Government wants pension fund contributors and administrators to invest in its planned infrastructure development projects, but questions remain around corruption and whether the money will actually be put to correct use.
Responding to this issue in a written parliamentary Q&A, Finance minister Tito Mboweni acknowledged that government would have to work hard to “inspire confidence” when it came to the use of pensions for investment.
“The best way to inspire confidence in any government project is to generate economic growth, rid our country of corruption and inefficiency, and to ensure that the people of our country can trust public servants who manage the projects in which they invest their funds,” he said.
“Government does not determine where retirement funds invest. It is the board of trustees of a retirement fund that determines the investment policy for that retirement fund as part of their fiduciary duty to the fund and its members.”
“Trustees of retirement funds, like most investors, want to invest in a project, be it in the public or private sector, as long as they have confidence in those managing such projects in a way that generates the returns that such investors expect.”
Mboweni added that the extent to which retirement funds can invest in any asset class is governed by Regulation 28 of the Pension Funds Act.
“The recent Medium-Term Budget Policy Statement outlines steps which government intends to make to stabilise our debt and generate more confidence, investment and economic growth.”
After months of talking with the private sector and banking institutions, government said it is in talks with pension fund managers around possible infrastructure investment in the country.
In an investment conference in November Dr Kgosientsho Ramokgopa, head of the Investment and Infrastructure Office in the Presidency, said that the country’s pension funds are sitting on a ‘big pool of liquidity’ and are now beginning to explore investment in infrastructure as an additional asset class.
“Previously when we had conversations of this nature, the pension funds were not at the table. Now they are at the table, and are part of the exercise of co-creation, and we think in doing so we will be able to tap into that big pool of liquidity.”
Ramokgopa said that previous infrastructure funding had been taken directly from the government purse, but that the impact of Covid-19 had led to a severely diminished fiscus.
“Essentially we need to look at new sources of funding. But for you to be able to get projects funded outside of government’s balance sheet, they need to be sound projects.”
In a separate question, Mboweni was asked about the possibility of using unclaimed pension money as a source of funding for the Covid-19 pandemic.
However, the finance minister said that such funds are not centralised and held in one fund, and neither government nor any of the financial sector regulators hold or manage such funds.
“Unclaimed benefits are no different from any other retirement fund benefits, meaning these benefits belong to members and beneficiaries.
“They are therefore held and managed by boards of trustees of these funds, and not government. Government is therefore not in a position to access or utilise unclaimed retirement fund benefits.”
Mboweni said that three recent court cases have also considered the manner in which such funds may be utilised under the current legislation.
The use of unclaimed benefit funds needs to be appropriately legislated for, and the coming Conduct of Financial Institutions Bill (COFI Bill) takes the first steps in this direction but is only expected to be enacted into law late next year, he said.
“We sympathise deeply with the plight that South Africans are facing as a result of the Covid-19 pandemic, and it is for this reason that government has put in place a number of measures to alleviate the pressure on workers.
“Further, as announced in the recent Medium-Term Budget Policy Statement, government will introduce necessary legislative amendments next year to allow for limited withdrawals from retirement funds under certain circumstances but linked to mandatory preservation requirements.”