ENABLERS AND SAFETY NETS
Previous parts of this edition of Benefits Barometer describe the concept of the well-being economy and the importance of social mobility in sustaining that economy. They show how classifying households as ‘poor’, ‘middle income’ or ‘elite’ excludes both the potential for improvement and the fragility of an apparently sound position. In this chapter we affirm the role that providers of financial products must play in enhancing well-being. We tap into global research to explore the types of shocks that low-income households typically experience, and show how insurance and saving play a part in protecting against these shocks.
An analysis of the financial positions of South African households by the Southern Africa Labour and Development Research Unit2 provides two insights of invaluable significance to the financial services industry. First, households that may be considered ‘poor’, as measured by levels of expenditure, may be further divided into two categories: ‘chronically poor’ and ‘transitory’. Those classified as ‘chronically poor’ have a relatively low probability of exiting poverty. Those in the ‘transitory’ category have an above-average chance of moving into the middle class. They are the theoretical beneficiaries of social mobility, as they have prospects for improvement.
Second, households currently classified as ‘middle class’ may be subdivided into ‘safely middle class’ and ‘vulnerable’. Those that are safely middle class have only a small chance of falling back into poverty. Those that are ‘vulnerable’, however, face circumstances that could combine to push them into the category of ‘poor’. The existence of this group may help explain why South Africa has failed to establish a stable middle class.
A society that looks after its people well is characterised by mechanisms that enable upward mobility as well as by safety nets which protect its members from falling into poverty. Such a society uses a dual-focus framework, prioritising both social mobility and social protection.
How might South Africa improve the prospects for those who are currently ‘poor’ of moving into the middle class? Similarly, how might members of the ‘middle class’ be protected against events that make them vulnerable to falling into poverty? Some suggest that the answers to these questions lie with government. We take the view that in the dual-focus framework other parts of society have important parts to play, but they must do so responsibly.
Government as provider
Whereas universal and lasting peace can be established only if it is based upon social justice… . (Preamble of the Constitution of the International Labour Organization)3
The International Labour Organization (ILO), a specialised agency of the United Nations, was established in 1919 as part of the Treaty of Versailles, which brought to an end the First World War. At latest count it has 187 member countries.4 It aims to encourage and establish the conditions for social justice referred to in the preamble to its constitution.
The ILO differs from other intergovernmental organisations in two important respects. The first is its tripartite nature. Representatives of both worker and employer organisations, along with policymakers, participate in the development of its standards. The second is the way it establishes and supervises standards. The ILO lays down conventions and recommendations and calls on the leaders of member countries to ratify these. Governments report to an independent committee of experts on ratified conventions, and their reports are made available to the representatives of worker and employer organisations, who may comment on them. The governing body of the ILO may even require reports from member countries on recommendations and unratified conventions.
Convention 102 of 1952 calls for minimum standards of social security with regard to nine benefit types:
- medical care
- sickness benefit
- unemployment benefit
- old age benefit
- employment injury benefit
- family benefit
- maternity benefit
- invalidity benefit
- survivors’ benefit
The convention requires signatories to adhere to the minimum standards of at least three of these benefit types, at least one of which must be unemployment, old age, employment injury, invalidity or survivors’ benefit.
Recommendation 202, passed in 2012, recognises that circumstances and means in countries differ and calls for social security systems in different countries to at least meet the requirements of a specified floor. The implications of these and other conventions and recommendations are that governments are regarded as the primary channels for providing social security.
The roles of other players in facilitating financial well-being
South Africa is not a signatory to Convention 102. However, this should not be regarded as evidence of poor commitment to the principles of social security. The Constitution makes this commitment quite clear:
1) Everyone has the right to have access to… (c) social security, including, if they are unable to support themselves and their dependants, appropriate social assistance. (2) The state must take reasonable legislative and other measures, within its available resources, to achieve the progressive realisation of these rights.5
A number of commentators, among them the so-called Taylor Committee,6 have acknowledged the constraint on government alone to meet acceptable standards of provision. The committee recognises two further important facts:
- While the government has a coordinating role and may perhaps directly protect the most vulnerable in society, individuals and institutions have supporting parts to play in meeting the objectives of a social security system.
- The concept of social security as the provision of benefits needs to be broadened to encompass all of the strategies and programmes intended to ensure a minimum standard of living for all citizens, hence the term ‘social protection’.
In summary, South Africa is committed to the principles (espoused by the International Labour Organization) under which the protection of its vulnerable citizens is of priority to government.
This is enshrined in the Bill of Rights. Government is not, however, solely responsible for adhering to these principles. Individuals, employers and financial services providers also play a key part in enhancing the social mobility of all our people.
If the private-sector contribution to social protection is to be effective, product providers must recognise the role they play and act accordingly. Consider the market for individual pension savings products, typically known as retirement annuities, which is supported by the tax incentives government provides to savers. Industry lobbying for a continuation of these incentives is undermined by policymaker concerns regarding high charges and excessive early-termination penalties.7
The continued right of financial entities to provide products that contribute to social protection and social mobility requires evidence that they do so responsibly. Providers of financial products are not the only entities with an interest in meeting these needs. Employers stand to gain a great deal from improving the well-being of their employees. The principles and supporting detail put forward in this part of the Benefits Barometer should be considered by all companies serious about raising the effectiveness of their employees.
Insurance and savings as contributors to well-being
