Controversial plan to use pensions for government funding in South Africa

Labour federation Cosatu met with government, business, community and labour leaders on Monday (3 February) to present its plan to rescue debt-stricken Eskom.

Key to this plan is the use of civil servant pensions and a state-run unemployment fund to cut Eskom’s debt by about R254 billion, which would then leave the power utility with a sum of around R200 billion to service, which Eskom has previously said it can manage as it currently struggles to cover its daily running costs.

The presentation was largely welcomed by the business sector, however the two groups did not agree on all of the issues presented, Bloomberg reported.

Martin Kingston, vice president of Business Unity South Africa, said that the business community is in alignment with Cosatu on many of Eskom’s problems that the labour federation identified, though they’re not in agreement on all of the proposals.

With banks and other financiers becoming increasingly reluctant to fund the utility, there is a willingness to consider development-finance institutions and other bodies like the state pension fund manager – the Public Investment Corporation – as sources of finance, he said.

“The pool of capital is shrinking rapidly. Within those constraints we are more than happy, very happy and keen to work with Cosatu and other social partners such as government to resolve Eskom’s debt problems,” Kingston said.

While Cosatu supported the idea of using the PIC to help address Eskom’s debt issues, it warned that it would be reckless to allow workers money to be invested without first implementing drastic changes at the power utility.

“Currently, worker retirement savings are captive to unscrupulous assets managers, who would rather deploy large chunks of retirement savings in betting on market movements of some stocks, bonds or currencies (including against the rand),” Cosatu said in a statement.

“In some instances, these assets managers do not exercise the required fiduciary vigilance – which is why there have been numerous incidents of disastrous outcomes, including the recent Steinhoff saga (with public service workers’ money in GEPF through PIC).”

Private pensions

Business and labour delegates at Monday’s meeting also agreed to start a discussion about the use of prescribed assets, or private pensions, to fund state infrastructure, Bloomberg reported.

Cosatu wants the government to consider making it mandatory for private pension funds to invest part of the money they control in infrastructure.

This follows comments made by president Cyril Ramaphosa in 2019, in which he said that South Africa should investigate using worker pensions to fund 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.

“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.”

Top ANC officials have previously indicated that the asset management industry has R6 trillion under management which should be borrowed by government.

In a 2019 interview Enoch Godongwana, head of the party’s economic transformation subcommittee, 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?”

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Controversial plan to use pensions for government funding in South Africa