Government

Government is coming for your nest egg next, think tank warns

Staff Writer

 ·23 Aug 2019

The Institute of Race Relations (IRR) has warned that remarks by president Cyril Ramaphosa in Parliament on Thursday (22 August) indicate that the issue of prescribed assets remains a government policy priority.

Responding to questions from the leader of the Democratic Alliance (DA), Mmusi Maimane, the think tank said that the president refused to say whether he supported a policy of prescribed assets.

“However, he did say that the matter needed to be discussed and that the ‘various resources’ of the country needed to be utilised to generate growth. He added that the Congress of South African Trade Unions (Cosatu), the labour ally of the governing African National Congress (ANC), supported the policy.

“He also noted that around the world, pension funds were used for ‘developmental purposes, and infrastructure’.”

“We need to discuss this matter (prescribed assets) and we need to discuss it with a view to actually saying what is it we can do to utilise the various resources in our country to generate growth in a purposeful manner,” Ramaphosa said.

“We are facing a situation where our developmental needs are enormous, and in a number of other places pension funding is utilised for developmental purposes, for infrastructure and quite often those pension funds make good returns out of infrastructure developments.”

The IRR said that the president is correct in that assertion, “but the resources extracted through prescribed assets in South Africa today are unlikely to be used for infrastructure development which will see a return for investors.”

“It is far more likely that such income will be used to prop up failing state-owned enterprises such as Eskom, or to plug government funding gaps – at a time when government spending is reaching unsustainable levels.”

It warned that any policy of prescribed assets is likely to leave South African pension fund holders poorer – “they will retire with a smaller pot of money or have to work longer than they had planned to if they wish to have enough to retire on”.

“Over the next few weeks, the IRR will be visiting various fund managers to determine whether or not they will be handing over their clients’ property and, if not, how they plan to protect it,” it said.

In an interview with the Sunday Times earlier this week, a top ANC official said the party is looking at the possibility of using private and public pension funds to rescue the country’s struggling state-owned enterprises.

Enoch Godongwana, head of the party’s economic transformation subcommittee, said that the asset management industry currently has R6 trillion under management which should be borrowed by government.

Godongwana said using this approach to gather funds is better than going the International Monetary Fund (IMF) for a bailout.

“Why would you go to the IMF and the World Bank and go and raise money when we have sufficient savings in the economy which you can borrow, probably far cheaper, and probably with little exchange rate risk?”

Godongwana added that while the ANC is also currently investigating the use of prescribed assets, this is separate from raising money through pension funds.

“Borrowing from domestic markets is not prescribed assets, that is a separate investigation,” he said.

In its election manifesto published in January 2019, the ANC announced that it planned to investigate the introduction of prescribed assets on financial institutions’ funds to ‘unlock resources for investments in social and economic development’.

Read: South Africa should look to pensions instead of an IMF bailout: ANC