‘No-no’ to pension assets

Rationally and irrationally, there would be huge outcry if prescribed assets were to be introduced – Sygnia’s Wierzycka. ASISA AND SYGNIA WEIGH IN ON CONTROVERSIAL TOPIC

The Association for Savings and Investment SA (Asisa) says prescribing pension funds to invest in certain assets would “force the savings and investment industry to deploy the savings of ordinary South Africans into entities that have over the recent past been mired in state capture and lack of delivery.

“As custodians of these savings, we have to oppose this.”

In its 2019 election manifesto, delivered on Saturday, the ANC said it would “investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments … and job creation while considering the risk profiles of the affected entities”.

‘Liquid cash’

Sygnia chief executive Magda Wierzycka is more philosophical. “If we look at it pragmatically, SA doesn’t have money.

“If that is the case, one needs to look at the pools of capital available in SA as liquid cash.”

One of these is the funds managed by the Public Investment Corporation (PIC).

“That pool of assets is – in theory – available to government, and given that it is a defined-benefit fund, it is ultimately taxpayers who would fund any shortfall in its ability to pay pensions,” she says. “The problem with the PIC is that it hasn’t deployed its capital particularly effectively to date.

“The other pool of assets we have is the retirement savings pool. In effect, there is an inherent pact with government here: you save for retirement through these vehicles and, in return, you benefit from a preferential tax treatment.”

The question of whether prescribing how assets need to be invested within these investment vehicles is “right or wrong” is a difficult one: “Everything is a negotiation,” says Wierzycka.

Theoretically, “government could say: ‘we’re putting tax concessions on the table, and in exchange you might have to deploy some of these savings in a specific manner’,” she adds.

Today, virtually all funds have converted to defined contribution arrangements. “Your pool of assets is your pool of assets; you effectively retire with what you have accumulated ….”

In this scenario, mandating the concept of prescribed assets could be very problematic, says Wierzycka. “Members could claim that these are their assets, and that they should determine how their assets are invested.”

She says that removing rights retrospectively, without something like “grandfathering”, could be legally problematic and open to challenges.

Funding available

Wierzycka says the issue hasn’t been a lack of funding for suitable, well-managed projects. “Rather, there has been a shortage of viable projects and a shortage of credibility in how these projects are managed.”

Asisa chief executive Leon Campher echoes this: “Asisa and its members believe that many of our country’s challenges can be overcome through effective public private partnerships.”

Hilton Tarrant works at YFM