ANC has no plan to raid pensions — Godongwana

The narrative that the ANC wants to raid pension funds and compel them to invest into failing state assets is farfetched, says ANC economic head Enoch Godongwana.

But the country needed to have a debate about how the pool of workers’ savings could be channelled towards development, he said at a conference in Johannesburg hosted by asset manager 27Four.

In its election manifesto for the 2019 election the ANC promised “to investigate” the policy of prescription, which is a strategy widely championed by the ANC’s left allies in trade union federation Cosatu and the SACP.

Under the policy, which was applied during the apartheid years to fund the state, pension

funds are compelled to invest a portion of their assets in government bonds or other assets.

Critics, including the bodies that manage the savings of government workers, have argued that forcing pension fund money into particular projects dictated by state officials will lead to an inefficient allocation of capital, harming workers by reducing the potential returns on their savings. That could encourage people to abandon the idea of saving through pension funds altogether to escape the possibility of their money being channelled into corrupt and inefficient government entities.

Godongwana said the governing party had not committed to imposing prescribed assets, but had set up an internal process to come up with a concrete plan on how to move ahead.

The findings are to be tabled at a national executive committee meeting in November.

“What is fundamental about this debate is how our domestic savings – small as they are – can be channelled in a manner that achieves our developmental goals,” Godongwana said.

At a separate event in Cape Town on Monday, both the Government Employees Pension Fund (GEPF), which is the largest investor in the economy, and its asset manager the Public Investment Corporation (PIC) questioned the wisdom of prescribed assets, arguing that mismanagement of government entities and projects needed to be fixed if pension fund money was to be put to good use into government infrastructure investments.

GEPF principal investment officer Abel Sithole said: “Once we give government that money, how will it be managed? We have no empirical evidence that mismanagement will occur, but there are very good examples we can point to, such as Eskom. We mustn’t shy away from saying so.”

The GEPF, which has assets of R1.8-trillion, is through the PIC the single largest holder of government bonds, with about R80bn of Eskom bonds alone.

It also has a R70bn unlisted portfolio, which includes a large portion of infrastructure investments.

Government bonds and infrastructure projects are attractive to pension funds because of the fixed and longterm return they offer.

Sholto Dolamo, head of research at the PIC, said that the biggest risk of prescription was that funds channelled into government projects were not efficiently allocated or managed.

“The risk of prescription is that people who are not efficient allocate capital. One of the frustrations of the recent past has been the question of whether there is sufficient governance in projects where capital is allocated,” Dolamo said.

Eskom Pension and Provident Fund (EPPF) CIO Ndabe Mkhize said while there were good reasons to invest in government infrastructure projects, which tended to have lower risk than investments such as corporate bonds and had a high social value, the fund did not favour prescribed assets.

“Should we really be waiting for prescription? Does it not make sense for us to invest in infrastructure which can improve people’s lives? The biggest threat to SA, in fact, is not the threat of prescribed assets but it is social anarchy,”

The EPPF, which is a fund of R145bn, has among the highest proportion of assets of any fund

– about 14% — allocated to the unlisted sector because of its developmental value. This includes private equity, property and infrastructure.