UNEMPLOYMENT INSURANCE FUND(UIF) Presentation

To

Commission of Inquiry Into Higher Education and Training

On

Post School Education and Training Funding

By UIF Commissioner Teboho Maruping

1

FOCUS AREA

Financial Position

Contraints to the use of the funds

2

1

4

Scope for using the proceeds / surplus in the UIF

to fund PSET

5

3

6

Legislative framework

Background of the Fund

Amendment Bill

7 Additional Explanatory notes

Legislative Framework

3

LEGISLATIVE FRAMEWORK

The Unemployment Insurance Fund (UIF):

Established i.t.o Section 4(1) of the UI Act, 2001

(Act 63 of 2001), as amended.

The Act empowers the UIF to register all employers and employees in South Africa. 4

UI Bill approved 2017

Empowers SARS Commissioner to collect monthly contributions from both employers and workers

UNEMPLOYMENT INSURANCE ACT

5

Purpose

To establish UIF to which employers and employees contribute; and from which employees who become unemployedor their beneficiaries, as the case may be , are entitled to benefits and in so doing to alleviate the harmful economicand social effects of unemployment

Application of the Act

The Fund must be used for the,

1. Payment of benefit in terms of this Act

2. Reimbursement of excess contributions to employers

3. Payment of -

i. remuneration & allowances to members of the UI Board and its committees and

ii. any other expenditure reasonably incurred and relating to the application of this ACT

UI Contributions Act No 4 of 2002

6

The purpose of this ACT is to provide for :

1. The paymentof contributionsfor the benefitof the UIF and

2.Proceduresfor thecollection ofsuchcontributions

Purpose of Act

This Act must be administered by the Commissioner

The Commissioner may delegate any power or assign any duty which relates to the collection of :

contributionspayable to the UICommissioner interms of section 9

any information tobe submitted byemployers in termsof this ACT, UIC

Administration of the ACT

This Act applies to all employers & employees; other than-

1. an employee & his/her employer where such employeeis employed by that employer for less than 24 hours amonth

2. an employee and his /her employer where the employee receives remuneration under a learnership agreement registered in terms of the Skills Development Act, 1998

3. employers and employees in the National & provincial spheres of government

4. an employee and his or her employer where an employee has entered the RSA for purpose of carrying out a contract of service, apprenticeship or learnership within RSA, if upon termination thereof the employer is required by law to repatriate that person or if that person is so required to leave the Republic

Application of the ACT

Alignment to National Development Plan(NDP)

7

8

1. Outcome 4 : Decent employment through an inclusive

economic growth

2. Outcome 12 : An efficient , effective & development

oriented public service and an empowered

and inclusive citizenship

3. Outcome 13: An inclusive & responsive social protection

system

Government

Outcomes:

1. DOL strategic objective 1, Outcome 4Contribute to decent employment creation

2. DOL strategic objective 5, Outcome 13)Strengthening social protection

3. DOL strategic objective 8, Outcome 12Strengthening institutional capacity of the Department

1. Outcome 12Improve financialmanagement

2. Outcome 13Improve service delivery

3. Outcome 13:Improve compliance

4. Outcome 4:Fund poverty alleviationscheme

Priorities of the Fund

Increase contributions collected by at least a rate equal to the prevailing Consumer Price Index

Increase the rate of processing claims in order topay within the targeted service levels andturnaround times

Contribute in the various schemes designed to

alleviate the harmful effects of unemployment

which includes investing mandated funds in

Social Responsibility Investments

Maintain effective systems of internalcontrol as required by the Public FinanceManagement Act

DOL UIF

Service Delivery Outcomes & Strategic Goals

Vision; Mission and Values of UIF

9

VISION, MISSION AND VALUES

10

ONE VISION

Transparency

Open to all stakeholders

Mutual respect

To all colleagues& stakeholders

Client-centres services

by Providing excellent & world class

service to allIntegrity

Communicate openly and

honestly with relationship

based on trust

Accountability

Own up to our responsibilities in relations to

our behaviours & actions

Team Work

Involve eachother, worktogether, seekideas and sharesolutions

• The UIF strives to contributes tothe alleviation of poverty inSouth Africa by providingeffective short termunemployment insurance to allworkers who qualify forunemployment insurance andother related benefits

VISION

• Rendering an effective and accessible service to all stakeholders

• Being a sustainable organization with sufficient reserves

• Administering the Fund professionally

MISSION

UIF Footprint

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UIF Footprint

• The Unemployment Insurance Fund operates in 9Provincial offices of the Department of Labour

• There are 125 Labour Centres that members of thepublic can access to apply for benefits

• These Labour centres further service more than 820visiting points within their geographical location

• Claims processing happens at 84 sites.

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• 100%dedicatedstaff

• Split staff aspersal ( thesestaff performintegratedservices

UI Staff in provinces

• Registrationof employers

• Declarationmanagement

• claimsmanagement

• overpaymentdebtmanagement

• Appeals

• Financialmanagement

• payrollauditors

Provincial Set UP

• Applicationfor benefits

• Payments/continuationforms forbenefits

• Enquiries

• Advocacy

Labour Centre Set Up

How it cascades down to the Provinces

Financial Position

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1. GLOBAL FINANCIAL POSITION OF UIF

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As at 31 March 2016, theFund had net assets to theamount of R120.12 billionwhich comprised of anaccumulated surplus of R98.5billion and technical reservesto the value of R21.62 billion

Funds are held in investmentsaccording to the Fund’sinvestment mandate which ismanaged by the PublicInvestment Corporation asstipulated in the UI Act.

GLOBAL FINANCIAL

POSITION OF UIF

2. Contribution Revenue vs Benefit Payments (R’billion)

15

8.06

9.16

10.32 10.76

11.34

12.44

13.69

15.31

16.15

17.12

2.84 2.92

3.85

5.71 5.38 5.61

6.01

7.08 7.09 7.69

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Contribution Revenue Benefit Payments

3. Contribution Revenue vs Benefit Payments and Administrative/Operating Expenditure (R’billion)

16

8.06

9.16

10.32 10.76

11.34

12.44

13.69

15.31

16.15

17.12

2.84 2.92

3.85

5.71 5.38 5.61

6.01

7.08 7.09 7.69

2.00 2.28 1.96

3.61

1.38

2.48 3.05

3.49

4.44

3.06

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Revenue Benefit payments Admin and Operating Expenditure

Note: Admin and Operating Expenditure includes employee cost and technical reserve provisions for benefit payments and excludes payments made with regards to unemployment alleviation schemes.

4. Unemployment Alleviation Schemes Funds paid and committed (R’billion)

17

- - - 0.004

0.048

0.022 0.032

0.088 0.093 0.081

- - -0.022

0.044

0.158

0.307

0.211

0.274

0.510

-

0.10

0.20

0.30

0.40

0.50

0.60

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Unemployment Alleviation Schemes

Funds Committed

INVESTMENT PORTFOLIO

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Investment of the Accumulated Surplus as at 31 March 2016 (R’billion)

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62%

25%

8%3% 2%

Assets under management

Bonds

Listed Equity

Cash

Money Market Instruments

Developmental Instruments

Asset Class Value (R'000)

Bonds 74 930 877

Listed Equity 30 259 912

Cash 9 870 154

Money Market Instruments 3 224 155

Developmental Instruments 2 155 886

Total Assets Under Management 120 440 984

Liquidity of the Investment Portfolio

as at 31 March 2016 (R’000)

20

37%

63%

Duration of Investment Portfolio

Current Assets Long Term Non-Current AssetsDuration of Assets under Management Value (R'000)

Current Assets 44 020 585

Long Term Non-Current Assets 76 420 399

Total Assets Under Management 120 440 984

Distribution of Capital Market Instruments (R’000)

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Capital Market Instruments (R'000)

Government Bonds 58 522 681

Parastatal Bonds 13 738 756

Other Bonds 2 234 353

Total Bond Instruments 74 495 790

79%

3%

18%

Capital Market Instrument Split

Government Bonds Other Bonds Parastatal Bonds

Developmental Instruments Committed as at 31 December 2016 (R’000)

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Agriculture10% Construction

Engineering1%

Education18%

Energy6%

Financial Services3%

Health25%

Housing22%

Mining0%

Petroleum2%

Renewable Energy3%

Road Infrastructure10% Technology

0%

Industry / Sector COMMITED

AMOUNT

Agriculture 983 430

Construction Engineering 80 000

Education 1 812 000

Energy 625 000

Financial Services 257 500

Health 2 462 000

Housing 2 200 000

Mining 48 000

Petroleum 180 000

Renewable Energy 250 000

Road Infrastructure 1 002 482

Technology 43 500

Total Developmental Instruments Committed 9 943 912

Developmental Instrument Deals-in-Progress as at 31 December 2016 (R’000)

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Agriculture6%Energy

2%

Financial Services77%

Health1%

Petroleum7%

Technology0%

Various7%

Industry / Sector Un-Commitment

Approvals

Agriculture 509 668

Energy 178 000

Financial Services 6 923 149

Health 133 000

Petroleum 600 000

Technology 21 000

Various 600 000

Amendment Bill

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Amendment Bill

Changes

Workers will accrueUIF credit faster:

1:6-1:5

Claim longer:

365-238

Maximumclaim=R14872

Maternity benefits setStd rate of 66%

Maternity will now alsonot get subtractedfrom normal UI benefitscredits

People who get puton short time canclaim UIF benefitsif certain wagesdrop below acertain level

Period to lay UI benefits extended from 6-12 months

financing of theretention ofcontributors inemployment and re-entry of contributorsinto Labour market &any other schemeaimed at vulnerableworkers

1. Contribution notimpacted

2. Increase in coveragewithout members increasingcontributions

3. Intervention to keeppeople at work formalised

4. There are otheramendments in the pipelinethat will result in costimplications

5. Public Employment Actwas reviewed toaccommodate interventionby UIF in respect ofemployers who are indistress

Key consideration of the Amendment

Constraints to the use of the funds

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The constraints to the use of the funds

The UIF beneficiaries are both Employers and Employees who pays their contributions. The benefits due to both Employees and Employers is defined in the UI Act

•UIF is a defined contribution mechanism in that the Employer and Employee each contributes 1% of the employee salary as defined by the Act which amounts 2

•This is clearly defined and stipulated in the UI Contributions Act

The constraints to the use of the funds

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1 • On an annual basis the Fund’s actuaries conduct an actuarial valuation of the Fund as required by the UIA

4

• These reserves are required to sustain the Fund’s sound financial position in the short and long term.5

As at 31 March 2016, the Fund’s reserves for “Change in benefits payable” and “Change in unearned premium reserve” increased from R1,2 billion as at 31 March 2015 to R2,8 billion at 31

March 2016.

Outstanding benefits provision increased from R3,8 billion at 31 March 2015 to R4,2 billion at 31 March 2016

The Fund’s Technical Reserve also increased from R19,1 billion at 31 March 2015 to R21,6 billion as at 31 March 2016.

2

3

The Fund’s surplus Funds are invested through PIC in accordance

with the following investment mandate:

Asset Class Minimum

Range

Strategic Asset

Allocation (SAA)

Maximum Range Benchmark

Capital Market 20.00% 27.50% 40.00% ALBI

Equity 10.00% 24.00% 30.00% FTSE/JSE (SWIX) Excl Property

Inflation Linked Bonds 20.00% 30.00% 40.00% CILI

Cash & Money Market 1.00% 5.00% 10.00% STEFI

Listed Property 0.00% 2.50% 5.00% J253

African Investments 0.00% 2.00% 5.00% MSCI (AFRICA) Excl SA

Foreign Equity 0.00% 4.00% 10.00% MSCI (ALL COUNTRY WORLD INDEX) Excl SA

Unlisted Property 1.00% 5.00% 7.00% IPD

Total 52.00% 100.00% 147.00%

The constraints to the use of the funds

The constraints to the use of the funds

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6

• 90% of the Fund’s investment portfolio is invested with a long term duration. Listed equity which is fairly liquid are not bought with the intension to speculate but held over a long term.

• Selling these instruments pre-maturely might result in realised losses and transaction costs for the Fund.

• The Fund’s Amendment Bill has been signed by the President

• The Bill will be promulgated shortly and implementation regulations issued

• According to an impact study performed by the Fund’s Actuaries the implementation of all amendments in the Amendment Bill will have a significant impact on the decreasing of the Fund’s surplus.

7

8

Scope for using the proceeds/surplus in the UIF to fund PSET

31

Payment of benefits to UIF beneficiaries

Collect revenue from employers

Participate in government initiatives to create and sustain decent employment

Administration of UIF operations

Service delivery to all UIF clients

Compliance to the UIA

Anyfunding arrangement MUST fall within the mandate of

the Fund

UIF has established theLabour ActivationProgrammes unitwhose primaryobjective is to increasethe Fund’sparticipation in povertyalleviation schemesand investment of 20%of the fund’s totalinvestment portfolio inDevelopmentalinstruments

The UIF Actdoes makeprovision forinterventionstowards jobcreation,retention,skillsdevelopment,Training layoffscheme andTurn aroundsolution

Is there scope for using the proceeds/surplus in the UIF to fund PSET ( 4 Proposals)

1• Establishing a relationships by cementing a Memorandum of Understanding with the Fund’s Labour Activation

Programme targeted at training of the unemployed

2

• The Fund has 5% of it’s total Portfolio allocated to it’s Unlisted Property mandate. There is room here to build institutions of higher learning for PSET. The Fund will bear the project- and building cost and PSET will rent the properties from the Fund

3

•Currently the Fund’s mandate towards Developmental Instruments are 20% of it’s total Portfolio value. Developmental Instruments are a theme across Capital and Equity asset classes and may include, but is not limited to, unlisted equity, unlisted debt, mezzanine, quasi debt and/or a combination thereof. The main focus of SRI investments is to create and sustain employment. Within this mandate we can acquire student accommodation through partnerships with institutions as we have done with Southpoint for PSET students

4

•PSET can issue a private Bond that the Fund will buy via the JSE.

•The Fund will sacrifice investment return earned on the Bond in return for a clearly defined, negotiated and supported social impact generated by PSET.

•This option will be similar to the relationship the Fund currently has with IDC

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Thank You…