Pensions Core Course 2013: Social Pension Payments - South Africa

Social Pension Payments: South Africa

Sarah Rotman

April 10, 2013

Agenda

1. Payment Methods up to March 2012

2. Messy Procurement

3. New Payment Method as of March 2012

4. Recipient Experience

2

South Africa’s Social Security Administration (SASSA)

• SASSA implements and pays various unconditional cash transfers that reach 9 million recipients (30% of the population)

• Old Age Grant

• Child Support Grant

• Disability Grant

• Foster Child Grant

• Care Dependency Grant

• Grant in Aid

• War Veterans Grant

• Old Age Grant

• Targets elderly over 60

• Eligibility determined by means test

• 140 USD (R1200) paid monthly

3

Payment Methods up to March 2012

Payment Instrument Cash Limited-Purpose Instrument General-Purpose Instrument

Form of Payment --

• Cash-based services (CBS

payments): recipients access

a card-based electronic store

of value at pay points to

receive their cash payment

• Direct deposit to existing

bank accounts (ACB

payments)

Providers --

• Specific payment providers

that offer store-of-value via

smart cards, but no additional

fund deposits and use only at

dedicated pay points

• Net1, Empilweni

• Banks that offer magnetic-

stripe cards linked to

accounts

• Mainstream bank accounts

• Sekulula account offered by

AllPay, a subsidiary of ABSA

Bank

Percentage of recipients -- 41% 59%

Cost -- $4.46 $2.03 or $0.10

4 Source: “Social Cash Transfers and Financial Inclusion: Evidence from Four Countries.” Focus Note 77. CGAP, February 2012

Provider:

Instrument:

Withdrawal: Any ATM (no

differential pricing) use

at POS

Account:

Selection:

ABSA/AllPay

Sekulula Account

Debit card

Default option in 3/7

provinces

All major banks

Any ATM (no

differential pricing) use

at POS

Standard bank

account (Mzansi

“basic account”)

Debit card

Customer must opt to

be paid into an

account at any bank

Net1 Aplitec

Closed loop of

proprietary biometric

pay points

Limited Purpose

Account

Biometric smart card

Default option in 3/7

provinces

Source: BFA (2006,2008); CGAP (2012)

Another Overview of Payment Methods

5

Overview of Costs of Payments

Overview of Costs South Africa

Average grant per recipient $144.7

Weighted average fee per payment $3.50

As % of average grant 2.4

Cost by type of instrument:

Cash payment N/A

Limited-purpose instrument $4.46

Mainstream financial account $2.03 or $0.10*

* $0.10 is the fee paid by SASSA to make a bulk electronic transfer into client bank

accounts via the Automated Clearing Bureau; the recipient then pays any costs associated

with using the account directly.

Source: CGAP (2012) 6

South Africa compared to other leading countries

Source: CGAP (2012) 7

Agenda

1. Payment Methods up to March 2012

2. Messy Procurement

3. New Payment Method as of March 2012

4. Recipient Experience

8

South Africa’s Messy Procurement Story

2007 - New tender to consolidate payment arrangements in all 9

provinces

October 2008 – SASSA cancelled the tender citing irregularities in the

process

2009 – SASSA entered into agreement with South African Post Offices without a tender process being followed; one of

the bidders (Net1) sued SASSA; SASSA lost the case and set aside the Post Office contract; case referred to

Supreme Court of Appeals and reversed the lower court’s findings

May 2011 – New tender process launched, but existing contract extended past September 2011

deadline

June 2011 – Net1 asked Constitutional Court to hear the case, which was

declined

January 2012 – New tender awarded to Cash Payment Services (Net1); tender

worth about R10bn for a five-year period

February 2012 - ABSA AllPay challenged the tender process

August 2012 - Judge declared the process invalid, but for practical

reasons did not set aside the agreement between the SASSA and

CPS (Net1)

March 2013: Net1 has decided to sue AllPay for allegedly injuring its

reputation

Source: CGAP G2P Research Project: South Africa Country Report, October 2011

http://www.itweb.co.za/index.php?option=com_content&view=article&id=62814 9

10 Source: http://www.iol.co.za/news/crime-courts/awarding-of-social-grants-tender-illegal-invalid-1.1371727#.UEJDImthiSM

South Africa’s Messy Procurement Story

10

Agenda

1. Payment Methods up to March 2012

2. Messy Procurement

3. New Payment Method as of March 2012

4. Recipient Experience

11

Payment Arrangement as of March 2012

12 Source: “The Payment Experience of Social Grant Beneficiaries.” FinMark Trust, April 2012

• All beneficiaries receiving social grants will be re-

registered on a new biometric based payment system.

• All beneficiaries will be issued with a SASSA branded

smart card. The SASSA card is a MasterCard which

can be used anywhere including merchants, points of

sale and ATMs. If the card is used outside of the

merchants supported by the payments system,

beneficiaries will pay a fee.

Agenda

1. Payment Methods up to March 2012

2. Messy Procurement

3. New Payment Method as of March 2012

4. Recipient Experience

13

Recipient Experience under Former Payment Arrangement

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• High levels of satisfaction, whether using electronic

payments or cash payment but for different reasons

• Those who receive grants in cash like this method

because they save money on transport and bank fees,

but dislike having to be at the cash point at a particular

time and express concerns about security of cash

collection

• Those who receive grants through bank account like

this method because it provides greater flexibility, but

complain about fees

• Unlike other countries in our initial study, use of bank

payment option appears to be driven by demand

based on convenience and cost.

Source: FinMark Trust 2012; CGAP 2012

Recipient Quotes

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• “It’s advantageous to get your money as cash

because you won’t pay for transport to town which

goes up every now and again.”

• “The problem with cash recipients is that you have to

wake up early to catch the line and wait for about

three hours before the money truck comes.”

• “There’s nothing as pleasing as knowing that you will

get your money wherever you are. When receiving

from the bank you do not have to come back home to

get your money.”

• “There’s no way you can leave money in the account

because it is swallowed by bank fees every time.”

Source: FinMark Trust 2012; CGAP 2012

Advancing financial inclusion to improve the lives of the poor

www.cgap.org 16