DEPARTMENT OF LABOUR UNEMPLOYMENT INSURANCE FUND BUDGET 2005/06 PRESENTATION Vote name: Department of Labour Vote number: 17 UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 PROGRAMME PURPOSE Programme 5: Social Insurance Purpose: Provide for administrative and other support services to the UIF Measurable objective: Support and ensure sound administration of the Unemployment Insurance Fund in order to ensure efficiency and financial sustainability UIF BUDGET PRESENTATION 2005/06

BUDGET EXPENDITURE ALLOCATION 2005/06 MTEF allocations R846million Budget R815million UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 Strategic Overview The department seeks to manage the Unemployment Insurance Fund in the interests of people who lose their jobs. UIF BUDGET PRESENTATION 2005/06

Key policy developments Legislative amendments in 2001 and 2002 increased coverage of the workforce, enhancing compliance and ensuring financial sustainability. The Unemployment Insurance Contributions Act (4 of 2002) transferred majority of revenue collection from the department to the South African Revenue Service. UIF BUDGET PRESENTATION 2005/06

Key policy developments Reforms have contributed to the improvement of revenue flows and the accumulation of significant cash surpluses. The inclusion of domestic workers began on 1 April 2003 UIF BUDGET PRESENTATION 2005/06

Service objectives and indicators Recent outputs The turnaround strategy has yielded cash surpluses since March 2003 The UIF projects a surplus of R7,4 billion by 2007 (based on its actuarial estimates). The key challenge for the fund is to sustain the gains it has made to ensure that it remains financially sound. This involves recruitment and re-skilling of staff, systems especially in the financial area to support the business environment. UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 THE UIF BUDGET 2005/06 FINANCIAL HIGHLIGHTS AND TRENDS UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06    YTD YTD JAN 04/05 JAN 04/05 05/06 BUDGET ACTUAL BUDGET R bn    R bn R bn Benefit Contributions 4.576 5.124 6.640   Benefit Payments (2.206) (2.112) (3.132)   Surplus 2.370 3.012 3.508  Other revenue .453 .586 .805   Less: Other Expenditure ( .564) ( .450) ( .815)   Net Surplus 2.259 3.148 3.498   Transfers to Reserves (1.667) (1.493) (1.594)  Net Surplus .592 1.655 1.904   UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 FINANCIAL TRENDS In 2001/02, R1,3 billion was earmarked for the UIF over four years, to deal with persistent deficits and to assist the fund to develop a financial turnaround strategy. The successes achieved resulted in the withdrawal of allocation for 2004/05 onwards because the Fund is in a healthy financial state. UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 INCOME TRENDS Operations and Overview A Net operating income of R1.9bn is anticipated for the year, after charging for a R1.6bn estimate of Unearned Premium Reserve (UPR). This is an improvement on the current budgeted net income of R711m and 2003/04 Actuals of R280m. UIF BUDGET PRESENTATION 2005/06

Benefit Contribution income The Contribution income is anticipated to average R550 million per month, translating to an annual budget of R6.6 billion. This is a R1 billion increase on the previous year's budget and current revenue collection run rate. UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 Other Income Investment portfolio with Public Investment Commission (PIC) is projected to increase by R200m per month The total income anticipated from investment activities is R805m. After taking account of the dis-continued state grant of R7m, the net increase in other income is R253m or 46%. UIF BUDGET PRESENTATION 2005/06

Reserves Buildup and Investments Unearned Premium Reserve (UPR) –This reserve relates to the unexpired portion of the collected contributions for which the Fund remains exposed to settle future Benefits claims. The recommended level of provision (reserve) for 2005/06 is R1,6bn. The projected balance of liquid Investments of R14billion positively matches the creation of reserves of R9bn further asserts the Fund’s ability to meet the future commitments as against previous challenges of the Fund’s going concern status. UIF BUDGET PRESENTATION 2005/06

General Operating and Administrative Expenditure General Operating and Administrative Expenditure up R114m or 17% when compared to the current year budget. Increase is service improvement orientated and relate to investments in Assets and Systems. The main highlights are as follows; UIF BUDGET PRESENTATION 2005/06

BENEFIT EXPENDITURE TRENDS BENEFITS PAYMENTS EXPECTED TO RISE (ASUMPTIONS BASED ON ACTURIAL ESTIMATES) DUE TO RISE IN BENEFIT CLAIMANTS RESULT OF WIDER CONTRIBUTION BASE INCREASE IN RENUMERATION CEILING CATCH UP EXERCISE UIF BUDGET PRESENTATION 2005/06

General Operating and Administrative Expenditure Personnel Expenditure represents an effective cut of 7.6% in Personnel costs when current inflation is taken into account. Travel and Related Expenditure is R3.5m lower due to anticipated efficiency savings. UIF BUDGET PRESENTATION 2005/06

General Operating and Administrative Expenditure Printing and Postage is expected to increase by R5m; this growth is aimed at increasing income stream by sending out invoices and statements. Professional Services costs are expected to increase by R32m due to increased investments in IT related projects. UIF BUDGET PRESENTATION 2005/06

General Operating and Administrative Expenditure Audit fees are expected to increase by R7.6m due to increased activity relating to the implementation of new processes and systems i.e. Siyaya and AXSONE. UIF BUDGET PRESENTATION 2005/06

General Operating and Administrative Expenditure Capital Expenditure / Investment (R38m) are planned for various processes within the Fund such as the SMS Project (income recovery) (R22m) Document Management Project (R10m) Upgrade to Call Centre (R6m). UIF BUDGET PRESENTATION 2005/06

UIF BUDGET PRESENTATION 2005/06 Conclusion The budget reflects an efficiency indicator whereby General Operating and Administrative Expenditure budget is set at 11% of gross contributions compared to the current year’s budget of 13%. A net operating income of R1.9bn is anticipated for the year, after charging for a R1.6bn estimate of Unearned Premium Reserve (UPR). UIF BUDGET PRESENTATION 2005/06