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Cape Town - The funding position of South Africa’s biggest pension fund, the government Employees’ Pension Fund, which has 1.2 million public servants contributing but pays out benefits to about 300 000 pensioners, deteriorated in the five-year period from 2008 to 2012.
Although the Budget Review released with the finance minister’s budget speech on Wednesday reports that there has been an improvement in the last two years to 2014, it warned that each percentage point increase in public sector salaries would increase the fund’s liabilities by about R9bn.
Market value
In a media briefing Finance Minister Nhlanhla Nene said the government was in negotiations with public sector unions in the latest round of wage talks and was hopeful that a strike could be avoided. The upside for the government is that inflation has dropped significantly in the last year, which means that adjustments should be more reasonable.
While the global figures of the state pension funds' assets sound impressive, during that five-year period the difference between the assets at market value and the best estimate of liabilities has narrowed.
For example, the report said, in 2008 the fund was worth roughly R707bn. The liabilities were R613bn. This was sufficient to cover 115.2% of its liabilities on a best estimate basis.
By 2010 this had deteriorated as assets had grown by R100bn or so to R801bn, but the liabilities had grown to R736.7bn. This represented assets sufficient to cover just 108.7% of its liabilities – still comfortable figures.
Liabilities growing
However, by 2012 this percentage had dropped to just 102.7%. Total market assets were by then R1 038bn – over a trillion for the first time – but liabilities had also tipped over R1trn to R1 011bn.
The funding position has improved, though in recent years with the 2014 assets at market value increasing significantly to R1.425bn – nearly R1.5trn - with liabilities growing less strongly to R1.173bn.
Nevertheless, National Treasury director general Lungisa Fuzile made the warning about the impact of public sector salary increases.
He pointed out, however, that the increase in the liabilities does not have an impact on its assets.
