, or are going to be shed, and how this will put a strain to the liquidity of the fund into the future.
“With the announcement by President Cyril Ramaphosa this week on advanced level 3 of the lockdown, a lot more people will be going back to work in various sectors. This will partly relieve the fund. This is a good time for employers to do right and declare and contribute for workers to the UIF.
“If ever UIF demonstrated how critical it is to the lives of workers, the contribution that it has made during the lockdown should be evidence enough. We hope those companies that have not declared their workers will do right and declare all workers,” he said.
The commissioner added that he has instructed the fund to ensure that going forward, it will find the best ways to remain liquid while ensuring that they make the difference to the workers who need them the most at the moment.
In May, the UIF disbursed close to R6 billion to 1,440,757 individuals to help them cope with the worst effects of the lockdown. Cumulatively since 16 April, the UIF said it has paid over R23 billion to 3,663,932 workers represented by 322,422 employers.
The UIF says it has plugged this hole for most workers who are able to take care of their families with this income replacement.