Department of Labour Unemployment Insurance Fund Budget 2006 07

Department of Labour Unemployment Insurance Fund Budget 2006/07 UIF Presentation to Portfolio Committee 13 March 2006

Objective: 2006/07 Budget Report n Content n n n 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 2

Programme Purpose: Programme 5: Social Insurance n n 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. 3

MANDATE n n 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. 4

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

Achievements – 2004/05 n Improving the Coverage of the Social Security Net n n n 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 R 6, 152 billion in revenue and paid out R 2, 475 billion in benefit payments up 9% and 18% respectively on 2003/04. Sustaining an affordable Benefit Regime n n Investments with PIC increased by 81% Investments with PIC valued at R 9, 759 billion compared to prior year value of R 5, 389 billion. 6

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

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

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

Improving Institutional Infrastructure and Capacity n Key projects finalised are; n n n 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 1 st of April 2006. 10

Improving Accountability: Improved Audit Report for 2004/05 n n 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. n 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. 11

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

Financial Highlights for 2004/05 13

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

Update on achievements continued n Sustaining an affordable benefit regime n n The Funds investments at 31 January 2006 is valued at R 13. 8 bn an increase of 41. 7% when compared to year end March 2005. Resolving administrative challenges n Service partnerships are being forged with other Agencies such as SARS on Ufiling project. 15

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

Budget Process n Budget Timelines Submission to DG n Approval by Minister n n Alignment to national priorities n n n - 23 Sept 2005 30 Sept 2005 Income support Capacity building Alignment to Do. L priorities n n KRA 6: Strengthening social protection KRA 10: Strengthening institutional capacity 17

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

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

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

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

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

Chapter 6: Budget Highlights n Highlight of shifts in Funds when compared to 2005/06. n Contributions: 05/06 R 6, 640 m 06/07 R 7, 239 m 9% increase based on Actuary estimates Mar 2005 report. n Other revenue: 05/06 R 804 m 06/07 R 1, 024 m 27% increase due to a corresponding 29% increase in the investment base. 23

Budget Highlights n Highlight of shifts in Funds when compared to 2005/06. n Admin costs: 05/06 R 815 m 06/07 R 802 m Decrease of R 13 m due to anticipated efficiencies. 24

Chapter 6: Budget Review SUMMARY n n 2006/07 Budget Improvements Anticipated net improvement = R 762 m or 40% n Based on the following n n n Revenue Benefit payments up Operating costs* Reserves required down up R 818 m or 11% R 252 m or 8% down R 12 m or 1. 4% R 184 m or 12% * includes R 23 m or 60% increase in projects/initiatives 25

Chapter 8: Statement of Performance n 2004/05 Budget v. Audited Statements ****** surplus up R 1, 360 m or 191% due to: n Revenue up R 795 m or 13% n Benefit payments down R 172 m or 6% n Admin Expenditure down R 145 m or 21% n Required reserves down R 248 m or 12% 26

Chapter 8: Statement of Performance - continued n 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% n Employee costs/contribution ratio 2005/06 2006/07 2007/8 2008/09 4. 3% 3. 3% Actual 2003/04: 4. 3% 2004/05: 3. 6% n 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% n 27

THANK YOU 28