• Insurers including Sanlam are seeking legal clarity on issue
  • 16.9 million South Africans receive social grants from state

South Africa’s government plans to introduce new rules to protect welfare recipients from companies that deduct money from their grants to pay for services ranging from mobile-phone airtime to funeral cover.

No payments to brokers selling burial cover will be allowed and the new regulations will mean that companies, including insurers Sanlam Ltd. and Lion of Africa Lion Life Assurance Co., cannot deduct money from social accounts without written permission from the welfare agency, Minister for Social Development Bathabile Dlamini told reporters in Cape Town on Friday. Other debits for services such as mobile-phone airtime, which are illegal, will be stopped, she said.

Businesses tapping the monthly stipends are “eroding the whole aim of fighting poverty, because the grants are about fighting poverty,” Dlamini said. “We are appalled that the industry doesn’t see this as a problem.”

The state pays welfare to about 16.9 million people as part of an attempt to make up for the poverty and inequality created during apartheid, which ended in 1994. The government last year recorded more than 13,000 disputes between social-grant recipients and companies ranging from loan providers to electricity and water utilities making such deductions. More than three-quarters were resolved in favor of the beneficiaries, Dlamini said.

Hard to Implement

The law currently allows deductions from social payouts for a single funeral-insurance policy amounting to a maximum of 10 percent of the grant. Sanlam, the biggest South African-based insurer, and Lion of Africa are both trying to maintain the current system through separate court cases being heard this month.

“The beneficiaries should receive the full value of the grant unencumbered,” Dlamini said. “It is very easy to take the money of social-grant beneficiaries without proper consent and controls.”

Lion of Africa Chief Executive Officer Paul Myeza said his company provided funeral cover worth as much as 18,780 rand ($1,258) for just 30 rand a month and didn’t specifically target welfare grant recipients or sell policies that were paid for from child support grants. Changes to the rules may push up prices and could result in unregistered insurers exploiting the poor, he said.

“Whether or not they receive a state grant, people are buying funeral policies,” Myeza said in an e-mailed statement on Friday. “The question is whether they get that through regulated, legitimate assurance companies or via unregulated providers at the risk of higher premiums and no recourse. The current system, which offers clear protection and benefits, may be impacted adversely.”

Clarify Process

Sanlam had already stopped selling new funeral policies that are paid for using child grants, Jurie Strydom, the deputy CEO of its Sky division, said by phone on Thursday.

In a court case to be heard on May 10, Sanlam is seeking to clarify how the ongoing process to clean-up the industry will be implemented.

The payment of the welfare grants is administered by Cash Paymaster Services, a unit of Net 1 UEPS Technologies Inc. Net 1’s other units had supplied bank cards and other services to welfare grant recipients who often didn’t understand what they were signing up for, according to Dlamini.

“We are working with very unscrupulous people who are focused on making profits,” she said. “That is why we have to take drastic steps.”

Net 1 CEO Serge Belamant’s personal assistant said he was not immediately available for comment.

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