South Africa’s biggest pension fund under the spotlight

The Government Employees Pension Fund (GEPF) has been criticised for wasting billions on high-risk, politically driven investments. It responded, stating that its finances are in good health.

Last month, Zirk Gous from the Association for Monitoring and Advocacy of Government Pensions (AMAGP) said the GEPF lost billions through bad BEE deals.

The GEPF’s investments are managed by the Public Investment Corporation (PIC), an asset management firm wholly owned by the government, represented by the Minister of Finance.

Gous told Biznews that the PIC and GEPF have a transformation policy in place, for which they use the Isibaya fund.

The PIC said that through Isibaya, it promotes development and inclusive growth through its Unlisted Developmental Investments, which create both social and financial returns.

Gous said Isibaya has a large number of investments, and many of them perform poorly, which was highlighted in a judicial commission of inquiry into allegations of impropriety at the PIC.

“The finding of this commission is that 44% of the Isibaya investments are at risk of failing or are failing. It is indicative of the risk as identified by the commission,” he said.

Gous said looking at the PIC and GEPF’s annual statements and annual reports is a horror story, and that they have impaired billions.

He highlighted that a large part of the impairments come from the Isibaya fund, illustrating how risky those investments are.

“Now, if that is not high risk, please advise me what is considered high risk. The Isibaya fund is really bad, bad news,” he said.

Gous added that the money lost through bad deals belongs to state employees and vulnerable pensioners.

The GEPF hit back, saying Gous made several inaccurate statements about the GEPF, its investment policy and investments.

The Government Employees Pension Fund said Gous’ claim that the GEPF has squandered R33 billion is not accurate.

“The GEPF has grown from a R127 billion fund at its formation in 1996 to a value of R2.38 trillion in assets under management (AUM) as of 31 March 2024, the highest in its history,” it said.

The Fund recorded growth of 2.6%, representing a growth of R61 billion and an annual return on investment of 4.9% in FY2023/24.

“The GEPF’s 10-year annualised return was 7.2% for the period 2015-2024, demonstrating financial stability with a funding level of 110.1%,” it said.

“Despite the volatile economic environment, the GEPF remains financially strong and resilient,” the GEPF added.

The GEPF said it was financially healthy and fully funded. This means the Fund has enough money to pay all pensions now and well into the future.

The last full actuarial valuation, as of 31 March 2024, showed that the GEPF had over 119% of the funds it needed to meet all its obligations, including a buffer for unexpected events.

This represents an improvement from the previous valuation, performed on 31 March 2021, which reflected a funding level of 110.1%.

GEPF performance

The Government Employee Pension Fund (GEPF) reported a fund size of R2.38 trillion in its 2024 annual report.

The GEPF is a government-defined benefit plan and, therefore, is subject to the Government Employees Pension Law, 1996. It is not subject to regulation 28 of the Pension Fund Act, 1956.

The GEPF, however, stated that although it is not subject to Regulation 28, it chooses to remain Regulation 28 compliant.

The Government Employees Pension Law is more restrictive than the Pension Fund Act regarding exposure to offshore investments.

The Government Employees Pension Law only allows the PIC to have up to 10% of its pension funds invested in offshore assets.

Regulation 28 of the Pension Fund Act allows pension funds to invest up to 45% in offshore assets.

Over the past decade, the GEPF has, through a combination of employee contributions and investment returns, increased the fund size from R1.42 trillion to R2.38 trillion.

Taking the effect of the benefit payouts and contributions into account, the GEPF achieved an annualised return of 7.20% over the past 10 years.

Daily Investor compared the returns of the GEPF with those of other Regulation 28-compliant funds suitable for pensioners to invest in.

The GEPF was compared to three large South African asset manager funds, which included:

• Allan Gray Balanced Fund
• PSG Balanced Fund
• Coronation Balanced Plus Fund

All three funds are Regulation 28 compliant, meaning they are eligible for investment by pension funds.

Comparing the GEPF to these funds shows it has underperformed them in each of the measurement periods.

Annualised Return	GEPF	Allan Gray Balanced Fund	PSG Balanced Fund	Coronation Balanced Plus
10 year	7.20%	8.30%	8.40%	7.90%
5 year	7.66%	9.40%	10.10%	9.80%
1 year	4.78%	10.80%	4.90%	12.50%

10-year investment comparison

Over a 10-year period, the GEPF achieved a 7.2% annualised return while the closest comparative fund was the Coronation Balanced Plus fund with 7.9%

If R1 million were invested in each of these funds from the beginning of the 10 years, the GEPF investment would be worth R2 million.

The best performer in this comparison, PSG Balanced Fund, would be worth R2.24 million, delivering R240,000 more.