South African pension fund looting warning

Solidarity highlighted fears about the Government Employees Pension Fund (GEPF) looting among pension fund members.

This was one of the issues discussed at Solidarity’s GEPF summit, which was held on Thursday, June 20, 2024, in Centurion.

The GEPF is a defined benefit pension fund established in May 1996 when numerous public sector funds were consolidated.

Its core business, governed by the Government Employees Pension Law, is managing and administering pensions and other benefits for South African government employees.

It is Africa’s largest pension fund, with over 1.267 million active members and accumulated funds and reserves of R2.27 trillion.

The GEPF has outsourced its administration and investment activities to the Government Pensions Administrative Agency (GPAA) and the Public Investment Corporation (PIC).

The GPAA carries out day-to-day administration while the PIC invests funds on behalf of the GEPF.

Experts, including financial professionals and other stakeholders, shared their views on the performance of the GEPF at the Solidarity summit.

They also pointed to policy problems, the impact of transformation plans, and deficiencies in the fund’s investment structures.

New legislation regarding the early availability of pension money raises concerns about the possibility of mismanagement and looting of this fund.

The proposed “two-pot” retirement system wants to balance futureproofing people’s finances with emergency access to the funds.

Contributions are split into a locked “retirement pot” for long-term growth and a “savings pot” for occasional withdrawals in times of need.

While the retirement pot secures your golden years, the savings pot offers tax-advantaged early access compared to the traditional withdrawal option.

This reform aims to create better outcomes for retirees by promoting higher levels of savings and by preventing South Africans from withdrawing all of their retirement savings early.

Helgard Cronjé, Solidarity’s deputy general secretary for the public industry, said the new two-pot system could have adverse consequences for public service workers.

“The state coffers are almost empty, and the state believes the funds should be utilised to benefit the wider South African society,” he said.

Marius Croukamp, Solidarity’s deputy general secretary for strategy, said the legislation poses a host of dangers to both the private and the public sector.

“Should public service workers withdraw their pension money earlier from the fund in large numbers, the fund will suffer a major loss,” he said.

In the past, irregularities have dogged the Public Investment Corporation (PIC), of which the GEPF is the largest client.

The Mpati-Commission, which investigated the mismanagement of the GEPF, pointed out serious problems.

It said there had been substantial impropriety at the PIC, poor and ineffective governance, and inadequate oversight.

It also highlighted confusion regarding the role and function of the board and its various sub-committees, victimisation of employees, and a disregard for due process.

While the PIC has sound policies, processes, and frameworks, these were often not adhered to, deliberately bypassed, and manipulated to achieve certain outcomes.

The commission found that there was both impropriety and ineffective governance in a number of investments.

Cronjé said bad investments, which benefitted GEPF cadres and led to the fund suffering a loss, had, therefore, already been made in the past.

Solidarity is concerned that the fund can be looted again, as the Mpati Commission’s recommendations do not seem to have been implemented.

Solidarity said it was considering various litigation strategies that can be used against the state to protect the fund.