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ANC still eyeing pension assets

Election manifesto language far more specific than vague Nasrec resolution …

The ANC is once again eyeing the notion of prescribed assets, where money managers will be forced to invest a portion of their funds in state-mandated areas and/or companies.

In its 2019 Election Manifesto, the party says it will “Investigate the introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation while considering the risk profiles of the affected entities”.

Read: Prescribed assets ‘not the solution’ to transformation

In a note to clients, Intellidex’s Peter Attard Montalto says that the “more specific language on prescribed assets than expected” was a “surprise”.

He says that while the idea is in line with Nasrec policy “its more explicit exposition again shows a win for the Zuma faction in the manifesto formation process, and should be a wake-up call for the local asset management community that the issue of prescribed assets is alive even if it will not be pushed forwards with the current leadership of National Treasury”.

Among the resolutions adopted at the ANC 54th National Conference in 2017 was that: “Government should introduce measures to ensure adequate financial resources are directed to developmental purposes. A new prescribed asset requirement should be investigated to ensure that a portion of all financial institutions funds be invested in public infrastructure, skills development and job-creation.”

Montalto cautions that “the issue is current however because the hunt for solutions to Eskom will likely lead to a debate around the need to dictate that the asset management community and banks lend to Eskom to keep it afloat.

“This is very much a topic that will rear its head in 2019 – even if we don’t see the policy move forwards in the short term, the risk is there in the long term.”

‘Instruments of state policy’

The total pool of pension savings in the country is about R4 trillion. Futuregrowth, which manages R185 billion in client assets, has previously pointed to “pension industry concern that government may be seeking to make retirement funds instruments of state policy, channelling investor capital into certain preferred sectors or instruments while avoiding the discipline of financial markets and fiduciary asset managers, and thereby imposing lower-than-market returns”.

It says the “industry would naturally be opposed to prescription since it limits the rights of pension funds when it comes to making choices concerning asset allocation, asset selection and risk reward.

“The large-scale channelling of funds toward ‘preferred’ sectors would likely create an imbalance of investable projects and money – thus increasing the risk of making losses which could result in eroding the value of pensions. What’s more, while the government has been seeking to promote savings, it is likely that tampering with retirement fund investments will be seen as a threat, and may reduce the willingness of members to save for retirement.”

Futuregrowth says that in its experience, “there is sufficient capital in South Africa to fully fund appropriate, well-conceived, planned, executed and managed projects. The success in funding over R200 billion of power projects (i.e. the REIPP [Renewable Energy Independent Power Producer Procurement] programme) in a mere three years is testament to the effectiveness of suitably partnering the public sector with the competencies and capital of the private sector. Prescription would fly in the face of those strengths, and likely politicise investment decision processes”.

It argues that it “is not the role of ordinary pensioners to be directly responsible for national development, except through the normal capital investment process”.

Alternatives

“One way pension funds can contribute to development is by partnering with development finance institutions (DFIs) who receive funding from government to provide subsidised finance to facilitate infrastructure development. By partnering with DFIs, institutional investors can choose how to deploy their money and the type of projects they wish to invest in – thereby responsibly targeting an appropriate risk-adjusted return to compensate for the related risk.”

For South Africa, a policy prescribing investment is not a new idea. From 1956 onwards, the apartheid government forced pension funds to invest in its schemes and state-owned companies. When the Pension Funds Act was introduced in that year, a significant percentage of assets had to be invested in state-owned enterprises (including Sasol, Iscor and various Homeland Development Corporations) and government bonds. For public investment commissioners, this allocation was 75%, while for long-term insurers it was 33%. Prescribed assets, in this form at least, were scrapped in 1989.

Regulation 28 of the Pension Funds Act already prescribes limits in terms of particular assets/asset classes. The main limits are 75% equity, 25% listed property, 10% hedge funds and 30% in offshore assets (the last of these is a limit prescribed by the Reserve Bank).

* Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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Thanx for the heads up Hilton. Mow please can you do an article on how do we get our pensions overseas before this happens !!!! – We obviously need details and strategies !!!

the bad news is that you cant take all your pension under Reg28 out of the country….and there is no good news.

EVERYBODY IS MISSING THE POINT!

R4-trillion is meaningless money.

In 1992, when White people voted to change the government is SA, R4-trillion was worth USD1.38-trillion.

Twenty years later, it was around USD520-billion, thus it had lost 62% of its value.

Today is worth USD286-billion – lost 80% of its value.

Pause for a moment and take that in.

By the time this generation goes on pension, not only will their money be completely worthless, like Zimbabwe – they will be lucky if the country’s economy even exists.

In fact they will likely live in the stone-age, in a hole in the ground, wearing rags – assuming they even reach retirement age; as pre-history, where southern Africa was found three hundred to two hundred years ago – they thought people with grey hair were spirits.

Just to point out that the “white government” in 1990 actually did have prescribed assets in place so to paint a picture of South Africa as the land of milk and honey before 1990 is misleading.

Reality is that the current government just like its Nat predecesor is bankrupt.

Some perspective, please. Between 1980 and 1992, in just 12 years before the referendum, the Rand had lost 70% of its value. I guess even then folks thought they didn’t have much more left to lose that was worth fighting for.

Mr “Groenewald”, some perspective, please.

You are welcome to use whatever baseline you like – the conclusion (and eventual outcome) will be exactly as I described.

Use 1983, when SA became a democracy, if you wish.

In fact, those in the know, will confirm: the first day, of the full economic collapse of SA, started on 16 June 1976.

As such the first day of SA’s return to the stone-age…

The Pension funds MUST now be sent offshore and looked after by trusted institutions. If left in South Africa, the money will surely disappear as did all the billions that vanished into thin air during the era of the magician Zuma. And those with money must move their assets out before the light fingered ruling party thinks up any progressive or adventurous accounting method to part the present owners from their assets legally.

This is a last ditch effort to bankrupt the future of government employees!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! It already happened in my home town Chicago.

Not just government employees, this will affect everybody with retirement savings.

@Zokey. Surely US citizens’s pension assets are fairly safe in the US, is it not?

4 trillion rand is sitting locked up in south africa. 5% of this is r200 billion. This is probably the easiest way for the anc gang to redistribute wealth and it can be opaque and legal. Consumers are too stretched for tax vat or rates increased but prescribed assets do not immediately affect your cash flow. The unpleasant part is repayment of bonds but then you just roll the debt over. If interest can be serviced then this is coming ….It ticks the boxes of taking from the middle class so is aligned with the anc s angry and entitled electorate

I want to brag by saying I saw this coming sometime ago.
https://www.moneyweb.co.za/…/my-fear-is-not-when-sa-runs-to-the-imf/
A pot of gold and the 8th biggest pension pot in US dollars in the world will attract the attention of a government struggling for “money”.

There is no doubt that we are in trouble financially and the debt to GDP ratio has never been higher and SOE’s have spent like there was no tommorrow.

Saw this coming when the Russian researcher told me we will have the money to fund nuclear as he pointed to the data on the pension pot about a decade ago already.

SA researcher see inequality but foreigners see the 8th biggest honey pot in the world

They may as well just go all out, nationalise all land and force half of the pension assets to be prescribed assets.

Absolute collapse of the country yes and probably a couple decades to recover if ever but hey at least the ANC will have money for their dubai trips.

Surely our wonderful constitution wouldn’t allow this?

Good work Mike and somewhat inevitable when you consider that the profligate waste of tax monies (and more) has not shown any sign of abating or improving. So it is one of two options for the ANC; get on your knees to the IMF or similar and beg, then suffer. Or steal pension funds (and property) and let the party continue; for now anyway. For the new elites that was really only one choice; order another Johnny Blue and probably shovel more of your stolen BEE etc money offshore. Not so Cyril.

Yup, goeie punt Mike!

I have a tendency to compare the current ANC-govt (hamstrung by costs of EE/AA/BBBEE, curruption, wasteful & fruitless expenditure, mostly as a result of EE appointments not knowing what they’re doing; unnecessary red tape & compliance for businesses) versus the ‘evil’ Apartheid regime (hamstrung by sanctions, border war, internal unrest…probably less back then than today…)

The old Apartheid govt had to throw in the towel (given that funds dried up, with little international investment flowing in) when 50,000 Cubans threatened to escalate the war in 1988/9 to a new level, the old RSA could not afford. Prescriptive fund assets were widespread.

Fast forward 20+ yrs after armed struggle. The ANC faces the same funding issues (self inflicted, as the result of treating SA business as enemy nr one for years now) as the previous regime.
The NATS agreed to hand power over to ANC, in return for SA to receive international support / sanctions cancelled.

BUT we know the ANC WILL NOT hand over power to a new regime. So, it has to fail financially. Everyone is SA will feel financial pain. How will the cliff be avoided?

The difference between today’s government and apartheid government is that the Apartheid government got bankrupt due do to economic sanctions. This government plundered the country to bankruptcy.

Already your RA, pension and provident fund is not beating the inflation rate over 1, 3 and 5 years. If you don’t believe me, go and check your statement today. Regulation 28 in conjunction with exchange controls forces you and your advisor to invest up to 75% of your pension funds into one of the worst-performing markets in the world. And please don’t tell me the 5% allocation is into a true offshore market…
And already we are into the RA-season where you will be bombarded with adverts and pleadings to put money into an RA for “tax reasons”. This must be the biggest con in the investment world. You are merely deferring your taxes into an uncertain future–where your income will surely be taxed–and while you are not earning much growth.
Far better to put your money into a tax-free investment instrument than an RA.

“Far better to put your money into a tax-free investment instrument than an RA”
Well a TFSA only has a R33K limit, so that leaves only section 12J’s left, which seems like a instrument that’s a bit too risky/complex for my blood.

I agree fully! My pension with 10x and Easy Equities has been in reverse for a while now. This is beyond troubling!

I feel I need to put more into the RA but the growth is negative and I lost what I gained over 3 years now. How do you catch up over 3 years?

These guys are still trying to get the gainfully employed to finance the not so gainfully employed. In a society where the unemployment rate is approximately 5%, it will be possible to do this. However, in our society the politicians are going to learn very fast that socialism only works while you can work with other people’s money. Once you run out of other people’s money, it won’t even help to blame a minority for the country’s ailments. This is pure mathematics and nothing else. The bulk of the country’s wealth have already left the country whether the SARB approved it or not. Therefore, if you need to find out how to move wealth offshore, speak to any ANC cadre; they’ll be able to give you better advice than any accountant or banker.

This nationalisation of private pension assets is happening in a few countries now, don’t think for a minute it isn’t possible here again. Recent Poland and Hungary examples below.

https://www.reuters.com/article/poland-pensions/update-2-poland-announces-big-shakeup-in-pension-system-idUSL8N19Q134

https://www.reuters.com/article/hungary-pensions/hungarian-savers-say-government-is-stealing-their-pensions-idUSL6N0TG2MP20141127

Those are actually state pension assets and not private. In both cases it is the state enforced saving rate of which some is managed by private but still held under the state.

What is being talked about here is nationalizing private savings voluntary entered into by individuals.

Those are two very different things, your examples are therefore irrelevant.

The ANC have gone way beyond what your articles are speaking to already, state pension assets have been used from everything like funding DFIs, funding BEE deals, funding Eskom etc.

We already have one of the highest all in tax rates in the world, this would effectively be another tax i.e that a % of your savings is taxed on arrival.

Ironically, in your Polish/Hungry example, it was seen as theft there as well and that was state pension funds.

One problem with prescribed assets is not mentioned. The pension funds are practically fully invested, so unless prescribed assets will be enforced only on new investments the funds will be forced to dump large number of shares to be able to invest in the prescribed assets. What will this do to stock prices, considering that pension funds are the biggest investors?

Such big changes in regulation would normally be accompanied by a phasing in period, so it can be managed

I suppose the ~2 million government employees are going to vote for the ANC as part of their investment strategy. Or are they going to wake up?

This is going to happen… I have zero doubts that the ANC will do this.

Once SOE’s are uninvestable and cant sell enough bonds in the open market, they will have to force the markets hands to ensure their own survival.

In reality, having them steal 15% of the pension funds is still preferable to the outright failure of all SOE’s and the end of all service delivery.

Comrade’s this is your duty to the motherland and the cradle of all humankind which has given you everything!

I would not add another cent to SA pension or any saving vehicle ever again if this comes through and would immediately withdraw everything I current have, nice and simple ANC plant to collapse a industry.

So just so I have this correct, my rough tax/gov payments % of salary is around 60% (after 28% tax at corporate level) and now of the amount I have saved, gov wants me to fund SOEs with that.

SA has really just gone completely mad, this plus land redistribution…foundations of a fully socialist economy (one would argue at a 60% all in tax rate that we are already there).

you can’t expect anything different when the majority of the population is in poverty.

Yes I can, manage the very high levels of tax received properly and take a long term view to lifting people out of poverty.

This is not a poverty alleviation exercise, this money will go to funding SOEs that are crippled due to corruption and mismanagement.

But please go ahead, put this through, you will quickly find that infamous point where you run out of other peoples money.

Unfortunately, if your money is in a pension fund or RA, then you can’t just pull it out, or even have a say in where it gets invested. There are only a few specific circumstances where you can cash them out, D,D,D,E… Death, Divorce, Disability or Emigration… Discretionary assets can of course be moved, but depending on the investment vehicle, the asset manager can still penalize you for early withdrawal, and there can also be CGT due…

Unless it has changed, last time I checked you can’t have CGT on pension assets because it’s governed by it’s own calculation.

You mean invest in Eskom? HAHAAHAHHHHAHAHHHAHH..its just an excuse to steal more from private pensions!

Desperate measures by desperate people

And the institutionalised THEFT goes on. Viva ANC, viva.

Go back to sleep, South Africa. Nothing to see here. The ANC has your best interests at heart.

I mean, we all saw Zuma cutting the cake with our president over the weekend. What could possibly go wrong.

Once again, there is a huge difference between what is legal and what is ethical. While it is probably legal to prescribe assets for investment of retirement funds, the ethics of doing this is questionable. In SA case law interference with the duty of trustees of a retirement fund to act in the best interests of the members of the fund was ruled to be unacceptable on more than one occasion. Clothing it with the legality of a decision by the majority in parliament does not make it ethical or acceptable. The worst is, it is messing with the future in old age of good people of all races. But then, the ANC proved itself over the last 25 years to be a bunch of infantile, selective moralist, control-freak nepotists. What else can you expect?

Yes, but remember IF the prescriptive retirement fund laws are changed, Trustees have to abide by the (new) law.

The Apartheid govt did it easily, through enactment of laws, hence what would keep the ANC from doing the same? Scary…..

At least the Apartheid government had solvent entities to invest in. SAA, Eskom , Prasa??

Great news from the ANC no need for an IMF loan.

EWC and NHS, now this.

The middle class that can still afford to retire will be decimated. Economy will have to rely on stolen money to survive. Not much will come from free enterprise anymore.

Besides a Pension and a LA I invested in a Bank for 5 years fixed deposit for my wife and I which gives us R34100.00 interest each. The R33000.00 each we then reinvest into a TFSA with Sasfin which amounts to R66000.00 per year. Been doing this from the inception of TFSA. So interest from the bank, interest from TFSA and then compounded.

Wally

Our biggest threat (post 1994) all along, was the so-called best ‘’Constitution in the world’’.
My view has always been that incompetent nincompoops negotiated the new structures on behalf of the ‘’settles’’, with our people, failed to ‘’guarantee lifesaving rights on their behalf (investments property, guaranteed minimum parliamentary seats). If was apparent from day one that the constitution could be changed by the majority feet that voted in the ruling party – which is happening now, under the disguise of development, transformation and restitution of all assets.
Nationalization is real and on the ‘’socialists’’ governments agenda. I think Magnus (a couple of years ago) posted an article on Moneyweb – wherein he explained what nationalisation of the Banks etc. (starting with the SARB) would amount to – all asset values loses all intrinsic value (wherever it’s held – offshore etc. )
The Government’s gravy train is very short of cash at the moment, hence the urgent need to replenish the social security constraints, SOE’s and the NHI could be the main beneficiaries – what nicer way to change the constitution and get your hands on somebody else’s assets!

All countries that are on the fiscal cliff or have had an IMF bail-out look to pensions monies for baling out the government.

This resolution further removes doubt about the intentions of the “New Dawn” ANC and should dispel the Peter Bruce “give Cyril a chance” blank cheque arguments.

The populist polices of the EFF-captured ANC must be financed somehow. Since they are not financially viable, the ANC will be forced to resort to various forms of Expropriation Without Compensation (or with under compensation). Were the ” socially productive investments … and job creation ” viable and productive, there would be no problem attracting investment and no need for coercion.

It is also indicative that, while Ramaphoney lost no time in congratulating Venezuela’s President Maduro on the commencement of another term of Zimbabwefication, the ANC/Cyril have dragged their heels of the far more significant electoral change of power [Fie!] in the DRC from Prez Kabila (whom the SADF was sent to protect as the guardian of Zupta assets in the DRC)

Once again ”makulu moentoe tata zonki”
How’s this for a scenario:
The govt. takes control of your pension , the Pic ”lends” it to Motsepe to carry out ” re-development projects” with a very loose repayment schedule,
(similar to Pic being a major investor in Motsepe’s African rainbow capital). First we had the Zupta cabal, now we are really replacing a government with a oligarchy, yummy !oink oink

….muntu…not “moentoe” *lol*

You’re trying to say a “great man is a good man”?

geranium: Patrice Motsepe of African Rainbow Capital and African Rainbow Minerals is FAR MORE deserving of investments by the PIC into his businesses than many other so-called businessmen! IF he had reneged on a repayment of any loan to the PIC, you may have had a point…
SA needs ethical and skilled entrepreneurs like Patrice Motsepe very desperately – he must be one of the biggest job providers in SA in mining! He recently received an honorary doctorate from Stellenbosch university for the fantastic work he has done in SA through his businesses.
He is now entering the banking sector, a move you probably personally wouldn’t have the guts to do. We will all benefit as he adds to competition in the sector. Think again before you make derogatory remarks about him – better still, read up about him.

LBC i suggest you take a breath of reality, PM started off as a hardworking entrepeneur but due to BBEEE has become very wealthy with no risk to himself and his cronies, ARC receives a higher % return than the white capitalist companies it has hooked up with- Cyril has taught him well, ala Lonmin.
Bankers, wealth managers and administrators (who you sound like )have got all the good ideas but never with their own money- they do not share in the risk
(suggest you read ”Skin in the game by Nassim Taleb where he explains this concept far better than i can)
As for guts i am a serial entrepeneur, lost a few won most ,but always my own money not some poor old pensioner’s cash.
If the ANC health insurance and this pension idea plays out , i hope you will be man enough to admit you were suckered into wishful thinking.

Cool heads prevail. There is an election coming. Before the last election, the ANC declared that 50% of every farm should be given away. Nothing happened.

Also, fiddling with pensions is a big risk for the ANC, who’s best voters are the government employees and most trade unions, who will not be happy that their pensions will be put at risk.

As a general investment precaution, get your money out.

@Groen. I hear what you’re saying, as the desperate ANC will try to drum up votes…and we know, implementation always happens slowly in Africa.

But still, this is a good “red flag” to reconsider direct offshore investments (even if its in a foreign bank account with hardly interest income), instead of local rand-hedge investments.

For sovereignty protection.

Good article – how will it effect the banks?

Interesting question, since pension & ret funds do not typically loan from banks, as they work with contributions from members. So there’s no bank loans that can be defaulted on, as in the case of properties affected by EWC.

However, most banks have an asset management division, and reduced profitability from AM’s side, will affect group profitability. To what extent, remains the question.

Then one places one’s ‘political hat’ on, by thinking: OK, if Govt recons “prescriptive asset management” could be the answer to bail out failing SOE’s….what new rules could be in store for commercial banks in future??

(I note another MW commentator that provides a warning: first the ANC will try to access Treasury / SARB, once that is depleted, then they will turn towards commercial banks & people’s savings. Yum yum.)

I’ve seen this happening on the continent: owners flee, by leaving a good vehicle behind. The new ‘owners’ use it, without maintaining it. First, the tyres wear out, then they drive it down onto the rims, thereafter it will roll on the disk brakes. Once that is worn out..the vehicle is left standing on it’s axle/diff.

What happened to Allan Gray, Coronation etc.?

Methinks the ANC has also been watching the performance of so-called fund and asset managers in the SA Financial etc. over the last decade. SA local vs foreign sovereign debt is hugely skewed towards local borrowing. This skew I believe is one of the most important factor with regards to the fact that our sovereign debt so far ‘’survived’’ total junk status.

It has always been my view that the so-called money managers in SA might have good competent financial education without enough practical experience. Most of them think they are ‘’competent experienced’’ foreign exchange traders etc. and got fixated on offshore investments, hence a lot of short termers like pensioners funds lost heavily.

The ANC’s introduction of prescribed assets on financial institutions’ funds to mobilise funds within a regulatory framework for socially productive investments is alarming but I also don’t thinks that the financial market performed much better even on a ‘’risk reward’’ basis.

“socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation while considering the risk profiles of the affected entities”.

WTF does socially productive mean? Basically the ANC is telling you to invest in entities that have some sort of social outcome, but are not economically productive. This sounds good to the average voter since it signals new clinics, roads, schools, ect using “free” money. The reality is vastly different.

Do not underestimate the socialist mindset of the ANC and their determination to implement this agenda.

It seems these days we are blocked at every avenue. I would hate to see my pension savings fund another failed SOE project. What options remain for employees of private companies using fixed local PF/RA investment products? Like EWC the threat may be more imminent than previously thought. Election year or not!

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