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.