Govt employees pensions’ big loss
R214 BILLION: LOST FOR YEAR ENDING MARCH Annual report shows drop of R1.61 trillion in market value of investments.
The Government Employees Pension Fund (GEPF) recently released its annual report for the financial year ended 31 March 2020, showing a marked decrease in investment values.
Approximately 87% of its investments are managed by the Public Investment Corporation (PIC), which has been under scrutiny.
The commission of inquiry into allegations of impropriety at the PIC – chaired by retired Judge Lex Mpati – released its report in April, after the GEPF’s financial year-end.
The commission did not have the resources to investigate every allegation of malfeasance.
The GEPF made losses of R214.4 billion for the year, and the market value of investments dropped 11.47% to R1.61 trillion.
The investments were knocked by the downturn in the economy, the devastating Covid-19 pandemic, as well as the cost of malfeasance perpetrated by a few officials at the PIC.
The GEPF, through the PIC, now has to try to claw back what has been lost or impaired. But there are some warning flags.
The fi rst of these is its actuarial valuation. A statutory actuarial valuation is carried out at least once every three years. The last one was done by Alexander Forbes Financial Services as at 31 March 2018. The next one will be for the financial year ending 31 March 2021, but will only be completed in December 2021.
Whereas the minimum funding level is above the 90% stipulated in the funding policy, the long term funding level in 2018 falls short of the required 100%.
Since 2018, investments have plummeted. The 2021 long-term funding level rate will be negatively impacted if the investments do not fully recover by then.
GEPF principal executive officer Musa Mabesa assured Moneyweb the long-term funding rate is being continuously monitored.
The GEPF’s investments carry further risk of deterioration. Its money market instruments include promissory notes with the Land Bank of R4.4 billion. The Land Bank is experiencing liquidity problems and defaulted on its obligations post balance sheet.
Mabesa said the Land Bank made its outstanding interest payments in September.
Direct loans were impaired by R11.9 billion and further impairments are a possibility.
The GEPF has bills and bonds with Eskom (R78.2 billion); Sanral (R20.9 billion); Transnet (R20.3 billion) and Trans Caledon Tunnel Authority (R6.9 billion). In this worsening economic climate, bonds and money market instruments held with state-owned entities may be at risk of defaulting.
The Mpati commission reported that “41% of the R123 billion of unlisted investments are on watch, underperforming or not servicing [non-performing] loans”.
Many of investments made recently should not have been made. For example, Erin Energy Corporation was technically insolvent and did not own any oil leases. The PIC (on behalf of the GEPF) lost the whole investment.
The Government Employees Pension Fund (GEPF) is a critically important social stabiliser – because it provides a financial future for millions of civil servants and their dependants. However, it has become apparent in the last few years that it could be vulnerable to exploitation … and that it has lost value because of that. About 87% of the investments in the fund are managed by the Public Investment Corporation (PIC), which has been under scrutiny for some dodgy financial deals.
It is staggering that in its latest report, the GEPF reports losses of R214.4 billion for the year, and that the market value of its investments dropped 11.47% to R1.61 trillion. The investments were knocked by the downturn in the economy, the devastating Covid-19 pandemic, as well as the cost of malfeasance perpetrated by a few officials at the PIC.
The GEPF faces further problems because it is exposed to loans to disastrous state-owned enterprises like Eskom, Sanral and Transnet.
Also on the horizon is the possibility that the government will force pension and other funds to invest in large infrastructure projects, which offer poor rates of return and high risk.
Future stability for South Africa depends on its people’s savings. Mess with those at your peril.