Is government serious about using pensions?

UNLIKELY: ACTIONS SEEM TO SAY OTHERWISE

SA needs global capital. It’s unlikely we are going to shut ourselves away, says macro-solutions expert.

Prescribed assets refer to government forcing pension funds to allocate a portion of their portfolios to specific investments, like government or parastatal bonds. President Cyril Ramaphosa recently said: “We need to discuss this matter … with a view to actually saying what is it we can do to utilise the various resources to generate growth in a purposeful manner.

“... in a number of other places pension funding is utilised for developmental purposes, for infrastructure...”

He noted the proposal has the Congress of South African Trade Unions’ (Cosatu) support. However, Ramaphosa refers to funding infrastructure projects. Cosatu is on record as saying prescribed assets could be used to support Eskom.

Contradictions

How pension fund money could be more effectively used to fund economic development is worth discussing.

Using prescribed assets to support Eskom would also prejudice savers in those pension funds – many of whom are Cosatu members.

As Old Mutual Investment’s macro solutions head Peter Brooke says, prescribing assets would also go against the kinds of steps government has taken over the past few years. Regulation 28, which sets pension funds’ asset allocation limits, has been significantly relaxed.

Government “have been freeing up exchange controls, allowing more money to go overseas, with the allowance now up to 30%. So the evidence would suggest that it’s not likely”.

The most critical stakeholder in any discussions would be the Public Investment Corporation (PIC), which manages the Government Employees Pension Fund.

“... labour has two seats on the [PIC] board. This is going the opposite way to prescribed assets. That is a positive signal. They are not going to vote to have their returns hurt, to give government money at a lower return.”

Brooke feels the risk of prescribed assets being implemented should be de-emphasised.

“We need global capital. It’s unlikely we are going to shut ourselves away from that...”

Old Mutual Investment’s customised solutions head Grant Watson agrees.

“If you look at why any government would have prescribed assets, it’s typically because they couldn’t get prescription for their debt... That’s not the case in South Africa.”

Particularly given the high yields on local bonds, they’re attractive.

Government’s role

Old Mutual Investment responsible investment head Jon Duncan said: “Government’s role is to crowd in private sector capital to participate in big infrastructure programmes.

“And what we’ve seen is that they can actually do that very successfully.”