Is the GEPF vulnerable? Part II – Balance sheet

A look at the sustainability of the Government Employees Pension Fund and whether it is too big to fail …
One risk is that any major restructuring that results in retrenchments of civil servants could deplete the fund. Image: Waldo Swiegers/Bloomberg

This is the second in a series of articles looking at the Government Employees Pension fund (GEPF) in terms of political risk, its balance sheet, and its investment strategies.

The GEPF is a defined benefit pension fund for government employees, but does the government’s role as ultimate guarantor hold water?

Will a 20-year-old who has just signed up for government service – and who will contribute to the fund for the next 45 years – be able to look forward to a pension based on their last salary, payable with adjustments for inflation, until death?

We should not be blinkered by the current situation, where the current assets of the fund at R2.1 trillion exceed the financial liabilities, excluding contingency reserves, by 10.1%. 

The GEPF has outsourced the management of 82% of its R2.059 trillion investment portfolio to the Public Investment Corporation (PIC). This has not been without controversy and allegations of corruption, and the GEPF has been left with tainted legacy assets in its portfolio.

Actuarial report

An actuarial report is prepared every two to three years. The most recent indicates that the fund was in a sound position as at 31 March 2021, and will be for the foreseeable future. The previous actuarial report was prepared as at 31 March 2018.

The actuarial report indicates that the minimum funding level, which excludes any contingency reserves, is 110.1% (2018 actuarial report: 108.3%). The minimum funding level is calculated by dividing the fair value of assets by the total accrued service liabilities.

The excess of assets over liabilities goes towards funding the contingency reserves, if required.

Contingency reserves (Rm)
2021 2018
Mortality improvement reserve 49 955 48 259
Pension increase reserve, past service 242 750 161 883
Pension increase reserve, future service 140 983 108 751
Solvency reserve 459 152 402 000
Total contingency reserves 892 840 720 893
Excess of assets over liabilities 186 827 137 428
Unfunded contingency reserves 706 013 583 464

However, the fund can only fund 20.9% (2018 actuarial report: 19.9%) of the contingency reserves calculated at 31 March 2021. The unfunded amount is R706 billion (2018 actuarial report: R583.5 billion).

Moneyweb contacted the GEPF and National Treasury to understand why the contingency reserves were not accounted for in any way.

The GEPF’s response

Moneyweb asked the GEPF if the government has a contingent liability for the unfunded contingency reserves of R706.1 billion.

The GEPF replied: “The government would only raise a contingent liability if the minimum funding level was below 90%. What is referred to as the long-term funding level is additional reporting allowing for the full contingency reserves. This is done to try align with the reporting done for private sector pension funds. Even then, under a reporting structure similar to the PFA [Pension Funds Act], the fund would disclose a 100% funding level as the PFA does not allow for contingency reserves to put a fund into a deficit.”

National Treasury’s response

Moneyweb asked National Treasury if it should not provide for the underfunded contingency reserves of R706 billion, as the government is the ultimate guarantor of the GEPF.

National Treasury responded: “For now there is no need for government as the ultimate guarantor to step in. As indicated in the 2021 actuarial valuation report, the GEPF is in a healthy funding level above the agreed minimum agreed. The fund is able to meet its funding obligations. The valuator of the fund has also certified that the fund remains financially sound on the minimum funding basis. The state will always step in based on workable measures should such a need arise.”

Assurance … and risk

The panacea to any concern regarding the financial stability of the fund is that the Government Employees Pension Law provides that if the fund had to reach a point where it is not financially sound, then the board will “implement a scheme or arrangement aimed at restoring the fund to a sound financial position”.

Presumably this means they will form a committee.

Apart from the risk that the government may not be in a position to save the GEPF if the time had to come, there are other major risks facing the fund:

  • The GEPF has to look far into the future; as a defined benefit fund, it must grow its asset base to be able to fund retirement benefits in 50 to 70 years’ time.
  • Any major restructuring that results in retrenchments will deplete the fund.
  • The GEPF must be able to withstand any attempt by the government or corrupt government cadres to tap into its pool of assets.
  • If the government continues on its journey of providing a comfortable haven for criminals, and continues to appoint inept and dishonest or exceedingly gullible cadres into powerful positions, how good is its legal commitment that it must guarantee the GEPF pension benefits if the fund runs into trouble?

Recent history provides cold comfort.




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As a government employee, your pension savings are basically invested in Luthuli House, managed by Gwede Manatshe and Jesse Duarte, and guaranteed by the Reserve Bank. If you are a socialist ANC supporter, you are putting your money where your mouth is. Good for you.

If you are a capitalist who understands the effect of compound growth, you are pinned down in a socialist ambush.

If an investment scheme depends on the steady growth in new contributors to be able to pay older investors, we call it a Ponzi scheme. When those new members are themselves dependent on an employer with a junk credit rating, unsustainable debt/GDP ratio, negative cash flows(budget deficit), stagnant economic growth, above-inflation wage demands from Alliance members, a shortage of electricity, and lives under the threat of social unrest due to rampant unemployment, the Ponzi-scheme itself is highly unstable.

In the hands of corrupt ANC cadres, the GEPF (through the PIC) is very vulnerable.

Good investments are colour and politics blind, however with the ANC running the GEPF the investments decisions are designed to be politically or corruption driven thereby weakening the returns for the poor pensioners of these funds.

End of comments.



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