Worry over fund’s cash flow
Alida de Beer
T he Association for Monitoring and the Advocacy of the Government Employees Pension Fund (AMAGP) accuses the board of trustees of the government pension fund of poor management of the fund.
The association issued a statement in which it airs its concern about low interest yields of the pension fund's investments and the state of its cash flow. AP Stemmet, spokesman, says that the workforce's contributions to the fund are down and less excess cash is available to be invested to ensure that benefits are covered.
"It must be determined whether employment departments comply fully with the compulsary payments of contributions and whether employee contributions are still sufficient," says Stemmet.
According to a report by a retired auditor and member of AMAGP, the last 11 years' cash flow statements reveal that up to 2013/14 the fund did reasonably well in generating, through its operations, enough cash to pay benefits and to set aside amounts for new investments. The report states: "However, from 2014 onwards, the excess cash that should be invested has reduced significantly. This is as a result of contributions not being sufficient to cover the benefits. In all the years prior to 2014 this was the case, so this relationship has inverted."
The second source of cash, namely investment income from interest and dividends, is used to defray administrative cost as well as the expenses to invest. "In the past, whatever cash was left over could immediately be reinvested. Since
2014 however, cash generated through investments also had to be used to cover a portion of benefits," according to the report. This reduces cash for new investments, which in turn has a negative effect on the funding level and investment income in future years.
Says Stemmet: "We want to prevent what happened to the Transnet pensioners also happening to pensioners of the GEPF. Our government does not have the money to pay out the pensions if the investments fail because they are not looked after."
GEPF: Benefit payments will exceed contributions
Responding to a query from the George Herald, the GEPF rejects AMAGP's allegations. It says the cash flow problems are due to an increase in resignations while membership has not been increasing over the past five years. "These resignations are in respect of members who have been with the GEPF for a long time. Most of the time when members are close to retirement, they resign as their payouts are quite substantial. This is partly as a result of entities that masquerade as champions of members and pensioners but instead sow distrust of the GEPF, leading to them prematurely and / or unadvisedly taking their pension benefits out of the fund."
The GEPF explains further that as a pension fund matures, it has older members with long service and there are significantly more pensioners than contributing members. This means that benefit payments will exceed contributions. The GEPF says the fund is growing and is nearing R2-trillion. "This makes it one of the largest pension funds in the world, and Africa's largest pension fund. The GEPF is a defined pension benefit fund, which guarantees that members will receive their benefits as stipulated by law when they exit the fund, irrespective of the investment performance of the fund. The fund is also 115,8% funded, which places the fund in a better position to pay benefits in the long term."
At the time of going to press, National Treasury had not responded to an e-mail query from the newspaper sent on 9 April.
From 2014 onwards, the excess cash that should be invested has reduced significantly.