11 Aug

The government are targeting retirement funds and pensions to force investment in the state


South Africa is looking to bolster its finances by making prescribed assets a vehicle to fund government-approved institutions. This includes those who are in possession of retirement funds or pensions, who will have no choice but to make contributions to state assets – regardless of their financial situation.

The legislation has certainly flew under the radar, and the ANC really did do their best to hide it: They only announced these plans on the last day of their policy conference in July and it doesn’t feature in any of their proposal documents.

Changes to pensions in South Africa

This decision was only announced after their ill-advised plans to nationalise the Reserve Bank, making it a good day to bury a change that will surely prove divisive amongst its effected audience.

Albert Botha is the fixed income portfolio manager at Ashburton Investments: He firmly believes that applying prescribed assets in pensions will ultimately have a negative effect on our citizens:

“Assume that 50% of assets are prescribed and this leads to a 1% per annum lower return for your pension – this would result in the average pension fund returning 3% above inflation rather than 4%.”

“In real terms, the average person would have to work and save for 2 years and 8 months longer to reach the same retirement goals over 30 years.”

What’s the retirement age in South Africa?

According to Botha, this would result in South Africans having to work until they are 68 rather than 65. Conversely, a worker wanting to stick to the retirement age of 65 may have to be content with a pension that’s 16% less than that of 68-year-old retiree.

It’s not necessarily a bad idea, though. Although it has the potential to hit pensions, Botha claims that similar schemes across the world have helped regenerate failing economies.

He cites the USA (tax exempt bonds for states/cities) and the European Union (first-loss guarantees for investors) for getting their prescribed assets strategies right.

Botha’s Ashburton Investments worked with the Treasury’s Job Fund to create over 9,000 jobs using 90% non-state finances. So there are methods that can benefit the average worker and the economy in tandem.

source from The South African

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