Cape Town – The prescription of retirement fund assets, last seen in South Africa during the 1980s, is believed to be back on the government’s agenda at the ANC’s national elective conference at Mangaung.
This presents a number of serious challenges for retirees in South Africa and has negative connotations for foreign investors, said Windall Bekker, partner at Rezco Investment Group.
The prescription of retirement fund assets was discussed at the Institute of Retirement Funds (IRF) Conference in Cape Town earlier this year, having first been raised at the ANC’s policy conference in June.
The introduction of such prescriptions would mean that retirement fund managers would be required to invest a percentage of monies in investments determined by the state, not the market.
David Ross, shadow deputy minister of finance for the DA, believes that investment funds should be left to the markets and not the government.
According to Bekker, prescriptions would scare off investors and retirees could be faced with having their funds invested in sub-optimal investments.
“Retirees are likely to see a potential increase in the risk of their retirement fund assets, by being forced into more risky assets with potentially higher returns,” said Bekker.
Bekker believes prescribed assets will be discussed again at Mangaung because South Africa has a shortfall in fixed asset investment.
“Prescribed asset allocations were used by the old regime and as a consequence many pension funds were chronically under-funded.
“In effect the government would be asking the retirement industry to subside its expenditure at interest rates below market, and consequently there would be a transfer of wealth from the retirement fund industry to the government,” said Bekker.
According to him, foreign investors will likely react negatively to such prescriptions.
“If the government directly targets individual property rights it will create a negative perception of South Africa as an investment destination. It will also increase the perceived risk of investing in South Africa by foreigners.”
The ANC’s national conference kicks off on Sunday through to next Friday at the University of the Free State, in Bloemfontein.