Government’s plan to go after pension funds could financially ruin South Africans

Analysts and opposition parties have warned against government’s plans to force pension funds to invest in bonds issued by government.

In August, president Cyril Ramaphosa said that South Africa should investigate using worker pensions to finance development and infrastructure projects.

“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.

The ANC has also previously floated the idea of using pensions to help fund embattled state-owned enterprises.

In a parliamentary debate on the issue of prescribed assets on Tuesday (10 September), the DA’s Natasha Mazzone said that the proposed scheme would cause incredible damage to the savings of millions of South Africans, and is unlikely to help the country’s state-owned enterprises to recover from debt.

“South Africa has hundreds of SOEs, many of them are either completely dysfunctional, bankrupt, or frankly serve no purpose other than lining the pockets of the connected few,” she said.

“Many of the hundreds of SOEs also duplicate functions and should simply not exist in the first place. They are sucking money from the fiscus and pose a great threat to the South African economy. From bailouts to guarantees.”

Mazzone added that 3.5 million South Africans have worked their whole lives as civil servants and now face the risk of destitution in their old age.

“It is very easy to be a socialist with other people’s money. It is very easy to have communist leanings when you have millions of other people’s rands to play with.”

The DA’s Geordin Hill-Lewis added that the proposal was equivalent to theft.

“This government is proposing to steal pensions of hardworking South Africans to pay for their mismanagement,” he said.

“Stealing from people’s future pensions is still theft and should be fought by every South African who has diligently saved for their retirement.”

Opposed to changes

Janina Slawski, head of investment consulting at Alexander Forbes, said that the company was fundamentally opposed to the proposed changes.

“The Alexander Forbes position on this continues to be that we are opposed to any regulation, including prescription, that could lead to suboptimal investment outcomes for investors, particular members of retirement funds where fiduciary duty requires that members’ benefits be safeguarded and grown,” she said.

Slawski said that it was not surprising that a debate around prescribed assets was ongoing, given government’s dire financial position.

However, she noted that Ramaphosa has never directly given his support to prescribed assets.

President Ramaphosa’s specific response when questioned on prescribed assets was that ‘we will pursue policies that advance the interest of our people here in South Africa and also advance the interest of pension fund holders’, said Slawski.

“Since prescription would be viewed as extremely negative by the investing world, we view this as support for strategies outside prescription that support developmental objectives,” she said.

“President Ramaphosa referred to successful developmental initiatives invested in by the Government Employees Pension Fund, and that ‘pension funds make good returns out of infrastructure developments’.

“These comments support a strong positive stance on impact investing, which we believe could make a significant difference to the growth and job creation initiatives that the country so critically requires,” she said.

Slawski said that if compelling investment opportunities were to be created to invest in growth and job creation, then retirement funds and other investors would be enthusiastic potential investors in these initiatives for their own enhanced returns as well as the positive effect that it could have on South Africa and the communities impacted by the investments.

“It is not a lack of capital for investment into initiatives that is the issue, but rather a lack of investible opportunities that is retarding investment,”she said.

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