If you contribute to a pension fund here in South Africa, you probably heard a rumour recently concerning the Government proposing to be able to access these pensions. Now we’re sure you’re saving hard for this pension, doing the responsible financial thing and putting money away each month into it, so that when you retire one day, you’ll have this money to supplement your living expenses.
It’s therefore important to know what these proposed changes entail. With this in mind, here are some of the facts concerning pension funds and the South African government:
What’s the motivation behind these proposed changes?
It’s no secret that the Coronavirus has decimated our already fragile economy. But there was actually talk around prescribed assets (assets that pension funds can or have to invest in) in this context before the pandemic hit, in the ANC’s 2019 election manifesto, and then also during a question and answer session in the National Assembly.
As part of their proposed economic reconstruction plans, the ANC is going ahead with this investigation, proposing to amend some financial regulations which include creating a state bank, as well as changing existing pension laws so that the government can access pension savings at cheaper rates. This money can then be used to fund long-term infrastructure projects and high impact capital projects.
How much are our pensions worth?
According to this article*, the total value of our retirement funds in South Africa was over R4 trillion at the end of 2016, a significant pot of gold indeed. This is equivalent to the entire GDP for that same year, which gives you an idea of scale. We should be proud of this impressive figure, but it does mean that we should also try and safeguard it, too.
What sort of projects will it fund?
One of the significant projects thought to be included in this plan is the funding of the beleaguered national electricity provider Eskom. Yes, our pensions may soon be accessed in order to simply keep the lights on.
However, ANC economic policy chief, Enoch Godongwana commented in August that they will actually be focussing more on the establishment of a state bank, and less on bailing out SOEs. In general, infrastructure projects can be excellent investment opportunities for pension funds, but only if the project is a viable one and above inflation returns.
What is Regulation 28?
This bit of legislation in The Pension Fund Act prescribes how pensions can be invested, in order to protect the integrity of these investments through diversification – ensuring the best return for all. The limits on these categories of assets are currently:
- Equity 75%
- Listed Property 25%
- Offshore Assets 30%
- Hedge Funds 10%
What the ANC is proposing, is to investigate the possibility of prescribing that fund managers invest a certain portion of pensions into government-approved instruments, regardless of whether these are thought to be financially sound assets or not. In this way, infrastructure projects headed by state development finance institutions (DFIs) will use private capital as funding.
What are the next steps?
Although these changes have been proposed, they have not yet been formalised or written into law. However, the amendments are not an Act of Parliament and because of this, they are a lot speedier to implement. If you’re at all concerned, you should speak to your financial advisor about your pension to ensure you’re protected as much as possible from future uncertainties such as these.
Until next time
The Wise About Life Team