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Investment in tertiary education 'not a smart move' - pensioners

Nov 18 2016 16:47
Liesl Peyper

Cape Town – The monitoring group that oversees the Government Employees Pension Fund (GEPF) is up in arms over a proposal that the Fund invest in so-called education bonds. 

Adamus Stemmet, the monitoring group’s spokesperson issued a statement, saying there are too many risks involved in such an investment. “For instance, students who will not be able to pay back loans because they did not complete their studies, or who could not find employment would simply disappear,” he said. 

“The GEPF monitoring group will not accept lightly attempts like these to ransack the Pension Fund,” Stemmet continued. 

The GEPF monitoring group’s reaction comes after a report in City Press in which two academics, Daniel Bradlow from the University of Pretoria and Edward Webster from the University of the Witwatersrand, proposed that pension funds invest – even if it’s just a small amount – in developmental bonds. 

Bradlow and Webster – who are experts in the field of governance – suggest that government raise the money from the sale of bonds to provide loans to graduates to their studies. Graduates would then be required to pay back the money once they have completed their studies and are employed. 

According to Bradlow and Webster, the money paid back by the students would make up the returns to investors. 

The two academics are of the view that pension funds are “uniquely placed to fulfil the role of investors”. 

“This sort of investment would be in their own best interests,” City Press quoted them as saying, adding that “billions of rands could become available to students.” 

To realise this, however, South Africa’s Regulation 28 of the Pension Funds Act needs to be changed. This regulation currently stipulates that there are upper and lower limits in percentages that pension funds are allowed to invest in various asset classes, such as hedge funds and government bonds. 

READ: Regulation 28 - friend or foe? 

The regulation doesn’t compel pension funds to invest in tertiary education, but if it is “tweaked slightly” it could prescribe that a minimum of 2% is invested in tertiary education developmental bonds. 

Stemmet in his capacity as spokesperson for the monitoring group, however, said that the GEPF already invests in state-owned enterprises, such as Eskom and Sanral of “more than R186bn”. 

The monitoring group is of the view that an investment in tertiary education bonds would put their pension fund at further risk. “These gentlemen (Webster and Bradlow) forget that the principle aim of the GEPF’s investments is that it should be to the benefit of the fund,” Stemmet said, quoting Deputy Minister Mcebisi Jonas. 

In April this year, Jonas, who oversees the investment actions of the Public Investment Corporation (PIC) told MPs of the standing committee on finance that there are “problems” with state-owned enterprises and the PIC needs to exercise caution when investing in these entities. 

The PIC invests money on behalf of the bulk of the South African government’s pension fund. 

Read Fin24's top stories trending on Twitter:

gepf  |  pic  |  pension fund  |  education  |  bonds
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