Warning over ANC’s plan to use pension fund money

The ANC has touted the revival of an Apartheid-era rule forcing pension funds to invest in government-approved investments and, in particular, the country’s failing state-owned enterprises (SOEs). 

However, experts warn that this will destroy investment returns because there are few bankable government-run projects and companies. The plan will also have no positive effect on the South African economy. 

In its election manifesto, the ANC stated its plan to force pension funds, through prescribed assets, to invest in government bonds and support struggling SOEs such as Eskom and Transnet.

The ANC said it would “engage and direct financial institutions to invest a portion of their funds in industrialisation, infrastructure development and the economy through prescribed assets.”

The rule was first created in 1956 during Apartheid to force investment in government bonds but was scrapped a few decades later. 

In the build-up to the country’s national election at the end of May, Zuko Godlimpi, deputy chair of the ANC’s economic transformation committee, said the party would investigate the revival of prescribed assets after the vote. 

The governing party has previously raised the possibility of prescribed assets but was strongly opposed by business groups and civil society in 2019. 

In 2024, the ANC has even met opposition from members of the National Treasury, with director-general Duncan Pieterse saying a policy of prescribed assets is unnecessary. 

Pieterse told a PSG Think Big webinar that current reforms to allow pension funds and other investment products to invest in infrastructure would not require any form of prescription. 

He referred to specific instruments addressed in this year’s budget, including infrastructure bonds or special vehicles through which the private sector can participate in government investment.

He explained that these instruments will achieve the objective of greater pension fund investments without the need to prescribe them.

The ANC’s plan has been met with strong opposition from asset managers, with Sygnia CEO Magda Wierzycka, in particular, slamming the ruling party. 

“First, they rob South Africans through taxes. Then, by mismanagement of the economy, the rand collapsed. Now it’s a raid on our retirement savings,” she said.

She added that most South African asset managers already hold over 20% of government bonds, raising the question of what percentage will be enough.

Wierzycka previously said that while prescribed assets will help to fund bankrupt SOEs, they will divert investments away from funding corporations that create jobs and contribute to growing the economy.

“It will also affect the revenue derived from the taxation of such corporates, so what is taken to fill one bucket empties another,” said Wierzycka.

Alexforbes CEO Dawie de Villiers echoed Wierzycka, saying that prescription should not happen and that the company is “dead against it and thinks it will not happen”.

He also warned that prescribed assets will have a negative impact on the local economy by pushing foreign investors away and forcing asset managers to make wasteful investments. 

The ANC’s plan won’t work

Old Mutual investment strategist, Izak Odendaal, told Daily Investor it is difficult to know what the ANC wants to do with pension fund money but that the plan would have very little benefit to the economy. 

“The problem isn’t that there isn’t enough money to fund infrastructure. The problem is that there aren’t enough bankable projects for the private sector to invest in at this moment,” he said. 

Odendaal explained that the impact on asset managers would be insignificant as many already invest in government bonds, but this plan would severely affect investors. 

“For instance, if the government says that exposure to a certain asset class must be a minimum of x%, the asset managers will change the allocation of the relevant funds to reflect this.”

The bigger question is what it will mean for the return that investors/clients/members might earn if asset managers are forced to invest according to certain minimums.

In South Africa, there aren’t enough projects to invest in at this stage, so if the entire pension fund sector in South Africa is forced to pile into infrastructure, those few projects will be flooded with cash. 

He said that investors if a prescription is imposed, will still earn a return on investing in the prescribed assets, which may or may not be lower than what is available elsewhere. 

Moreover, this will only be a portion of the overall allocation of the fund.