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Prescribed assets: what the fuss is all about

For now, do not make hasty decisions or act on rumours.

Prescribed assets have been on the government’s agenda since it appeared on their election manifesto in 2019. The concept of prescribed assets is not new. Under the apartheid government, it was driven to an extreme, where pension funds were forced to invest up to 77% of all their assets between government bonds and state-owned enterprises (SOEs).

In 1989, prescribed assets were scrapped.

Willem Basson spoke to Kobus Sadie, our General Manager: Wealth Services (previously affiliated with the Consolidated Retirement Fund) about the concerns regarding prescribed assets:

Question 1: What can we expect from prescribed assets?

Since the noise around prescribed assets started again in 2019, we have not seen any clear indication of what specific assets government wants pension funds to invest in:

  • Will it be government bonds? Pension funds would lend money to the government, who must then repay that debt over a specific time at a specific rate; or
  • Will it be a loan to bail out SOEs?

If it is indeed option 2, in our opinion, this will be a serious concern.

Question2: What is the current situation in South Africa?

Pension funds are currently allowed to invest in alternatives, but they have a choice in which alternatives to invest in. They can do research and proper due diligence before they invest. If Regulation 28 is changed, this could potentially lead to funds not having full discretion where they invest their members’ money. This will have a tremendously negative impact on members’ investment risks.

The government’s proven track record of not spending money responsibly is the biggest fear surrounding this issue.

What exactly will the money be used for and by whom? Will the plundering of state assets continue, or will the money be spent wisely? If not, pension funds could be forced into investments that could potentially lose money for their members.

Until the government finalises its plan, and specifies which instruments must be used, how the money will be used and by whom, it remains a concern for all South Africans who have money invested in pension funds.

Question 3: What do we expect for the future of retirement in South Africa?

We expect heavy resistance from the pension community, and do not foresee that prescribed assets will be implemented overnight. We will keep you up to date to ensure that you have all the necessary information to make informed decisions. For now, do not make hasty decisions and please do not act on rumours. Rather check with your financial planner or wealth manager to get an informed opinion and professional advice. We receive regular updates from our partners at Allan Gray, Ninety One (previously Investec), Absa and all the other big insurers and fund managers across South Africa.

For all clients currently invested in living annuities, it is important to remember that the government will have to change Regulation 28 to force pension funds to invest in certain asset classes. Living annuities will therefore not be affected because Regulation 28 does not apply to them.

Contact me if you have any questions.

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Willem Basson

Efficient Wealth

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There is an enormous difference between the prescribed assets before 1989, and those currently under discussion. In earlier times, virtually all pension funds were Defined Benefit funds. The pensioner did not take the risk of poor investment by the Fund. His payout was dependent on his final salary and duration of employment. A Defined Contribution fund is entirely different. The payout is very dependent on the return on investment by the Fund. These two situations (Benefit vs Contribution) are not analagous at all. The concept of prescibed assets may be similar, but the effect is very different.

Willem. The SA tax paying public are not fools. We know that our tax money is being looted on an unimaginable scale. The middle class can see where this is all going. If the government introduces prescribed assets, it is tickets for South Africa. There is zero confidence in government. ZERO.

Sounds like the advisors who always stated that the JSE is the only place to be. Stay put, don’t panic, it’s a blip, it’s cheap to buy etc etc

And got absolutely decimated.

This reminds me of an experience I had with Managing Directors many years ago.

We were told not to worry about our jobs at a company by the so-called Managing Directors who are all CA’s and folks who could easily find another job. We were told emphatically that nothing will happen!

A few weeks later we ALL got retrenchment notices! Where were the MDs when this happened???? They jumped ship before we got our notices.

Don’t believe these financial gurus

Rule number one of investing: if you are going to panic, make sure you’re the first one to panic.

End of comments.

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