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My fear is not when SA runs to the IMF…

It’s about hands in the pension pot.

Remember that book by RW Johnson everyone brought about three years ago. “How long will South Africa survive?” It forecast that we would have to run cap in hand to the IMF within two years for a bailout.

Many commentators have repeated this, from left-wing academics to political commentators.

The fear I have is not that the forecast comes true, but if it doesn’t. I can hear the eyebrows lift and see the “you’re crazy” stares pierce the screens.

There is a worse fate that awaits South Africans than government running to the IMF to bail out Eskom; Transnet or even worse, government itself.

Yes, there is a fate far worse than the IMF putting conditions on our bailout, while they monitor spending, tax collections and corruption – making sure government money does not enrich the lucky, connected few.

The fear I have is that they use our pension fund savings. South Africa has the fifth-largest pension fund savings in the world as a percentage of GDP. The pension pot is also the eighth-biggest in dollar terms in the world. Many know this but not us as we bemoan our perceived poverty.

This pension pot belongs to about 12 million South Africans, and we already tell them how they can invest it. Yes, we have regulations that say that only 25% can be invested overseas and another 5% in Africa.

You have to have 25% in interest-bearing investments, and all this is called Regulation 28. The law is on the books, and the regulation can change without parliament even voting on it.

If government needs to issue more bonds at lower yields, it simply changes Reg 28. It can probably expand it to enforce say 50% of pension assets into bonds or banks and only 50% equity. Offshore investments could be stopped too if the SA government needed the money.

No laws need to be changed, and one can just implement Reg 28 to living annuities and other forms of long-term retirement investments.

It’s so simple and fast. No nasty little checks from the IMF while the political opposition will be made out to be anti-South African, as our development must come first! For more votes, government would up grants and government salaries and win votes that way. People will not “feel” the impact until they retire.

It will not be a big vote grabber, but it will make the ballooning deficit so much easier to fund.

Listen to the podcast: PSA rails against PIC loan to Eskom

As things go wrong, South Africans saving for retirement will be the only ones to lose our income when Eskom or government cannot pay. South Africans will get poorer in real terms as risky bonds fail or interest rates are lowered to help government borrowing.

The government will issue bonds at, let’s say, CPI only for a “limited period”. No risks are taken into account and as all pension and living annuities have to invest there due to the change in regulations we, the South African workers, will not be compensated for risks.

A little later, bonds can be issued at inflation minus 3% and still no one from the IMF or another body will say much. Our retirement savings bailout SAA for the 19th time as it buys the latest Airbus A380 for the flight to Windhoek.

The looting and waste continue and no IMF oversight.

It has happened before in SA

South African pensioners bear the costs and will suffer, and within a decade they will need to go into old-age grants themselves. They have to go to state hospitals as they no longer can afford medical insurance.

Perhaps one can protect government employees for a while via taxes but ultimately they too will suffer.

In 2036 the ex Director-General of welfare finds himself on an old-age grant. What happened, he asks? Well, inflation was much higher than his enforced bond returns, and the pot is now empty. Inflation and wastage without taking risks into account empty the nest quickly.

Don’t believe it can happen here? Well, ask the 70 000 Transnet pensioners who more often than not get more money from an old-age grant than from their pensions! One was an old manager who worked with me.

It’s not pretty when people who saved for four decades stay in their children’s garages. No more dignity and no more privacy while the children struggle too.

The de facto use of pensions is already happening with the PIC investing R5 billion in Eskom. Without regulation changes so far, and as the PIC is backed by us – the South African taxpayers – we know that this is just a future tax rise if Eskom folds.

So, as the budget creeps up on us, be scared that there will be changes, which make sense for politicians but not for savers. Be aware that wastage will not end with a few words by current heroes.

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ANC playing all with a “swan song”, of a new, new SA, after Zuma, all just a nice theatre play, a new lie from Luthuli house and all gives a standing applause of hope. Just as Mike said – “Be aware that wastage will not end with a few words by current heroes”, its still just to keep power, and they will do the extreme to stay there,…communist socialist revolutionary politicians with a Freedom charter manifest,…Be aware.

Bear in mind that the PIC manages just government employees pension fund (GEPF) money. The GEPF is still a defined benefit (final salary) pension fund. If the government dips into GEPF funds, the liability remains unchanged but the assets reduce. In effect, it is directly borrowing. In fact, it will show up in government debt a year later once the actuaries calculate the surplus/shortfall in the GEPF. Also, have a look at GEPF AuM growth and investment return since 2009 — it has done much better than the private pension fund industry, even in terms of investment returns.

Very interesting article Mike – thank you! It will be fascinating to see how this all plays out over the next few years. I have a father-in-law who worked for Transnet / Spoornet for over 40 years and it is rather depressing to see his tiny pension (which is not even indexed to inflation). The scenario described above could destroy his current lifestyle. It is likely that he will need some topping up from his kids in future.

Ja! Seems indeed like a new thing to worry about

I was planning to do a RA this week (stronger Rand and cheaper stocks) but perhaps I should rather buy more Naspers, etf ??

“You have to have 25% in interest-bearing investments, and all this is called Regulation 28.”

This is not correct.

And no, its not put in the tone of “the government may” like the rest below it, it’s written as if fact.

You would expect any financial planner to know this wouldn’t you?

At the last ANC conference at Nasreq, they came out in favour of “appropriation without compensation” of assets. So typical of all ignorant socialist looters, they had the nationalization of somebody else’s assets in mind. In reality, no farm has been appropriated but the ANC members, of whom the majority are government employees, saw their pension savings being appropriated without compensation to bail out SOE’s as well as Lonmin. The GEPF is now the “lender of last resort” to Eskom! Government employees pay for electricity twice, once directly, and then indirectly through their pension fund.

Zuma was right when he said on national television that “the people who vote for the ANC are not smart people”. Well his statement is proven correct by the fact that the ANC cadres are in fact stealing from themselves to fund BEE projects as well as the looting at SOE’s. The PIC has been funding the ANC president’s benefits from the bankrupt Lonmin BEE scheme for years now.

Lonmin (and the BEE scheme) would have been bankrupt years ago if it was not for government employees propping it up. Bobbing Peter to pay Paul.

A bailout by the IMF is indeed the best scenario. Everybody, ANC members included, will be much better off having Christine Lagarde as the boss. South Africa should be put under business rescue immediately, with the IMF as the administrator, before the GEPF runs empty.

‘The state is that great fiction by which everyone tries to live at the expense of everyone else.’ – Frederic Bastiat

Indeed Sensei! And if I can add to that:

The worry (that was always there, but muted) that Govt may increasingly prescribe to the local asset management industry, what % they should “invest” in local bonds/gilts. And do not forget, Govt can also reduce/remove the 25% cap on foreign asset swaps, bring more investment money into the local #SH…uhm…pool.

One was thinking perhaps all the rand-denominated foreign equity funds (loved by many of us, incl. myself) would be somehow safer, but that could change. Robert in Sydney will likely point out “take your money directly offshore, in your own name” 😉

Then you have to balance out the reduced “sovereignty risk” versus cost (UK or US inheritance tax rates are higher / need expert to set up foreign Will, etc.)

It could’ve been SO EASY for Govt to plug the tax gap, IF they freed the economy, halt all the anti-business WMC rhetoric, land issue, etc (…a whole topic on its own) and allow it to GROW with real foreign investment. Bigger economy = equally bigger tax revenue. What is so damn hard for ANC to understand?? (…i know…we’re dreaming)

You can easily mitigate/negate the need for foreign wills and IHT issues. UK collectives owned by non-residents are generally not regarded as relevant property for IHT purposes.

Get someone who is qualified and regulated in both jurisdictions that can guide you through the relevant considerations.

Michael you are spot on with the risks you identify here. There is a way to take your assets offshore in your personal capacity and not incur the risk of the account going into the costly and time-consuming probate process overseas in case of death. The local investment houses offer “life-wrappers” that simplify the whole process, while also offering protection of your assets for the benefit of your dependents.

The first prize is to have your offshore private investment account with a low-cost offshore broker, in a life-wrapper, managed by yourself or an appointed investment manager with a Cat2 FSB license.

I am a forth generation farmer but I started a process to become a “virtual” farmer. I’d much rather own shares in the John Deere Company than own a John Deere tractor. I’d much rather own financial assets listed on the JSE, Nasdaq, LSE, NYSE etc than own farmland in South Africa. So I am in the process of divesting from fixed assets locally and investing in liquid assets internationally. My trading account is ten times more profitable than my farm, at a fraction of the risk of farming. For me to keep on farming locally is similar to operating recklessly. There are many safer and more profitable opportunities around for the individual who have the skill and capability to “harvest” them.

With the proper investment vehicle you can give directions to the ANC and show them where to go with your middle finger.

Thank you both Sensei & Vlad for comment that adds value for the reader! Well said!


“What is so damn hard for ANC to understand??”

Business is hard for them to understand, they think business is ‘what’s my cut’. With very rare exception they have never started a business or a farm or any commercial enterprise so they have no clue what it takes to grow and survive. If you don’t know how to make money you will never know how to spend it. Look at who we are dealing with: Rob Davies, an academic and communist – minister of trade and industry! Lynne Browne with a teaching diploma is minister of over 700 hundred SOEs! Lindiwe Zulu, trained in guerilla warfare by the Pan African Congress, has a degree in journalism but is minister of small business development! I’ll stop here, I’m about to throw up.

The ANC Govt has been dabbing into pensions longer than you think.

Agree with the potential risks. However, what happened to the world where retirement has become so important, yet impossible for 90%. Only implemented widely the in last 100 years. Ok, people are getting older, but work has become less physical. which makes it easier for the elder to continue working. If you know that you would not be able to retire in 15 years time, I think time and money would be better spend acquiring a skill that will enable you to earn an income with little physical effort but more importantly enable yourself to become self-employed.

Great theory but functionally impossible for other than a very small minority.

Unless race based AA and BBB-EE and ALL race laws are scrapped permanently there are just not going to be enough profitable jobs.

Full Stop.

Articles like this are very useful in helping educate the public as to what is happening with government pension funds. The diversion of funds will stop when the public outcry gets loud enough. When the masses and trade unions front up it will stop. Till then.

In Zimbabwe those with financial assets were forced to sell them and buy government bonds. This resulted in major losses for them.
Deja vu?

It sounds apocalyptic, yet this scenario has been playing out in our country for decades already, and not just at Transnet. If you are charging investors 3% or 4% on their RAs – as the life industry has done in the past – then you are effectively doing the what the author illustrates. Investors take the risk, these companies take the risk premium. The underlying investors get compensated for little more than inflation. That’s not a scenario, that is what happens.

The industry makes a lot of noise about govt. wanting to get its hands on our savings, but the real enemy is within.

Hi Steven Nathan from 10X, you just cannot resist the temptation to punt your little company……Its getting boring, you know.

SteveN, please STOP punting this old adage of Life Industry charging 3% and you are charging less than 1%!?? The Life Industry were found out, but you have not yet been found out!??
What is your value-add? You merely invest in the Index. There is no skill in your company re. investment management. So your ‘small’ charges go to your profit and managing your client-servicing organisation?

March Hare, Life Industry have been found out and are still the same (like at Sanlam Echo Bonus FAQ on their website, fees are 3.5% minimum!). The Life Industry charges also goes to profit and lots of other things, but none of those things are to your real benefit.

Their value add is composing the service they are offering, the admin, they obviously also pay for advertising and whatever else, at least you get to keep your 2+% and there can be additional growth on that and that money is in your account, for your benefit.

(I am not involved with any financial provider or other financial institution beyond being a client of a few)

Supersunbird, there is NO SKILL in investing in an Index. I am quite happy to pay a large fee to a Fund Manager who, uses his skill to outperform any Index. As long as I am receiving a REAL Return, that consequentially was due to that investment skill, I am happy.
HOWEVER, I could also merely invest in an Index Tracker and take my chances – there is no skill in this and therefore any reduced fees are merely for bottom line profit after customer servicing platforms/expenses are deducted. So I repeat, THERE IS NO VALUE-ADD!
P.S. anyone who still invests in the old RA products from Life Industry are just clueless….and conversion from OLD RA products, with little or no penalties, is allowed?
P.P.S. the past week has shown the value of a good Fund Manager; they have not dropped as much as the Index

There are a couple of things that have destroyed pensions in South Africa (and around the world). About 3 decades ago the pensions model moved from prescribed benefit to prescribed contribution.

Amazing how making a small switch between the words “benefit” and “contribution” is actually a GIGANTIC difference in the outcome.

What this means is that instead of the holy investment companies handling our monies like angels in order to be able to guarantee our payouts come retirement, we were instead told how much we had to invest (e.g. min 7.5% typically) WITHOUT ANY GUARANTEED RETURN. That opened the door for pension fund administrators to destroy returns with their lunatic fees and obscure structuring with “fund of funds” which layer fees. So while they live the high life driving their Porsches paid for with your money, you can barely afford a loaf of bread a month when you retire.

The second coming of destruction was with JZ. The damage he has done to the economy will only be felt long after he has decomposed and sunk to hell.

What he has given us is a shrunken economy with record unemployment, school leavers who are unemployable due to low standards and failing infrastructure and parastatals that desperately need to be rescued.

The result is that we now have a massively increased section of the population on welfare and who even though they have left school will probably never be employed in their lives.

This welfare is being paid off a shrinking tax base due to the economic state of the country and white people (who could add to taxes and contribute to employment and the economy) being forced out of the workforce, or at the very least being restricted from ever reaching their potential.

I reckon in 20 years time when the Zuptoids who put and kept Zuma in power start “retiring” they will realise their mistake. It isn’t very nice eating dirt every day. 30 to 40 years time you will feel the full brunt of the Zuma destruction. (I will be dead by then.)

As for those who have anything that they can salvage now, you should be running for the hills. (Or more specifically New Zealand, Australia, Canada, or some other country whose government actually knows something of value and is able to act on it.)

Yes, for defined contribution pensions the population has to be better educated to understand how these DC pensions work.

A couple of points:
– Saving 7.5% is too little, minimum 15% if you want to retire at 65.
– The consumer can shop around to get the lowest fees.
– With the increased competition, the lowest fees are now better than ever.
– The consumer now has more flexibility, they can move their pensions overseas, etc.

Is it not possible for the citizens to obtain an opinion/order from the Constitutional Court to stop the looting of pension funds. Surely
there must be merit in protecting the hard earned saving of tax paying citizens? Time the government learns to cut it’s cloth according to size. I agree all the present noise will not stop the looting of tax payers money.

If you think the Constitutional Court is going to come to the rescue of a bunch of (seemingly) rich old whitey’s and their pensions, you’ve got another thing coming. Please go and read the judgment in the Afriforum versus University of the Free State case involving mother tongue education and see how the application of justice is being tortured to suit the wishes and objectives of the majority.

All pensioners are no longer white. They may soon be the minority by far


So they might change the rules that white pension savers must buy a large proportion of government bonds and black pension savers don’t have to. Simples!

That’s exactly what I want to know too; how to make it difficult to tamper with Regulation 28.
Or do away with it – surely law makers can introduce a motion in Parliament?

Mike says it happened before and he is right. But he does not reverse far enough. Think back to the days of P W Botha and the reckless and pointless war in ‘South West Africa’ and Angola. Compulsory Defence Bonds, admittedly repayable. AND compulsory investment by pension funds in Govt Bonds.
And what happened? He virtually bankrupted South Africa. Husbands and wives were taxed as combined income. So much for women’s rights.
So there is nothing new under the sun.

Hell NO!!! We the members of gepf did NOT authorise this humongous illegal loan to the state captured enterprise Eskom… An amount this huge should have been voted on by all members … Not negotiable

Coming from Mike Schussler we had better sit up and take note!
Reg 28 can be changed without much ado? That regulation was passed with Gordhan still as Finance Minister.

No it wasn’t. R28 FAR pre-dates Pravin… (there were “refinements” made recently – you perhaps refer to them?)

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