South Africa\u2019s financial regulator said it\u2019s opposed to any proposals that would compel pension funds to plow money into government-approved investments, as it could compromise market returns.\u00a0<\/p>\n\n\n\n
The FSCA has opposed the ANC’s proposal of introducing prescribed assets, stating that it will hurt the nation’s retirement outcomes.<\/p>\n\n\n\n
The African National Congress pledged to introduce so-called prescribed assets after May 29 elections to ensure the financial sector makes adequate funds available for the nation\u2019s industrialization and economic development. <\/p>\n\n\n\n
It\u2019s unclear if the ANC will still pursue the policy after it lost its outright majority in the elections, which led it to form a coalition government with 10 parties, some of whom are opposed to the plan. <\/p>\n\n\n\n
Mandating pension funds to bankroll projects would not be advisable as it could compromise market returns and affect retiree\u2019s outcomes, said Olano Makhubela, a divisional executive at the Financial Sector Conduct Authority.<\/p>\n\n\n\n
\u201cThere\u2019s a fiduciary duty in the Pension Funds Act, which requires trustees to exercise proper duty toward the fund and the members,\u201d Makhubela said. <\/p>\n\n\n\n
\u201cAny interference with that is tantamount to a breach\u00a0<\/strong>to the Pension Funds Act, and so we remain of the view that prescribed assets is not something that we should be considering.\u201d<\/p>\n\n\n\n The policy was first tried in South Africa in 1956 during White-minority rule to force investment in government bonds, but was scrapped decades later. <\/p>\n\n\n\n Plans to revive it have been criticized by the pension industry, which fears funds may be threatened if invested in under-performing state-owned enterprises.\u00a0<\/p>\n\n\n\n \u201cYou are compromising the overall return of the fund and we don\u2019t think that is right,\u201d Makhubela said.<\/p>\n\n\n\n \u201cThe moment you weaken that due diligence because you have prescribed assets, you are going down a very slippery road.\u201d<\/p>\n\n\n\n He also said such a step is unnecessary as recent amendments already allow pension funds to put as much as 45% of assets into infrastructure as an investment class. <\/p>\n\n\n\n As such, the government need only provide bankable and investable projects that can pass due diligence checks, and provide attractive returns to lure investments, he said.<\/p>\n\n\n\n \u201cPrescribed assets is the prerogative of government and particularly Treasury,\u201d he said.<\/p>\n\n\n\n \u201cBut we are quite unequivocal on this one; we don\u2019t think prescribed assets are the way to go.\u201d<\/p>\n\n\n\n
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