Imagine having the following conversation with your boss:
Them: Listen (put your name here), you know that pension fund you belong to? The one we’re deducting from your salary every month?
Them: Well, we’ve decided that instead of investing the money elsewhere, we’re going to invest it in the company.
Them: Think of it this way, it’s still your money but now you have an interest in making sure the company does well – if the company does well, you do well. If the company does bad, then you do bad. Are you willing to give us permission?
You: Are you out of your mind?
Now imagine that same boss telling you that they’re going to do it whether you like it or not? Well, our government is thinking along the same lines.
Here is what was said in the ruling parties 2019 election manifesto
Investigate the introduction of prescribed assets on financial institutions’ funds to unlock resources for investments in social and economic development.
What exactly is meant by ‘prescribed assets’?
Basically, it means forcing your pension or provident fund to invest in state-owned entities.
When you think of state-owned entities think of South African Airways, Eskom, Denel, and Transnet. Think of…okay, stop thinking, you’re going to get a headache. Question is:
Why would your government want to force your pension fund to invest in them?
Is it because these companies are well managed?
The best possible situation for any government is one in which all of its citizens can take care of themselves without ever being a burden on the state. Imagine all the money that will now be available for building more schools, hospitals, and universities? It would make perfect sense to invest pension monies into successful state-owned entities so that this could happen. But how well are our state-owned entities managed?
Is it because there’s a long queue ahead of you wanting to invest?
Imagine investors from all over the world trampling all over each other in an effort to invest in our state-owned entities? Imagine our government stopping them and saying, “let’s give our citizens first option before allowing you to invest.” Besides China, is anyone else wanting to invest in our SOE’s right now?
Or is it because you’re the lender of last resort?
Surely, our government wouldn’t put your future at risk in order to bail out a sinking ship? Surely, they know that they’re going to have to support all these pensioners one day, or will it become someone else’s problem? have built up enough money from taxes in order to bale out any of these companies if need be? Surely, these companies have a strategy to employ and retain the highly skilled employees they need to operate successfully?
Admittedly, this is only an investigation at the moment. So, let’s not panic yet. But you know what they say, where there’s smoke there’s fire. It is especially concerning if you consider that none of these entities are currently well managed. Throwing more money at them hasn’t worked in the past, so will it work going forward?
The biggest problem most of us face is that we belong to defined contribution funds as opposed to defined benefit funds.
What then is a defined contribution fund?
Defined contribution means your company (and you) contributes to your retirement fund but you, the investor, carry all the investment risk. Whatever has been built up over the years, is what you walk away with when you retire.
The opposite is a defined benefit fund.
Here, all the investment risk is carried by the employer. They undertake to pay you a pension income based on a formula regardless of whether the investment performs or not. The Government Employees Pension Fund (GEPF) operates on this principle and we, the taxpayer, carry their risk.
Considering the risks that members of defined contribution funds already face, surely it makes more sense to prescribe assets relating to the Government Employees Pension Fund?
Government employees are guaranteed their pensions…the rest of us don’t get one.
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