Asset owners need to exercise their broader responsibilities
South Africa has one of the largest funded pension industries in the world in terms of assets, according to Wayne Hiller van Rensburg, president and chairperson of the Institute of Retirement Funds Africa (IRFA).
He says by asset size, South Africa has the 11th largest pension industry in the world, with assets of 110% of GDP – unusually large for an emerging market.
However, the country is challenged by the fact that most people who belong to a pension fund are either employed or self-employed, with a large percentage of the population having no retirement savings and being dependent on the state.
‘Despite the fact that South Africa has a large pensions’ asset base, a pertinent question is: where are the assets being invested?” asks Hiller van Rensburg.
“While a large chunk is being invested in the JSE, it begs the question that if there is such a large ownership of the JSE by institutions, how is that ownership being exercised?
“I don’t think that many institutional asset owners understand what impact they can have on economic development if they choose to exercise their ability to engage with management as shareholders who are intent on making their capital active and productive with regards to job creation, transformation and sustainability.
“Too often asset ownership does not talk to how the investment will impact on the lives of someone who lives in a rural village. Instead the focus remains on building the business and not addressing broader societal needs.
“One of the big challenges South Africa faces is the need for infrastructure development investment.
“I believe there is a need for innovation, and for the pensions fund industry to co-operate more closely with regulators and policy-makers in terms of using their ownership to improve socioeconomic conditions of both members and broader society.
“The South African pensions industry has a significant influence on the economy of the country and could have a greater influence on its socioeconomic development, which isn’t being properly exercised at the moment,” says Hiller van Rensburg.
However he points out that pension fund trustees’ first responsibility is to the direct beneficiaries of the fund, and they run the risk of breaching their fiduciary duty by taking on more investment risk than what is accepted by the industry’s status quo.
“We understand why these safety measures are in place. That is why we say that there really is a need to look at how pension funds can invest in a way that benefits both the members and society as a whole, without breaching their fiduciary responsibilities.
“There is recognition for the need to transform by: becoming more inclusive; better aligned to the needs and values of the purchasers of the retirement fund industry’s services; and improving retirement outcomes.”
Hiller van Rensburg says it is exactly these questions that the IRFA conference will begin to address.
“The conference theme of ‘Reaching out for Financial Security and Freedom’ encourages delegates to explore ways that funds can act in the interests of both their members and society as a whole.
“Our keynote speaker is talking on exactly that topic – what does financial freedom mean, and how can it be achieved in a broad sense.
“We also have a panel that includes the regulator, which will look at the issue in more focus by discussing ‘Policy as a Tool for Upliftment’.
“A second panel will examine ‘Transforming and Empowering — A Practical Approach to Upliftment’, which will examine how marginalised groups can be included into the pension system as fund members right through to fiduciaries and service providers, and how all of these aspects contribute to a better pensions outcome for South Africans.
“Education is another necessary tool for societal transformation, which is the reason the IRFA conference includes an ‘Education – The most powerful weapon to change the world’ session that will look at the need for financial education as a tool to address the savings and inequality shortcomings in the current South African landscape.