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Johannesburg - It may be a good idea to invest a percentage of South Africa's pension fund savings in a development fund, but this needs careful consideration before implementation.
Last week Minister of Economic Development Ebrahim Patel announced that government was looking into ways of having a portion of the R1 500bn in private and public pension funds invested in development projects. The percentage mooted was 5%. This includes R700bn from the Public Investment Corporation (PIC), which manages the public service's pension fund.
Most people to whom Sake24.com has spoken say this is a workable solution, but entails many prerequisites.
The biggest and most important of these is that development projects need to be clearly defined and yield good returns.
The biggest danger is that the money might be invested in projects that don't produce good returns, said Craig Aitchinson, managing director of Old Mutual Actuaries & Consultants.
Aitchinson said if the development projects fail to produce market-related returns, government will ultimately have to foot the bill. If investments in development projects lead to a dilution of returns on pension funds, more people will be dependent on the state after retirement.
Adam Jacobs, a director of GreyPower, an organisation working for the interests of people above the age of 50, said if returns do not meet expectations people will no longer save through pension funds, but seek other vehicles for returns.
Peter Dempsey, deputy chief executive of the Association for Savings and Investment South Africa (Asisa), noted that clear business plans would be needed for the projects as well as mechanisms to determine whether the projects are able to produce the desired returns.
This means that someone would need to identify projects in which pension funds could invest. This would have to be either government or portfolio managers. Trustees of pension funds would not want to involve themselves and are not always skilled enough to do so.
Aitchinson said it will be important to put a value on development projects, just as in the case of shares.
Aitchinson and Burger both said pension funds and policyholders' money with life insurers are already invested in what could be classified as development projects.
Burger said that an investment in a large industrial company raising money to build a big factory that creates work should be regarded as a development project.
Jacobs said pension funds have already made a major contribution to the country's development.
About 34% of all pension money is invested in government bonds, local government and public institutions, such as Eskom. Another 46% or so is invested in private-sector shares and the rest in fixed property and fixed deposits.
Between 1996 and 2006 pension funds paid R51bn in tax.
- Sake24.com
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