Department of Labour Unemployment Insurance Fund

1. Department of LabourUnemployment Insurance Fund Budget 2006/07 UIF Presentation to Portfolio Committee 13 March 2006

2. Objective: 2006/07 Budget Report • Content • Programme purpose, Mandate & Key objectives • Achievements 2004/5 • Budget Proposal • Strategic overview • Budget process • Budget Methodology • Key Expenditure projects (UIF Priorities) • MTEF Budget (High level) • Budget Highlights • Financial performance indicators • End

3. Programme Purpose:Programme 5: Social Insurance • Purpose: Provide for the administrative and other support services to the UIF. • Measurable objective: Support and ensure sound administration of the UIF in order to ensure efficiency and financial sustainability.

4. MANDATE • The Unemployment Insurance Fund was established in terms of Section 4(1) of the Unemployment Insurance Act, 2001. • The Fund administers the unemployment insurance contributions collected from employers and employees to pay benefits and related administrative expenses.

5. KEY OBJECTIVES OF THE FUND • OBJECTIVES: • Broaden coverage of Beneficiaries • Improve Service delivery • Strengthen Compliance and Enforcement • Sustain an affordable benefit regime • Resolve legislative and administrative challenges.

6. Achievements – 2004/05 • Improving the Coverage of the Social Security Net • Number of employees covered by the insurance fund increased by 9% an increase of 742,780 employees. From 6,231 930 in 2003/2004 to 6,974,710. • The Fund received R6,152 billion in revenue and paid out R2,475 billion in benefit payments up 9% and 18% respectively on 2003/04. • Sustaining an affordable Benefit Regime • Investments with PIC increased by 81% • Investments with PIC valued at R9, 759 billion compared to prior year value of R5, 389 billion.

7. Achievements – 2004/05 continued • Improving service delivery • Over half a million beneficiary claims paid – up 13%

8. 2004/05 2003/04 Commercial Registrations Employers 474,514 427,938 Employees 6,475,545 5,742,942 - Up 11% by employers. Domestic Registrations Employers 628,390 596,368 Employees 499,165 488,988 - Up 6% by employers. Achievements – 2004/05 continued • Improving compliance by employers

9. Achievements – 2004/05 continued • Resolving Administrative challenges • Completed the recruitment of key personnel: • Chief Financial Officer. • Four Executive Managers. Update: Two additional Executive Managers appointed for Risk Management and Revenue Collection in the current year.

10. Improving Institutional Infrastructure and Capacity • Key projects finalised are; • Improved operational system (Siyaya – benefit administration system) finalised and rolled out for national pilot in April 2005. • Integrated Financial Information system (Axsone) finalised and implemented in April 2005/06. • Independent review of the corporate form of the UI Fund completed and approved by Minister for implementation 1st of April 2006.

11. Improving Accountability: Improved Audit Report for 2004/05 • The Auditor General’s qualified Report is a positive departure from the previous three years of disclaimer. • Substantially reduced number of qualifications and matters of emphasis reflects improved systems of internal control. • Number of qualifications down (75%) to 2 from 8 and matters of non compliance down (68%) to 5 from 16 when compared to prior year.

12. Improving Accountability • Auditor General’s report when compared to previous years indicate substantial improvements in areas of management relating to: • Internal control environment • Revenue Management • Accounting processes • Services rendered by the Department of Labour • Fixed Assets • General computer controls

13. Financial Highlights for 2004/05

14. Update on achievements • Improving Service delivery : • Operational system Siyaya signed off. • All new claimants paid via EFT since Jan 2006 • Call centre facilities installed.

15. Update on achievements continued • Sustaining an affordable benefit regime • The Funds investments at 31 January 2006 is valued at R13.8bn an increase of 41.7% when compared to year end March 2005. • Resolving administrative challenges • Service partnerships are being forged with other Agencies such as SARS on Ufiling project.

16. Budget Proposal • Align planning, budgeting and service priorities • Address capacity challenges • Inform stakeholders of the UIF’s strategy and budget plans.

17. Budget Process • Budget Timelines • Submission to DG - 23 Sept 2005 • Approval by Minister - 30 Sept 2005 • Alignment to national priorities • Income support • Capacity building • Alignment to DoL priorities • KRA6: Strengthening social protection • KRA10: Strengthening institutional capacity

18. Strategic Overview • Budget takes account of the following • Legislative mandate – UI Acts • Vision & Mandate • UIF priorities • Safety net for the unemployed • Improve compliance with legislation • Improve institutional capacity

19. Budget Methodology • UIF Priorities • Additional investment in capacity • Projects/initiatives • Financial stability • Growth in reserves & investment • Good governance structure • Agencification • Performance management • Budget addresses KRAs and PIs

20. Budget Methodology - continued • Key factors in budget formulation; • Costs: employees, services, projects and acquisitions • Investments • Revenue • Government priorities • Economic indicators • Contributions & benefit payments

21. Budget Methodology - continued • Key projects for the year addresses the following challenges: • Compliance of employers – database, targeted communication • Completeness of revenue – invoicing • Auditor General concerns on control environment • Service delivery challenges (IT Systems) • Siyaya, axsone, database • Institutional reform – agencification • Capacity building – in-house skills i.e. • Investment & cash management, control systems

22. MTEF BUDGET 2006/07 • High level summary (R millions) Year: 2006/07 2007/08 2008/09 Revenue 8,263 9,030 9,864 Expend 4,186 4,738 5,335 Reserve (1,410) (1,559) (1,800) Surplus 2,666 2,733 2,729 *surplus – Actual 2004/05: R2,071m *surplus – Budget 2005/06: R1,904m

23. Chapter 6: Budget Highlights • Highlight of shifts in Funds when compared to 2005/06. • Contributions: 05/06 R6,640m 06/07 R7,239m 9% increase based on Actuary estimates Mar 2005 report. • Other revenue: 05/06 R 804m 06/07 R1,024m 27% increase due to a corresponding 29% increase in the investment base.

24. Budget Highlights • Highlight of shifts in Funds when compared to 2005/06. • Admin costs: 05/06 R815m 06/07 R802m Decrease of R13m due to anticipated efficiencies.

25. Chapter 6: Budget Review - SUMMARY • 2006/07 Budget Improvements • Anticipated net improvement = R762m or 40% • Based on the following • Revenue up R818m or 11% • Benefit payments up R252m or 8% • Operating costs* down R 12m or 1.4% • Reserves required down R184m or 12% • * includes R23m or 60% increase in projects/initiatives

26. Chapter 8: Statement of Performance • 2004/05 Budget v. Audited Statements ****** surplus up R1,360m or 191% due to: • Revenue up R795m or 13% • Benefit payments down R172m or 6% • Admin Expenditure down R145m or 21% • Required reserves down R248m or 12%

27. Chapter 8: Statement of Performance - continued • Performance indicators • Contribution payout ratio 2005/06 2006/07 2007/8 2008/09 47.2% 46.7% 49.9% 53.4% Actual 2003/04: 37.5% 2004/05: 40.8% • Employee costs/contribution ratio 2005/06 2006/07 2007/8 2008/09 4.3% 3.3% 3.3% 3.3% Actual 2003/04: 4.3% 2004/05: 3.6% • Administrative costs/contribution ratio 2005/06 2006/07 2007/8 2008/09 12.2% 11.1% 11.2% 11.0% Actual 2003/04: 9.4% 2004/05: 8.8%

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