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Pensions play: The absurdity of a citizen bailout for the state

Government wanting to solve its funding crises using peoples’ retirement savings is wrong on so many levels …
How can we trust the state with our retirement money when Transnet pensioners continue to die in poverty as their court case drags on? Image: Waldo Swiegers, Bloomberg

South Africa has among the most substantial pension assets in the world, even in US dollar terms. South Africa has far more pension assets than Germany or France.

Never were you informed about this asset as it funds SA and makes our median person the wealthiest people in Africa. The fact that SA has the highest typical financial wealth in Africa does not suit the victim narrative.

According to South African Reserve Bank data, in 2017 there were 17 million retirement accounts, representing between 11 million and 12 million individuals, with retirement assets estimated at R6.6 trillion.

The average adult pension saver has invested R576 000 in the system. The typical person has about R340 000 saved for their old age. The typical adult in the system is probably close to 50 years old and needs to save more, and then have the investment grow well above inflation to help make ends meet.

Tempting asset

With government having run out of options for funding itself and its state-owned enterprises (SOEs), we now know that we have a very large asset.

Read: Cosatu to present R254bn Eskom rescue plan

Never in a million years would the government mention that this is one of the largest financial holdings in the world and that blacks own over two thirds as this would not suit the BEE narrative.

The typical person receiving this pension in South Africa, we know from BankservAfrica data, only gets R5 531 in the bank every month. The retirement annuity has to pay for medical insurance, water and lights and food to name just a few essentials. So even the wealthiest African are not wealthy but rather only able to get by.

Funding the wealthy

That the typical pension saver has to bail out SOEs, often where the average pay is well above R800 000 a year, means millions of lower paid workers will fund a few thousand wealthy workers.

Our country’s president said R800 billion is just 10% of our pensions and should not be a problem as we need Eskom and other SOEs to grow. 

Well it is a problem, and the reasons why are largely listed below.

The problem in using pension money for SOE bailouts

Firstly the money is that of millions of ordinary hard working South Africans, most of them black, and they already have a pension shortfall to maintain their lifestyle as we can see from the BankservAfrica pension data.

This money belongs to future pensioners and we have seen what dud investment returns can do.

Just look at the Transnet pensioners. Unable to stay in their houses with pensions that do not even cover their medical insurance never mind food and water. The government and Transnet did not bail out those pensioners and they were left to die in poverty not being able to work anymore.

Read: Transnet pension funds’ R100bn dagger pointed at the heart of SA

One of my old Transnet bosses is staying in his kid’s garage with his wife earning food by looking after the grandchildren.

Secondly, SA pension funds already sit with R2.1 trillion of government and SOE debt directly, and probably another trillion or so via the banking system. So nearly half of our money is invested in government and the development of the country. Taking another R800 billion will mean that pensioners have more than reasonable exposure to a single subsector of an assets class – public debt. Moreover the above will create a concentration risk, which often has fatal results for investors.

Perverse incentive

Thirdly, the incentive is perverse as SOEs are managed into financial ruin and despite government having bailed them out numerous times, they continue to need more copious amounts of cash.

Rewarding failure with more money is like sentencing a murderer with a gift of an extra guns – it does not make sense. 

Throwing money is not the solution when the whole system is rotten.

Fourthly, we have not fixed the SOEs at all. For example, local prices of coal – of which Eskom is the monopoly buyer – have rocketed more than double the inflation rate!

Since April 2008 local coal prices have risen by 195%, while export coal prices only increased 14%. The total return (prices and dividends) of the JSE was 151%, government earned 172% and inflation was 85% over the same period.

The increase in the local coal price screams corruption and has never been addressed, never mind prosecuted.

Not one board has investigated this excessive increase in coal prices. Instead this was promoted as successful BEE commitments.

So 11.5 million pensioners therefore risk losing part of their savings for 15 000 highly paid extra Eskom staff and a few people getting extremely rich on coal and transport contracts.

Also, with many a municipality simply not paying, more money is not going to fix the income problem. The ‘more money’ will plug a gap – and the need for municipalities to pay will be reduced.

I repeat – get the costs under control, and get those non-payers to pay. Our pension money will not fix these problems but fixing these problems will save Eskom without extra money needed as it will again make a profit.

Purchase prices for SOEs excessively high

Moreover not one government official has even asked the obvious question: why are the purchase prices for SOEs increasing that much faster than inflation? Why is the Competition Commission asleep on excessive pricing at SOEs! Since the arms deal nothing has been done to curb excessive pricing to state-related institutions!

While some SOEs have had many different boards, the fact that not one has publicly flagged excessive price increases speaks volumes about the stupidity, insider corruption and probably careless attitudes that prevail.

Before you can save any SOE you have to fix the apparent corruption, the overcharging, and the BEE deals that impoverish the majority of our population. The BEE deals that Eskom brags about in annual report after annual report has resulted in higher power prices for ordinary South Africans. We impoverished millions for the enrichment of the few, and we want to do so again.

When does BEE make sense? 

The above leads to the fifth point that is politically difficult to talk about. When does BEE make sense? Certainly not when it results in increasing prices for average South Africans. Certainly not when the result is less investment and few jobs.

Government needs to side with the ordinary citizen. When and if BEE is required, it must make sure that value is added not just translate into extra costs. You cannot create growth and wealth when a few get rich by being inserted into a process that was already reasonably efficient. That is ‘broad-based black disempowerment and impoverishment’.

Transparency

Lastly, we need a lot more transparency – on tenders especially, but also on pay levels within SOEs, and the qualifications and experience of all management must be made public. No cadre employment. And perhaps we should consider that no civil servant or SOE employee above supervisor level may belong to a political party.

Also forget this secrecy thing, with state-owned firms publishing every tender result online with price, quantity, quality and ownership of the named winner.

The ‘This is a commercial secret’ stuff is a lot of bull dust.

It allows the criminals to hide. And quite honestly we, the citizens, are the owners of SOEs and the government, so tender results are in the public interest. They are unlikely to tell the market the internal secrets of the suppliers, just the price and quantity and ownership.

Transparency prevents much corruption as one can see what is going on.

SAA was paying R17 per bottle of water, and you know they only cost R10 at the shop and R3 wholesale!

Every contract awarded must be published in full in public and the regular checks on the attainment of goals must be published too.

Not addressing the real operational problems will not result in better transport, electricity, water, or roads.

Funding SOEs or ‘development’ without the above will result in less in terms of returns and outright losses for our pension funds and impoverish millions of honest ordinary citizens for the connected few.

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COMMENTS   49

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Obviously you are 100% correct but that is not what the masses of people and the politically connected cadres want to hear. The only way in which logic will prevail in this country is if we hit absolute rock bottom and we have no choice other than to do the right thing.

The trouble with “doing the right thing” is that it is always relative. For the EFF ‘doing the right thing’ will be rioting and land invasion. For the ANC cabal ‘doing the right thing’ will be protecting their power base at all costs.

For the educated, sophisticated and well-qualified South African of any colour, ‘doing the right thing’ has meant emigrating.

Sigh …

If you vote ANC you deserve to lose your pension.

No good talking sense to these morons in Government and union bosses. They dont read these articles.
We should go on some kind of roadshow into the townships and tell people how their meager savings are going to be used to bail out the useless fatcats in government and these idiotic SOE’s
How do they think Escom and all the other useless SOe’s will pay back the money that was borrowed from the pension system? They cannot pay back the current creditors.
Does anyone in COsatu think having shares in Escom or SAA etc have ANY value at all? They have not been able to pay one cent in dividends for ever so how will they now pay the pension system any dividends?
This is pure madness. Get your money out of the pension system and put it in hard currency if you can.

absolutely correct….like taking a shower will cure aids?? these people also think money grows on trees!

Dont we have a functioning reserve bank. Responsible for funding GORVENMENT spending. Why must pension or private and foreihn sector fund GORVENMENT spending @ high interest? The SARB can credit treasury tomorrow. What is stopping them.

You should read “how money destroys nations” by Phillip Haslam and Russel Lamberti before you write your next post.

“Responsible” is the key word here. You cannot just print money to your heart’s content to “fund government spending”. This is what happened in Zimbabwe, and this is why it is now a smouldering ruin with no currency, no growth, no responsibilities, no value add, no food, no dignity and all of them coming to SA.

Hopefully, a moral compass is what is stopping them, as well as the rule of law.

….”hard currency”, ‘digitalized Fiat-currency, or…virtual currency??

Experience in business has always shown me that where the guy at the top is crooked, the rest of the company will be too. In effect,’if he can do it, so can I’. Nowhere has this been so clearly proven as by the Zuma administration.

Zuma’s decade has effectively robbed the poor of SA, while siphoning off billions into the pockets of relatively few connected cadres. And now South Africa and its people sit with the fallout. Billions upon billions down the drain with Eskom, Prasa, Denel, SAA and many, many others.
And now the ANC hungrily eyes govt pensions as the last source to plunder: putting a tenth of people’s govt pensions into a dying resource like Eskom. And the unions demanding no staff cuts! With ever-increasing renewable power, Eskom is a dinosaur with its massively overpriced new power stations that cannot deliver, plus old ones that are far past their sell by date. Compound this with the utterly disgusting corruption re coal prices etc that started under Zuma, and the whole of SA is now held to ransom. Zuma has robbed the poor. Yet idiots still want to parade around, praising him when he has his court appearances. Truly, the mind boggles.

Elephant in the room : The money to be invested in SOE is not lying under a mattress, it is already invested across equities, public and private bonds, plus a portion in longterm assets like property, infrastructure finance and project finance.

What? Sell R500b of JSE equities and government bonds to switch pension into SOE? Who is going to buy those from the pension funds?

Which is yet another reason why the JSE (excl Naspers) has not gane anywhere for what seems a decade, even before this week…

Foreigners are not idiots they know that there is this effective short on the JSE when PF are forced to switch into govies/Eskom bonds

The governments “caring” attitude towards their citizens are best illustrated by the events at Marikana and Life Esidimedi.

Rest assured with 21 March around the corner we will once again be reminded about the 69 people who were killed at Sharpeville in 1960 but not about the 143 people who were murdered at Life Esidemeni in 2016. Even when people started complaining, the MEC Qedani Mahlangu lied and said that she had personally inspected all 26 clinics and that they had adequate facilities. Each family was paid R55,000 and with that, the whole matter was swept under the carpet never to be spoken of again. Not one single person was ever prosecuted for these deaths. (Apparently, Qedani Mahlangu was and is very good at mobilising support at grassroots level.)

When it comes to including private pensions in the rescue of SOEs, as suggested by Pravin Gordhan and the President, is even more absurd. Most of these funds are not defined benefit funds where one is ‘guaranteed’ an income based on years employed, final salary etc. In such a case, provided the guarantee is honoured, the risk of any shortfall will fall on the tax payer.

Private pensions are mostly defined contribution funds and these are fully dependent on capital stability and return on investments. The burden of capital preservation and zero and or poor average returns lies fully with the future pensioner.

Therefore state and private pensions are not the same thing, the one is guaranteed the other not. I agree with Mike, all pensions but especially private pensions should be out of bounds to failing SOEs.

Defined benefit pension funds are part of government’s unfunded liabilities. Everybody expects them to get a junk credit rating soon. That means the odds are very good they will repay their loans with devalued currency. That means that the purchasing power of every pensioner will be exoropriated without compensation.

As the Venezuelan and Zimbabwean pensioners how their defined benefit funds worked for them.

How is it possible to run up a debt of R 450 billion, and have nothing to show for it ?

Where did the money go ?

All these bailouts WILL NOT STOP THE ROT.

Where did the money go? Fancy houses in golf estates, ugly pointy shoes, fake hair, luxury cars, whiskey, women, etc.

haha. Nice. But then one might argue that they are doing their bit to stimulate the economy.

thats hilarious…what is it with grown men wearing pointy shoes! clearly, i am getting old

I guess most of it went into failed projects like Kusile and Medupi.

With current load shedding happening at short notice it seems that they are still in crisis management mode and that planned maintenance is not implemented yet.

The socialists and communist usually say that their policies are good, they only need to act against corruption. They defend communism by saying that corruption is not part of communism. Authorities merely have to stamp out corruption, and communism will bring equality, so they say.

This logic is flawed, naive, ignorant and myopic. It is impossible to separate corruption from socialism or communism. The structure, or DNA, of socialism, enables, promotes and rewards corruption. The system breeds corruption. A system of shared resources enables the most unscrupulous individuals in that community to exploit the rest at the maximal rate. When the responsibility is shared by the collective, the looters “privatise” the profits and “nationalise” the costs without any accountability. What kind of person is willing to make false promises to voters, while he exploits them? The scum of that society is willing to lie for personal gain. These people are the representatives of their communities. They become the leaders, the policy-makers. The collectivist community rewards the worst characters in their midst to exploit them at an increasing rate.

The ethical individual who acts in the best interests of the community will be pushed aside, while those who are willing to exploit the community will be rewarded, and will rise through the ranks of the organisation.

This is why the most selfish and unscrupulous people occupy the most senior positions in socialist organisations.

The ANC is rotten to the core because their basic policies and beliefs are rotten. This can only be rectified by the terrible lessons of catastrophe as Bastiat put it.

“When misguided public opinion honours what is despicable and despises what is honourable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns it’s back on progress and can be restored only by the terrible lessons of catastrophe.”― Frédéric Bastiat, Economic Harmonies

Agree Sensei. It is ludicrous to claim that any system will work if it acts against corruption. The problem is not primarily the system, it’s the never changing human nature of greed and selfishness. Go to church on Sunday, say sorry, pay your insurance premium and continue with business as usual from Monday to Saturday. This too is not peculiar to any one religion because the foundations of all religions are humans and they always act the same in the same circumstances – regardless of what they profess to believe. In SA we have the worst of all combinations, screwed up policies, corrupt politicians, massive incompetence, hundreds of religious scoundrels and millions of gullible voters! Oy Vey !

Wow, the tragedy of the commons under socialism. I never saw it that way.

If pensions are used to “invest” (donate?) in SOE projects & govt expenses….it just takes on the form and function of an ADDITIONAL TAX.

A criminal deed against pensioners

I remember an article I wrote about E Tags. It ends the same way as this will.
“When the government wants money THEY WILL TAKE IT!!!!!!!!!!@!

Zokey you are probably correct so the secret is to have as much money out of SA as possible and in assets that the government cannot easily track like for example collectible and saleable assets etc.

So the situation is not as hopeless as you make out there are tings one can do to minimize the effects of the theft and corruption on our finances.

I do not think that the government will take peoples money physically. They will simply print money and effectively take the peoples money by devaluing the rand.

The system you describe is fascism. We do have property rights and law and order in name only. In reality property is expropriated by stealth. You have the title deed, but government owns the property

It’s interesting to see how much more blatantly economists are describing the state of our economy – and how we’ve found ourselves in this shocking situation.

Yet, for PC reasons we still cannot bring ourselves to be brutally honest about it.

Unfortunately, Whites and Indians tend to blame only the ANC as it is easier to blame a political party than to blame an entire ethnicity – especially in SA.

Would it be any different if the EFF were in power? Or the ACDP? Or Inkatha?

The answer is a resounding ‘no’.

The cold, hard fact of the matter is that we are avoiding discussing the truth . . . while SA burns.

It is about economic policies adopted by the ruling party and not about the country’s ethnicity.

Are you saying that government, which is ANC, is not to blame? It is their policies enacted as they vote at their conferences…. so the government is the implementation of a party’s ideals…

I keep on being reminded that it is official ANC policy to take “party before country” (as demonstrated during Zuma’s rule).

These pension funds are “defined benefits” so the issue of interest and investment is merely academic as any shortfall in capital, to pay or recoup the “loan” will ultimately fall to the taxpayer, given the state is already bankrupt……”clever” commies looting free market capitalists by stealth and deception!

We’re likely going to see a CYPRUS style “bail in” (not bail out) they had for their failed banks in 2013.

…many are not aware of the Cyprus “heist”
50% of everyones bank account was looted to pay for the extended borrowing bu government

Yes, but ordinary Cypriots didn’t have millions in their bank accounts and there was a threshold. But astonishingly a whole whack of Russians and Iranians had mega cash parked in they Cyprus bank accounts. So it was a bit of a windfall for the Cypriots and also actual theft of the poor Russian and Iranian cash.

Local savers fail to realise that, according to IMF and the World Bank policy, their savings at a local bank is not their property. Their deposit is a loan to the bank and they will have a claim against the assets of the bank, along with the rest of the creditors.

They will receive cents in the rand, or shares in a bankrupt bank, in the event of a banking crisis. This is the bail-in people talk about. It means that the Reserve Banks have tapped out, and they will confiscate your money to save the financial system from collapse. Now, it is only a matter of time before another systemic collapse forces Reserve Banks to expropriate our assets without compensation.

This is the risk that keeps me awake during the day, not at night though.

“The fact that SA has the highest typical financial wealth in Africa does not suit the victim narrative.” I hope the MW moderator allows me to repost this…

And now for the crux of the matter … “That the typical pension saver has to bail out SOEs, often where the average pay is well above R800 000 a year, means millions of lower-paid workers will fund a few thousand wealthy workers.”

Finally … “The increase in the local coal price screams corruption and has never been addressed, never mind prosecuted.”

Sigh…

Eish – as if the Corona Virus, the lethal flulike contagion that again began in China (like SARS) and now disrupted all households, financial institutions, business travel, and trade isn’t enough!
The SA economy has been in limbo for the last 10 years as businesses and individuals felt besieged by a bunch of ‘’Champagne Socialists’’ that kept on playing their Jan van Riebeeck ‘’race cards” when it suited them. The State Capture methinks was a very well timed and carefully worked out plan to feather their beds from the mountains of money that was built up during the ‘’Colonists’’ reign.
The cANCer led Government has now bankrupted the State and their incompetence and arrogance just compounded the uncertainty and gloom; it touched off waves of accounting scandals and exposing the infectious greed and malfeasance of most ANC office bearers in the SOE’s etc.
The ANC and the EFF colluded openly in Parliament and stepped up its attacks on the ‘’settlers’’ by generating waves of disturbing news and plans to punish them, with a plethora of plans and campaigns, to dispose of their so-called ‘’stolen assets’’ without compensation.
The ANC needs money – their Socialistic agenda, aberrant behavior, and State Capture scandals caught up with them, as the social grants that they are dishing out is now under threat. They are well aware that they must come up with a plan to hold on to political power.
What is easier than to start picking the low hanging fruit – the pension funds and Land expropriation without compensation? I think their primary question now, after many years of mismanagement is to swap principle for power and take what they can, because they can.

Well done Mike – just another awesome article!

Well said comme ci..

Indeed, what is easier to “prune” that the low hanging retirement funds.
Using rational thinking, realistically the R6trn is simply TOO BIG for the ANC to ignore. I fear.

Re “citizen” bailout. Now WHICH citizens?

Only those that voted ANC specifically? The rest can stand aside 😉

(..or if meant ‘all’ citizens, then our ANC supporters can stand in front of the queue, to be relieved of their pension savings first and foremost.)

So 11.5 million pensioners therefore risk losing part of their savings for 15 000 highly paid extra Eskom staff and a few people getting extremely rich on coal and transport contracts.

What an excellent article, what a pity that this will never see the light of day on News 24, Dailymaverick or any of the large newspapers. Too much hard to swallow facts

Unfortunately by bailing out SOE, we prolong the pain of having to fix it. It becomes a short term solution to a long term problem. Another nail in the coffin.

Kenneth Brown tried to implement an open transparent tender system. He resigned from treasury in December 2016 after the ANC blocked him from implementing the system.

An exceptional article thank you. This may not make the main stream media in SA, but is already well known the facts and is being shared today around the world i assure you.

Defined benefits is the problem combined with certain devaluation. The comment re Venezuela and Zimbabwe – say no more, other than those in their 50s now that need the approx. R500k desperately even at todays exchange rate, where will it be when they start drawing it? Not much good in 10 years if it only buys a single can of coke – why? This is not meant to be SA negative as some are sensitive, but when you fund a black hole with pensions and align that with confiscation without compensation – massive currency devaluation is inevitable as that will be the final straw for international investors that are aware of this article and the facts contained within.

The Cyprus bail in was an interesting situation. I believe it was well coordinated and an EU balloon floating exercise. It also set dangerous precedent and has now i believe been written very carefully into EU law which very few people are aware of. This includes the UK which brags about Brexit but they were all too happy to adopt this ability should the need, or when the need arises. In Cyprus they were clever i cannot remember now exactly but i think if you had over Euro100k and a foreigner you got smacked with 90% tax, if you were Cypriot you got 50% at that level. Then 50k to 99k you were hit 25%. I think under 50k you lost 15% and if you had less than 10k you were exempt. So yes it nailed very wealthy Russians Iranians they were not very well informed ahead of time, massive cash movements took place to mid east and asia in the months leading upto another EU experiment.

I am sure that more than a few of you are familiar with CBDC (Central bank digital currency) there was a UK paper published a few days ago, same in Germany, France etc. Basically the elimination of cash and the end of bank runs – making hiding money much harder and the Cypriot bail in that much easier. There are articles doing the rounds claiming that cash spreads germs, which i am sure it does for a few minutes or hours, now some are saying 17 days on a bank note for corona, who knows, but the public are always far more willing to gift away another freedom in a blind panic not so. So in UK and EU there are already many cashless stores so not such a stretch for CBDC, but the USA not for years i would think, Africa probably not for another few decades, same as in a lot of Asia and mid east. But times they are a changing.

Excellent and truthful, blunt but depressing article and comments. I cannot add much except that every distortion of freedom comes back to bite; sometime.

The one I want to highlight is the long existing pension “industry” effectively forcing employees into a herd deposition of their retirement funds, out of individual control and to be raped and pillaged by “investment” houses, employers and now it seems, government, pretty much at will. Like shooting fish in a barrel, until the barrel is empty.

I have no words for this catastrophic thing that our government is contemplating, maybe done already. What can I do to influence this in a way that will put a stop to it. I’m beyond worried; so far, I just try not to think about it until information like this article.

The devastating economic impact of this virus would be bad enough on it’s own, but on top of an already comatose economy and frequent load shedding, I fear that we have already gone over the cliff. Looting pension funds is about to become moot, the sky has already started falling.

End of comments.

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