Government plans to use pension fund money for South African industrial policy projects

Finance Minister Enoch Godongwana reaffirmed the government’s plan to fund industrial policy projects using long-term domestic savings, such as pension funds.

Work is underway to issue the first infrastructure bond by 2026. 

This was revealed during the Finance Minister’s third and final presentation of the National Budget on 21 May 2025.

During his address, Godongwana underscored infrastructure as a critical pillar of South Africa’s growth strategy.

“Quality infrastructure investment expands the productive capacity of the economy and responds to the diverse needs of the citizens,” he said. 

“Infrastructure is also a rich source of jobs, in construction, engineering, and related industries across a range of skill levels.”

Godongwana emphasised that the government is committed to shifting spending from consumption to investment, with capital payments being the fastest-growing category of expenditure. 

“Public infrastructure spending will exceed R1 trillion over the next three years, with key allocations directed toward transport and logistics, energy, and water and sanitation,” he said. 

Of the R402 billion budgeted for transport and logistics, R93.1 billion is earmarked for the South African National Roads Agency (SANRAL).

This will maintain the country’s 24,000-kilometre road network, while R53.1 billion will go towards refurbishing provincial roads. 

A further R66.3 billion is allocated to PRASA, with R18.2 billion for the renewal of its rolling stock fleet and R12.3 billion for the signalling system. 

These efforts aim to expand affordable commuter rail services, particularly for low-income earners who spend over half their income on transport.

In the energy sector, R219.2 billion will be invested in strengthening the electricity network across generation, transmission, and distribution. 

“Investments in renewable energy projects continue to contribute to stabilising the power supply,” said Godongwana, highlighting the progress in reducing load shedding and connecting renewables to the grid. 

R156.3 billion will be spent on water and sanitation, expanding dams and bulk infrastructure supporting farms, factories, and mines.

Considering these plans, the finance minister confirmed that the country remains on track to issue its first infrastructure bond in 2025 or 2026. 

“We are also exploring alternative financing instruments to allow pension funds, commercial banks, development banks and international financial institutions to participate in financing our infrastructure plans,” he said. 

He added that reforms such as reconfiguring the Budget Facility for Infrastructure (BFI), which reviews proposals quarterly instead of annually, will further unlock investment. 

“These reforms are how we plan to leverage infrastructure investment to ease supply-side constraints and improve access to social services,” Godongwana said.

The plan has been in the pipeline for years

Over the years, the ANC government has adopted and subsequently retracted various policies related to pension funds, with the most notable being its initial desire to adopt prescribed assets to fund government infrastructure projects.

Prescribed assets force retirement funds to allocate a percentage of their holdings to specific government-approved instruments.

The party adopted the policy in its 2017 elective conference and then made it a key policy in its election manifesto for the 2019 elections. 

In 2022, Godongwana stated that there are other opportunities for pension funds to co-invest with the government, particularly in delivering infrastructure throughout the country.

He said that prescribed assets were something ‘to be investigated’ but could not be instated without substantial consultation and a robust review process by the government.

Talk of prescribed assets has since disappeared from the pension fund discourse. However, it resurfaced when it was included in the ANC’s 2024 election manifesto. 

It stated the party would “engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets”.

The practice of prescribed assets has a history in South Africa. It was first created in 1956 to force retirement funds to invest around half of their assets in South African government and parastatal bonds.

The level of prescriptions rose for two decades and peaked in 1977. After that, it tapered off before being scrapped in 1989.

Some in the pension industry have expressed strong concerns over the reintroduction of prescribed assets, fearing that the funds may be threatened.

Key figures, such as Dawie de Villiers, CEO of Alexander Forbes, and Dawie Roodt, chief economist at Efficient Group, have argued against this move.

They argued that it removes autonomy from pension fund trustees and contributes to the generally poor performance of these enterprises.

No need to panic

However, other experts have called for calm, noting that the industry is highly regulated and that the government is far from enforcing such regulations. 

Considering South Africa’s fiscal challenges, including tax shortfalls, high unemployment, and the poor state of many state-owned enterprises, it’s easy to assume this spells bad news for investors. 

Cameron McCallum, Managing Director of Netto Invest, said there are certainly concerns, but things may not be as bad as we believe.

Godongwana, the head of economic transformation for the ANC, has stated that the party is focusing on Regulation 28 of the Pension Funds Act. 

This regulation is designed to protect investors and ensure portfolio diversification while limiting the amount of pension funds that can invest in certain assets. 

“He noted that the party is shifting away from enforced prescriptions regarding these investments,” said McCallum.

“The idea currently tabled is to broaden the investable options to enable higher levels of investment in unlisted asset classes such as infrastructure or ‘green’ projects.”

“So, the keyword for us is ‘enable’, not ‘enforce’.”

McCallum admitted that he can’t predict how the legislation will unfold in the future, but he mentioned a couple of considerations that remain relevant. 

He noted that the process is still in its early stages, and no changes have been announced yet. He added that pension fund assets in South Africa are well-regulated and protected. 

McCallum explained that many stakeholders in the financial services industry would contest any restrictions that could harm investors in court.

“Policymakers also recognise that imposing significant restrictions on investments could lead to a shrinking pension fund industry,” he said. 

“This decline would ultimately reduce the availability of capital, as members might either contribute less to their pension funds or withdraw their savings.”