Government’s plan to use South African pensions

President Cyril Ramaphosa’s cabinet has drafted a new economic reconstruction and recovery plan which will see a number of financial regulation changes in a bid to get the country’s economy back on track.

The Sunday Times, which has seen the plan, said among the planned proposals are the introduction of a state bank, as well as amendments to existing pension laws which would allow government to access retirement savings at a favourable rate.

The document indicates that regulation 28 of the Pension Funds Act will be amended to unlock the funding of long-term infrastructure projects and high-impact capital projects.

It will also facilitate direct access to pension funds’ pool of resources by state development finance institutions.

Regulation 28 limits the extent to which retirement funds may invest in particular assets or in particular asset classes. The main purpose is to protect the members’ retirement provision from the effects of poorly diversified investment portfolios.

ANC policy

In July the ANC’s Economic Transformation Committee published a new proposal document which includes planned changes to how pension funds will work in South Africa.

This proposal  document appears to be the basis of government’s new policy, with the ANC indicating that retirement savings should be used to boost the funding of infrastructure projects spearheaded by state development finance institutions (DFIs) using private capital.

South Africa’s main state-owned DFIs are the Industrial Development Corporation and the Development Bank of Southern Africa.

“Changes should be made to Regulation 28 under the Pension Funds Act to enable cheaper access to finance for development,” the ANC said.

“Furthermore, regulators should be vigilant to ensure increased competition in the banking sector, which frequently displays the kind of oligopolistic tendencies which limit access to finance particularly for SMME’s and for households in historically disadvantaged areas.”

The ANC said that the amendment of regulation 28 of the Pension Fund Act can also help DFIs to access private savings to fund long-term infrastructure and high-impact capital projects.

“In the meantime, the asset classes with the highest impact must be investigated, in line with the resolutions of the 54th National Conference,” it said.

One of the key ways that pension funds are likely to be deployed is to help the embattled power utility Eskom.

The ANC said that ‘there is a need for continued support for Eskom to overcome its immediate financial and technical challenges’ and to ensure reliable electricity supply.

“A solution needs to be found to Eskom’s debt problem, including the possibility of pension funds being mobilised to take over certain restructured Eskom assets,” it said.

“This is linked to the broader restructuring and unbundling of Eskom’s corporate structure to achieve the vision set out in the 1998 Energy White Paper.”

Read: New tax changes to impose strict rules on taking retirement funds out of South Africa

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Government’s plan to use South African pensions