Benefits in South Africa

Apartheid’s end has brought economic easing in South Africa, and while employers are not obliged to provide a pension plan, if they do, employees must join, says Vicki Taylor

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Employers are not obliged to provide a pension scheme, but if they do, their employees must join it.

Although not compulsory, medical cover is generally part-paid by the employer.

Employers must allow employees to take their entire annual leave in one go.

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Since the end of apartheid the economic situation in South Africa has greatly improved. Unemployment remains high at around 30%, but those in employment are generally well paid and enjoy a range of benefits. The spread of Aids and HIV has placed a particular emphasis on the provision of healthcare.

Although not a legal requirement, the majority of South African employers offer a pension scheme. This is generally either a provident fund that pays out a tax-free lump sum on retirement or a defined contribution scheme. As is currently happening in the UK, defined benefit schemes have largely been phased out and although some are still in place for existing members, no new ones have been introduced for the last ten years or so.

Iain Jones, a consultant at Towers Perrin, says: "Employers in South Africa typically pay a contribution of between 9%-13% of annual salary into a pension plan. There are few open defined benefit schemes now, which has a lot to do with the history of the country in the 1980s. South Africa is a heavily unionised country and the unions realised that companies could use defined contribution schemes as a bargaining tool in negotiations."

If an employer provides a scheme it is compulsory for employees to belong to it. Individuals are not required to contribute but most pay in between 5%-10% of their annual salary.

Colin Hendriks, a pensions actuary at QED Actuaries & Consultants in South Africa, says: "Flexibility is a key issue. Employees can typically change their level of contributions and underlying investments each year."

In a country where state health provision is poor, healthcare, life and disability cover are the other most popular benefits. Healthcare is typically part-paid by the employee and the employer and covers everything from visits to the doctor to dental treatment. Death benefits are also usually provided through pension schemes.

"The level of life insurance is at least four times salary paid as a lump sum. South Africa is a mix of first and third world and with the spread of Aids people want protection for their families. However, costs for life insurance are increasing rapidly," says Jones.

Hendriks adds: "Although it is possible to go to a public hospital to get treatment and get billed on a means-tested basis, people must still queue for a considerable time. Employers don’t want [their employees] off sick or not getting treatment."

Many employers are now also moving towards a total compensation package, where employees will be paid a fixed amount and offered a range of choices as to how much they allocate to various benefits.

As for other benefits, while the statutory holiday entitlement is not as long as that in the UK (the legal entitlement is 15 days), employers in South Africa can’t deny employees the right to take their entire leave at once. There are also 12 national public holidays.

Company cars are the one benefit no longer likely to be enjoyed, with recent legislation making them increasingly less tax efficient to provide.