Compensation Fund goes private

2014-10-26 15:00

Long-suffering occupational fund has had repeated qualified audits. Now a chunk of its work has been given to Rand Mutual Association

A large chunk of South Africa’s social security net will be outsourced to the private sector from March next year.

The long-suffering R24?billion Compensation Fund, which pays claims and pensions to workers injured on the job, will transfer more than 11% of its work to Rand Mutual Association (RMA), which is collectively owned by South Africa’s mines.

The transfer of all so-called class 13 employers out of the fund’s hands includes most of the metals and engineering sector – up to 60?000 employers and 500?000 employees.

The final notice of this transfer was published in the Government Gazette early this month.

The statutory contributions that will shift from the fund to RMA amount to anything between R600?million and R900?million a year, says Patrick Matshidze, RMA’s chief operating officer.

The contributions are levied on companies’ wage bills at rates set higher for dangerous sectors. Underground gold and platinum mines (class 4) pay up to 5.8%, while the contributions in class 13 range from between 0.33% and 2.6%.

Last year the Compensation Fund collected levies of more than R7?billion from all sectors compared with RMA’s R1?billion from the mines only.

The transfer is meant to help the fund – which has consistently been given qualified audits – get its affairs in order. More important than the shaky accounting at the fund is its backlog in processing claims for medical benefits, death benefits and disability pensions tied to workplace accidents.

The fund, and by extension RMA, are part of the country’s social security net. If the system fails, it can be construed as a violation of workers’ constitutional rights, says Matshidza.

RMA and its shareholders, the mines, also stand to benefit from the new business. By law, it will not be allowed to cross-subsidise the compensation costs of the more dangerous mines, which come to R1?billion a year.

RMA wants to take over compensation funding in other sectors, too.

One reason is that, though it is by law a nonprofit company, the mining industry could see its bill reduced should other sectors, such as manufacturers, come on board to share the load.

Another reason is the decline in mining employment.

RMA is sitting with much excess capacity, says Matshidze.

In the heyday of South African gold mining, the company insured 700?000 workers. That has dropped to 400?000. The class 13 transfer will at the least double the work of RMA, potentially cutting the running costs carried by mines in half.

Though RMA is licensed to offer the same statutory cover as the fund does by law, it has other insurance products registered with the Financial Services Board. These are not bound by the same nonprofit imperative but they barely break even, Matshidze claims.

The Augmentation Policy – which nearly all RMA’s mining clients pay for – augments the insurance for injured workers to make up for lost earnings rather than the statutory minimum cover. RMA also sells policies to cover workers while they are commuting or are at the mines’ hostels.

A product ideal for the manufacturing sector is the riot policy, which insures against workers’ injuries during strikes and other disturbances.

It is uncertain how long the arrangement with RMA will last. The initial licence is for three years, but it is renewable.

Matshidze would not be drawn on whether RMA wants to make the arrangement permanent, but said there was no reason it could not take over more of the compensation system.

The office of the fund’s commissioner, Shadrack Mkhonto, was unreachable by phone this week and it did not respond to written questions about the transfer.

RMA is still conducting consultations with employer groups and unions in the class 13 sectors. This largely means the Steel and Engineering Industries Federation of Southern Africa (Seifsa) and Numsa.

Seifsa’s CEO, Kaizer Nyatsumba, had no comment on the proposed development.

WHAT’S WHAT

The Compensation Fund exists to enact the Compensation for Occupational Injuries and Diseases Act.

The act insures the country’s employers against damages claims when their employees are sick, injured or killed in the course of their work - except if they can prove the employer was negligent.

Rand Mutual Association has existed since 1894, predating the state’s fund by 40 years. It has a licence from the fund to carry out its functions for the mining industry.

Anglo American is the biggest contributor and shareholder in RMA (with 16%), followed by Impala Platinum and Lonmin (which each own about 9%). The three major gold mining companies – AngloGold Ashanti, Sibanye Gold and Harmony – each own about 8%.

The Federated Employers’ Mutual Assurance Company is the only other private licensee doing the fund’s work.

It handles the compensation system for the construction industry and also predates the fund.

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