The Department presented Schedule 1 of the Bill on the Benefits Formula Calculations:
Temporary income support benefit: This kicks in and be calculated from day 61 after the date of accident. It takes into account the income of the victim pre-accident and net of tax. The support benefit allows the Scheme to determine whether the victim would be able to be rehabilitated and be able to go back to work, After which time, if the victim goes back to work, the benefit ceases. Otherwise, the victim would be entitled to claim the long term income support benefit.
Long term income support benefit: This would be less than the temporary income benefit based on the premise that once the victim recovers after rehabilitation, the scheme would support the victim up to a point where the post accident income matches the pre-accident income.
Family support benefits (spouse with no income): Where the spouse has no income and no other dependants on the victim’s income, the support benefit for the surviving spouse would be half of the deceased pre-accident income. However, where there are dependents on the deceased income, the benefit would be lower for the surviving spouse because it was assumed that the income would have been shared among the spouse and the dependants.
Family support benefit (surviving spouse with income): The surviving spouses’ income will be factored in the calculation of the benefit, which would reduce the benefit to be paid to them. The benefits would be higher for the children if there was no surviving spouse, and this would also be the case where there is more than one surviving spouse.
Members asked questions about the extent of employer contributions that would be taken into account when applying the formulas; if proceeds earned from sale of assets would be acknowledged; if the formulas were draft or final; if the formula would follow upward variation adjustments; if the definition of a child in the formulas was someone under 18 years old or who was still in school; if the benefit was to be shared amongst the children where there was no surviving spouse; if potential salary increases and inflation would be considered; if an unborn child or other children fathered out of wedlock would be entitled to the benefit ; and how frequently would the formulas be revised. The DA objected to the formulas on the basis that they still needed to be refined to take into consideration all scenarios and because they did not take into account additional income such as bonus and overtime.
The State Law Advisor, Ms Nomvo Ngcenge, continued from page 38 of the Proposed Amendments (see document). She noted that ‘Fund’ was being replaced with ‘Administrator’ throughout the Bill.
Members agreed with these changes and no amendments were effected.
Mr C Hunsinger (DA) asked for clarity on the relationship between the Administrator and the CEO in terms of the responsibility for the three different accounts. In the amendment, it seems that the provision is general rather than specific – the normal flow of business in supplying information should be from the Administrator to the Executive Officer.
Mr M Sibande (ANC) said that this was already dealt with in the previous meeting. The Committee was now dealing with the Schedules.
Mr Chris Willemse, Senior Manager at Road Accident Fund, explained that the Executive Officer referred to in the Schedule was not the CEO of the Administrator.
Benefits Formula Calculation briefing
A senior actuary from the Road Accident Fund took the Members through the example of how the Temporary Income Support Benefit Formula would be applied when calculating benefits (see document).
Mr Hunsinger asked if in the example Tim received employer contributions in his pension fund, to what extent the employer contributions would be acknowledged when applying the formula. In determining income over the last three years, what if he sold a house in the past three years, that income would have influenced the earnings over the last three years, so would that be acknowledged. If he had taken early retirement, and received pension in addition to the presented scenario – could the department incorporate those very realistic scenarios on how the benefits would be determined.
The RAF senior actuary replied that ‘x’ in the formula is the net of taxable income. If the additional net taxable income was a higher number, then that number would be used when applying the formula. However, if it exceeds the R273 000 of the maximum cap, the portion above the capped amount would not be taken into account.
Mr Hunsinger said would it mean that ‘z’ becomes zero.
The RAF actuary replied that it would be on formula two – the long term income support benefit.
Mr T Mpanza (ANC) asked if the formulas were at the draft stage or finalised.
Mr Willemse replied that the formulas were at the same stage as the Bill, as part of the Bill. The Schedule that contained the formulas was part of the Bill.
Mr Mpanza asked if the formula schedule would follow the same principle as the upward variation previously discussed.
Mr Willemse confirmed that it would. There was no downward adjustment in the formula.
Ms Ngcenge said that in the formula it states that Tim will be getting the money three months from the date the claim was lodged. So what would happen before the three months? Would the victim not be entitled to anything?
The RAF actuary replied that the income support benefit comes in only after 60 days.
Long-term Income Support Benefit
The RAF actuary outlined the underlying principle that in the long term once a person has been rehabilitated they should be able to go back to work. If the individual was able to earn the same income per annum at the time the accident took place, the long term benefit would be reduced to zero.
Mr Hunsinger said that he was not happy with the formula, and he shared his concern about the effects of the ‘deemed income’ such as bonus and overtime – how would they be evaluated, because they form part of the last three years considered taxable income streams. Therefore, the formula needs to be refined to take those elements into account, and how those would be considered. He asked about a claimant who was retrenched or had cashed in pension benefits which therefore increased the deemed income. If assets had been sold which would form part of the tabled income for the last three years, would these form part of the deemed income? The formula did not take into account unusual events. The effect of the variation in income streams on the construction of the formula led to over-compensation.
Mr Willemse replied that sale of assets would form part of capital gains tax not taxable income. The formula was looking at taxable income. The highest taxable income preceding the date of the accident was what the formula took into consideration. He did not think it was appropriate to deal with taxable contributions by the employer, which is not intended to form part of the income stream. Unless there is a clause that excludes it but it is clear that it is not income.
Mr Sibande said that after the accident occurred Tim lost his job, although he later successfully got rehabilitated. However, some companies change their attitudes towards employees that have been in accidents and think they are no longer able to be as productive or effective as before the accident. Now the victim would have been placed under the long term support benefit, what is the status quo in that case?
Mr Willemse replied the formulas are based on time, the temporary income support benefit runs for 24 months subsequent from the date the accident occurred, and then the long term income benefit support would kick in. If in that period Tim loses his job due to the injuries sustained in the accident, he will then move on to the long term income benefit. If he gets rehabilitated, and starts working and earns an income, the benefit would be reduced up until the point his new income stream exceeds the benefit paid, when it stops. If at a later point in time he loses his employment, there will be no reversal back to the benefit because he was rehabilitated. Employment also has its own risks that may be unrelated to the road accident, so it would have major financial implications if everyone would be let back into the scheme in the event that they lose their employment for reasons that may not be related to the accident.
Mr Mpanza said that if the new salary is above the benefit, the benefit ceases, so what about a situation where the salary was less – is it paid proportionally?
Mr Willemse confirmed that that was the case precisely.
Mr Mpanza asked if situations relating to under-payments were considered.
Ms S Xego (ANC) wanted to check if Tim was entitled to bonuses or other income, what happens to those?
Mr Willemse replied that other benefits were not taken into account. His level of income at the time of the accident is what will be taken into account. The Bill specifically provides that benefits would not be considered.
Family support benefit (i) (Spouse with no income – deceased, breadwinner)
The RAF actuary said this formula specifically looks into a scenario where Tim and the surviving spouse had no children. R200 000 was the determined household income when Tim was alive. Tthe surviving spouse would be entitled to 50% of the pre-accident income as the benefit.
In the event children or other dependants are left behind by Tim, that income would be shared amongst the surviving spouse and the dependents. However, the benefit for the surviving spouse would now be lower.
In the event that there was no surviving spouse(s), the dependent(s) would be allocated a much higher portion of the benefit because the deceased income would now be shared amongst fewer people. The larger the number of beneficiaries sharing the deceased breadwinner’s income, the smaller the portion each dependent receives. In the event where there is more than one surviving spouse, the portion to each surviving spouse would also decrease.
Where the surviving spouse has an income, the surviving spouse’s portion of the benefit would decrease. In the event that there are dependents, their allocated portion would not be affected by the surviving spouse’s income because the dependents may not be living with the surviving spouse – that is not assumed.
Mr Hunsinger returned to his concern about employment benefits saying that that additional income should be added, because ‘z’ was the counter-weight of how the formula is constructed. He had a problem where the income of the surviving spouse was deducted, because if at any time the salary of the surviving spouse increases, the family is penalised. We can have a particular scenarios of how the formula is calculated but over time over a 15 year period the circumstances of the family changes. If the revision of the benefit was done annually, it would take that into account but this was not done annually. As time passes the family earns less and less, if it was done annually, there would be a balance to this.
The RAF actuary said that ‘a’ and ‘b’ was the portion the spouse would receive, and ‘c’ and ‘d’ would be the portion allocated to the dependents; ‘c’ and ‘d’ do not get smaller because they are not reduced to take into account the income of the spouse. It is only the portion of the benefit allocated to the surviving spouse that would reduced.
Ms Xego asked if the definition of a child as applied in the formulas was someone under 18 years old or someone who was still in school. If there is no spouse, is the benefit going to be shared amongst the children as a whole?
The RAF actuary replied that would be the case. The definition of the child in the application of the formulas follows the same definition as in the Bill.
Mr Mpanza asked frequently the formulas would be revised, whether annually or quarterly.
Mr Willemse replied the formulas were fixed in the Schedule but what would be revised is the benefit as it would be adjusted from time to time.
Mr N Seabi (ANC) asked if possible salary increases would be considered. Secondly, if he had an accident whilst his spouse was pregnant, how is the unborn child going to be affected?
Mr Willemse replied that future progression in terms of employment was not taken into account, although in common law that would be taken into account. The Scheme only takes a snapshot at a point in time that can be proven which was at the time of the accident. If that income cannot be proven, then the annual average income cap would be applied. As for the child who was not yet born at the time the accident, those rights are kept at bay and there would be a recalculation of the benefits and the child would get part of the benefit.
Mr Sibande asked if there was no surviving spouse and the child was still under age to receive the benefit, what would happen to the money until the time the child reaches a certain age?
Mr Willemse replied the money would go to the child’s guardian, otherwise a curator would be appointed on behalf of the child to manage the money for the child.
Mr Hunsinger said that the calculations for more than one surviving spouse would need to be revised because according to the illustrated examples, the figures did not make sense.
The RAF actuary replied that when there is no children, the three spouses will each be entitled to one third of the R100 000 benefit. If there were two, the benefit would be R50 000. However, in the case where there are children, the surviving spouses get treated the same as children when allocating the benefit portion.
Ms Xego gave the scenario where a spouse has children, but there are also children fathered out of wedlock by the deceased. The spouse succeeds in the claim and receives the benefit. If the claim for the other children comes at a later stage, would they be entitled to benefits and how will the money be distributed? Would the benefits be portioned retrospectively?
The RAF actuary replied that there would be a recalculation of the benefits, and each one would receive their entitled benefit.
Mr Hunsinger said that in the case where a person has built up their pension fund through a retirement insurance company – this would be disregarded through the formula. However, for the person with cash reserves in the bank, it is a contrast as the formula recognizes ‘z’ as a value. In one case, it is an over-compensation whilst in the other it is under-compensation.
Mr Willemse replied the design principle for the Road Accident Benefit Scheme (RABS) is that insurance provision is not taken into account. If you sit on a pile of cash that earns interest income in the bank, then that interest would be taken into account as income which goes into ‘z’. This is because RABS looks at need not loss and that need is addressed through the interest earned through the pile of cash in the bank.
Mr Seabi said that one must not forget that the intention of the Bill was to provide a social security scheme and the DA’s policy does not provide for more than one spouse.
Mr Hunsinger formally objected to the exclusion of the 60 day period after the death – this is the period where the heaviest crisis is experienced. The formulas were also objected to as they still need to be refined. There are instances that were not considered such as overtime and a full income compilation of the individual. Therefore, a lot more development needed to be done on the formulas with more details.
Mr Mpanza said that benefits such as bonuses and overtime were not basic rights but privileges and the principle of the scheme was to focus on rights.
The Chairperson said that the tariffs still needed to be gazetted for public comment. Once the public has commented on the tariffs, the Committee would then discuss the tariffs. The tariffs were already sent to Members but engagement would only occur once public comments have been received.
Mr Hunsinger asked on if the tariff structure sent to Members covered both contracted and non-contracted medical service providers.
Mr Willemse replied that there was no tariff that applied to contracted medical service providers; this would be done through procurement procedures. There is a tariff for non-contracted service providers and this was provided for in draft form. It must be negotiated when the empowering provision allows but that was not yet in place. It will be adjusted to provide for inflation and input received through the Promotion of Administrative Justice Act (PAJA) process in terms of comments. It would adjusted from time to time as provided for in the Bill.
The Chairperson said that when the Committee returns from the constituency period, it would then move into the next phase of the Bill, and continue from where it left off.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.