UNBUNDLING OF THE UI FUND AND THE COMPENSATION FUND
This is one of the more pleasurable PAGSA Newsflashes that I have written in a long time.
Introduction:
In December 2024, BUSA and Cosatu called for the UI Fund and the Compensation Fund to be put under administration, the details of which can be found in PAGSA Newsflash 2024-37.
This was followed by the Annual Report of the Department of Employment and Labour Annual for the 2023/24 financial year that was issued early in 2025. On browsing through this lengthy document, the following caught my eye.
In collaboration with the UIF, as the Department’s delivery agency, the 2023/2024 FY year saw work in progress with PricewaterhouseCoopers (PwC) Inc. on the unbundling of the Compensation Fund (CF) and Unemployment Insurance Fund (UIF). This initiative is aimed to repositioning both agencies to enhance service delivery to citizens and optimize their business processes for faster responses. It is anticipated that the project will end in 2024/25 financial year.
And further on in the Annual report:
In the 2023/24 FY, the UIF and CF unbundling process aimed at optimising these entities and enhancing their business strategies to ensure they remain citizen-centred commenced. The UIF focused on modernizing its delivery methods and
transforming its business strategy to expand its service delivery.
It is anticipated that the project will end in 2024/25 financial year.
And still further on:
The Reconfiguration of the Department project aims for the unbundling of the UIF and CF from the Department and allow them to operate as full schedule-3 Entities as stated in the PFMA. The project will also reconfigure the Department to enable a focused response to the employment mandate.
It is anticipated that the project will end in 2024/25 financial year.
What Does This Mean?
While it seems that the process is behind schedule, on the face of the above extracts, this is very good news.
• “This initiative is aimed to repositioning both agencies to enhance service delivery to citizens and optimize their business processes for faster responses.”
• “… aimed at optimising these entities and enhancing their business strategies to ensure they remain citizencentred commenced. The UIF focused on modernizing its delivery methods and transforming its business strategy to expand its service delivery”
Another extract states that:
“The Reconfiguration of the Department project aims for the unbundling of the UIF and CF from the Department and allow them to operate as full schedule-3 Entities as stated in the PFMA.
My knowledge of these ‘unbundling’ projects is limited, so I turned to SARS to get an understanding of what is meant by operating as a “full schedule-3 Entities as stated in the PFMA”
More specifically, my question was:
Is this proposed “unbundling” project from the Department that will allow them to “operate as full schedule-3 Entities as stated in the PFMA“, the same process that SARS went through many years ago to achieve ‘semi-independence’?
The short answer to this question is that at this early stage, “it seems similar to what SARS went through, but the only difference being that SARS was enabled by way of the SARS Act, whereas for this one, it seems that existing legislation will be amended for such enablement and creation.”.
The preamble of the South African Revenue Service Act, 34 of 1997, states the intention:
• to make provision for the efficient and effective administration of the revenue collecting system of the Republic; and,
• for this purpose, to reorganise the South African Revenue Service and to establish an Advisory Board; and
• to provide for incidental matters.
The SARS Act came into effect on 1 October 1997 (Government Gazette No. 18338), and we have all seen and experienced what has happened since then in terms of increasingly efficient performance, the improved collection of tax revenue, and the overall benefit to South Africa.
Summary of the Process:
The following information was provided by SARS and because it makes interesting and positive reading, is included here.
The South African government is actively unbundling the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF) from the Department of Employment and Labour (DEL), aiming to make them independent entities [my emphasis].
This move is part of a broader strategy to stabilize, modernize, and repurpose these funds, which have long been plagued by inefficiencies, poor service delivery, and audit failures.
Key Reasons for Unbundling
1. Operational Inefficiencies: Both funds have faced persistent issues such as irregular expenditure, poor internal controls, and outdated IT systems
2. Audit Failures: Over a decade of failed audits prompted calls for stronger forensic and governance capacity
3. Service Delivery Challenges: Clients often experience poor service, with frequent system outages and untrained staff
4. Structural Reform: The unbundling is based on a diagnostic report and recommendations from PwC, which called for:
• Upgraded IT infrastructure
• Organizational restructuring
• Skilled staffing and retraining
• A shift in work culture
Implementation Plans:
• Three Standalone Entities: The DEL is creating separate entities for the UIF and CF to improve responsiveness and accountability
• Change Management: A major focus is on training staff, improving tools and infrastructure (e.g., computers, printers, alternative energy), and enhancing client interaction at labour centres.
• Business Continuity Programme: Launched in February 2024 to ensure uninterrupted service during the transition
Political and Public Oversight:
• Parliament and its committees have welcomed the restructuring, describing it as a necessary step after previous turnaround strategies failed
• Concerns remain about the cost, timelines, and impact on staff, but the DEL has committed to transparency and ongoing engagement with stakeholders
The unbundling of South Africa’s Unemployment Insurance Fund (UIF) and Compensation Fund (CF) is expected to have several direct and indirect effects on workers, both positive and potentially disruptive during the transition. [my emphasis]
Positive Impacts for Workers:
1. Improved Service Delivery
The restructuring aims to fix long-standing issues like delayed claims, poor communication, and system outages. Workers should eventually experience faster, more reliable access to benefits
2. Greater Accountability
By making the UIF and CF independent entities, the government hopes to reduce corruption and mismanagement. This could mean more funds actually reach the intended beneficiaries
3. Modernized Systems
Upgraded IT infrastructure and retrained staff are part of the plan. This should reduce errors and improve the efficiency of processing claims
4. Better Oversight and Governance
The move includes strengthening internal controls and forensic capacity, which could prevent fraud and ensure that workers’ contributions are protected
Potential Risks and Challenges
1. Disruption During Transition
As the funds are restructured, there may be temporary delays or confusion in processing claims. Workers might face short-term inconvenience
2. Uncertainty About Staffing and Roles
The restructuring could lead to job changes or losses within the department, which might affect service quality if not managed carefully
3. Trust Deficit
Given the history of mismanagement, workers may remain sceptical about whether the reforms will truly benefit them
4. Delayed Benefits
If the transition is not smooth, injured or unemployed workers could face delays in receiving financial support, which could be critical for their livelihoods
Legislation Changes
To enable the unbundling of the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF) in South Africa, several legislative and regulatory changes are either underway or being proposed. These changes aim to give both funds independent legal and operational status, separate from the Department of Employment and Labour (DEL).
Key Legislative and Policy Changes
1. Reconfiguration of Legal Status
• The DEL is working to grant independent status to the UIF and CF, which will require amendments to existing legislation governing these funds
• This includes revising the Unemployment Insurance Act and the Compensation for Occupational Injuries and Diseases Act (COIDA) to reflect their new autonomy
2. New Governance Structures
• The proposed changes include the creation of new governance frameworks, such as boards and executive roles (e.g., Chief Investment Officer, Chief Digital Officer), which are not currently provided for in the existing legislation
3. Regulatory Oversight
• The DEL is expected to introduce new regulations to define the operational boundaries, reporting requirements, and accountability mechanisms for the independent entities
4. National Labour Migration Policy
• Although not directly tied to the unbundling, the DEL is also preparing to submit the National Labour Migration Policy to Parliament, which includes legislative proposals to cap the hiring of foreign nationals in certain sectors
This reflects a broader restructuring of labour policy in South Africa.
5. Diagnostic and Implementation Reports
• The legislative changes are informed by a PwC diagnostic report and a conceptual model presented to Parliament, which outline the legal, financial, and operational restructuring needed
6. Gazetted Changes
• Some decisions, such as the acquisition of Rand Mutual Holdings as an insurance license holder for the Compensation Fund, have already been gazetted, indicating that regulatory groundwork is being laid
What to Expect Next
1. Parliamentary Review: Draft legislation and amendments will be tabled in Parliament for debate and approval.
2. Public Consultation: Regulations and policy changes may be opened for public comment before finalization.
3. Phased Implementation: Legal changes will be rolled out in phases to align with operational restructuring.
Legislation Amendments Required
To legally enable the unbundling of the Unemployment Insurance Fund (UIF) and the Compensation Fund (CF) in South Africa, several legislative amendments and regulatory reforms are being proposed or are already underway.
Here’s a breakdown of the key changes:
1. Unemployment Insurance Act
• Amendments will be needed to redefine the UIF as a standalone legal entity, separate from the Department of Employment and Labour (DEL).
• This includes provisions for:
• Independent governance structures (e.g., board of directors)
• Financial autonomy
• New executive roles like Chief Investment Officer and Chief Digital Officer
2. Compensation for Occupational Injuries and Diseases Act (COIDA)
• The COIDA Amendment Act 10 of 2022 already introduced changes to modernize the Compensation Fund
• Further amendments are expected to:
• Establish the CF as an independent entity
• Strengthen internal controls and forensic capacity
• Improve claims processing and data verification systems
3. Supporting Regulations
• New regulations will define:
• Operational boundaries and mandates of the UIF and CF
• Reporting and accountability mechanisms
• Compliance and enforcement procedures for employers
Policy and Structural Reforms
• The PwC diagnostic report recommended a full reconfiguration of both funds, including digitization, governance upgrades, and staffing changes
• The DEL commits to implementing these recommendations via a multi-year change management programme
📌Summary of Key Legal Shifts
The PwC diagnostic report that informed the unbundling of South Africa’s Unemployment Insurance Fund (UIF) and Compensation Fund (CF) has been referenced in multiple government and parliamentary discussions.
However, the full report itself has not been made publicly available online through official channels like PwC South Africa or the Department of Employment and Labour.
What We Know About the Report
• The report was commissioned to assess governance, operational, and financial weaknesses in the UIF and CF.
• It recommended:
• Independent legal status for both funds
• Upgraded IT systems
• New governance structures including boards and executive roles
• Improved forensic and audit capacity
• Change management and staff retraining
• These recommendations are being used to guide the current restructuring process
In Closing
There is no doubt that this is a big step in the right direction. The unbundling process as summarised above directly addresses what South African employers and employees have wanted for many years, and we can only hope that the implementation lives up to the expectations created.
There is also no doubt that it will take several years during which the boards, structures, appointments of quality personnel, procedures and policies, IT infrastructure, etc. are put into place.
But maybe, just maybe, … there is some light at the end of the tunnel, even if the tunnel is a long one.
