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Saturday, April 1, 1989
Employers beware

While most of us appreciate some aspects of the serious threat Acquired Immune Deficiency Syndrome (AIDS) poses for society generally, few have pondered the problems that pension funds face.
John van der Linde, GM of Commercial of Union, says that just 10 years from now the total workforce in SA will reach 9m people - and all of them members of funds. Of these, some 230 000 could he infected with the AIDS virus by that stage. In that same year, the country could have 80 000 fund members sick with AIDS related causes.
Resulting deaths would be additional to the “normal” deaths of around 25 000 that one would expect in a year amongst those 9m workers. The epidemic will, of course, also hit many other people who are not members of funds. He was speaking at the annual conference held by the Pensions Institute of SA on March 20th 1989.
AIDS is the final stage before death in a progressive health deterioration resulting from infection with the human immune-deficiency virus (HIV). There is increasing illness and the person is mostly off work. This stage lasts about a year on average and is characterised by increasingly high medical costs. The employee could be receiving disability benefits or an ill health pension, is covered for such benefits. AIDS inevitably results in death, and group life benefits, widows benefits and dependants benefits would become payable, again depending on coverage.
The pension or provident fund concerned has a release of liability for survival benefits at that point.
Says Mr van der Linde, “In summary, it can be said on average, that once an employee has been infected, he has a total life expectancy of 7 to 8 years. For 6 to 7 of those years the employee would be able to work
The AIDS cases now being experienced are just the tip of the iceberg, with many people infected but yet to show symptoms of the disease.
Says Mr van der Linde, “the key points that I would make at this stage are:
• the HIV infection is the start;
• AIDS is the end - and is always Fatal:
• there is a long lead time - 6 years on average - before the development of the end stage of the disease: and,
• there is no cure and no vaccine is likely for many years.
“So we certainly have a problem in this country.” The persons affected are those between the ages of 30 and 50 when they are at their most productive. Both sexes are affected, and many employees will have dependants.
AIDS affects all races.
The costs to both employees and employers will be high in terms of the cost of drugs, sickness, lost productivity and also benefits payable by funds. The question is, what costs can he afforded?
“As an employer your costs will depend on: your recruitment policy: your benefit design: and, your employment policy - all in relation to the profile of the persons in your employment,” says Mr van der Linde. The impact of costs will therefore vary from employer to employer and according to the types of benefits provided. Contribution driven pension and provident funds will not be affected, because there is no mortality or survival risk involved.
Benefit driven pension funds will show a saving in contributions to the extent that fewer people will survive to claim a retirement pension. However, spouses’ pensions and orphans’ pensions will cost more because there will be more employee deaths resulting in the payment of such benefits, Ill health premiums and group life benefits will also cost more.
In all of the cases mentioned above, the full impact will be on the employer rather than on the employee. In the case of medical aid schemes, however, the cost impact is likely to affect both employee and employer.
“Looking at group life benefits,” says Mr van der Linde, “we could see an eventual doubling or even trebling of premium rates as the epidemic develops, although these will probably still remain a relatively low, if rising, percentage of payroll.”
The rise in cost is so dramatic because the highest mortality rates will he experienced at middle ages where the average salary weighted age for many group schemes lies.
Areas for South African employers to consider are:
• a written AIDS policy:
• education, and that should begin sooner than later:
• a tougher selection process for new employees
• treatment of existing employees with compassion:
• a revision of benefit design in order to contain costs:
• a reassessment of which employees qualify for which benefits; and,
• a study of the relevant labour and pension funds legislation, since it is not always easy to reduce or take away benefits or to toughen up on employment practices. Many employers are now actively involved in many areas relating to HIV infect ion amongst their employees.
“I hope that I have given you an added reason to consider your employee benefits carefully in the light of the coming AIDS epidemic of the 1990s and of the 21st century,” concludes Mr van der Linde.
“AIDS could change the world.”

Copyright © Insurance Times and Investments® Vol:2.4 1st April, 1989
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