South African consumers and businesses are still anxiously waiting for the government’s next announcement on prescribed assets for pensions.
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’.
Since then there has been a little comment from the government about the status of the plans or how they may be implemented, says South Africa’s largest pension fund administrator, Alexander Forbes.
In a presentation on Tuesday (25 June) the financial services company said that no detail has been provided in terms of the form that the prescription could take, however it warned that the consequences could be dire.
“The references to investments in ‘social and economic development’, ‘socially productive investments’ and ‘job creation’ are encouraging,” it said.
“But there is a concern that this could be applied to mean investment into SOEs and municipalities that have social and economic development as a part of their mandates e.g. Eskom, Transnet, Sanral, etc,” it said.
The company further warned that if the plans go ahead, there may be a financial exodus as people pull their retirements funds and stop contributions so that they are not impacted by government interference.
Other possible consequences identified include:
- Reduced liquidity as investors buy to hold rather than trade;
- Unattractive bond yields will be unattractive to foreign investors, who will not be subject to prescription and can, therefore ‘vote with their feet’;
- This will impact the rand – driving currency weakness;
- Prescription will be seen as regulatory interference lowering our competitiveness in global markets;
- Periods when government crowds out private investment tend to coincide with lower growth rates and lower fixed investment.