Issue: December 08/February 09


Crazy prescription

There’s a sure-fire way to discourage saving through pension funds. Pretenders to positions of power and influence in a new ANC government have it.

On past experience with prescribed assets, they are a threat to the returns of pension funds. The lower the returns, the less attractive pension funds become as vehicles for long-term savings and the less people will want to save through them.

With immaculate timing – just as funds’ returns are being hammered, government is vociferous in its assurances that the National Savings & Social Security Fund (NSSF) is not the thin edge of a nationalisation wedge, and the need for domestic capital accumulation has rarely been more urgent – along comes Cosatu general secretary Zwelinzima Vavi with a call that prescribed assets be reintroduced. He is totally consistent in his view with SACP general secretary Blade Nzimande. All this might have been thoroughly predictable. Nzimande, for one, has long been outspoken on the subject (TT Dec ’06-Jan ’07). While it might not have been necessary to take them too seriously before Polokwane, it is now.

This is precisely the sort of populist politicking that should be avoided, or confronted, before it takes hold; unless, that is, a serious attempt to encourage savings is off their agenda. Prescribed assets imply discrimination against pension funds members. There’d be no need to prescribe the use of assets if the returns on prescribeds were market-competitive.

Since they aren’t, it means that prescribeds are effectively a tax. And since the good democrats haven’t indicated they’ll be asking the good workers for consent, it’s selective taxation without their representation.

Those of the Vavi and Nzimande ideological bent are enamoured with state control over other people’s money. As they purport to speak for workers, they claim a right to direct the pensions of workers and everybody else. Vavi and Nzimande could learn from the past and from the current chaos in Argentina over nationalisation of private pensions, but of course they won’t.

Market rumbles

In the depth of October’s meltdown, Nomura Asset Management published research showing that most institutional investors in northern Europe were planning to raise their exposure to emerging-market equities over the next three years. The survey, taking in 17 pension funds and three managers with E160bn under management, found that the average allocation to emerging-market equities was 4,3% of their assets.

Around three-quarters of the participating institutions said they intended committing more, and a quarter planned to increase their allocations by up to 10%. Almost half the respondents were already employing regional or country-specific managers for respective emerging markets.

Even a sliver of the 10% would be a huge pile of money destined for SA, provided the ruling party knows whom to shut up.


The debate continues, intense as ever, about whether the proposed NSSF will be defined-contribution (DC) or defined-benefit (DB). In the right-hand corner is National Treasury favouring DC. In the left is Social Development punting DB.

As the departmental power-play proceeds, National Treasury is weakened. This is not because its arguments are less persuasive but because its brains trust is depleted. Of the three-man team that had so professionally driven the retirement-fund reform proposals, the departures of Jonathan Dixon (for the Financial Services Board) and Baron Furstenburg (for Liberty Life) leave only Andrew Donaldson to hold the fort.

With all this talk of a new government introducing “clusters”, which can dilute the paramount role of National Treasury in socio-economic decision-making, the philosophical underpin of the NSSF might scramble.

DB is great when markets are running. When they aren’t, the money would have to be found by government and/or employers to honour pension promises. This would come at a cost to the fiscus, and hence to the detriment of other projects such as social support for the less fortunate who aren’t members of pension funds.

Just think back a year to what’s happened with insurers’ guaranteed payouts on smooth-bonus policies. Then they were thinking that the reserves they’d provided were too high. And now?

Richard Krepelka

Krepelka... national service

Shaky start

Ask the average trustee what he understands by a “beneficiary fund” and chances are he’ll respond with a blank gaze. But he’d better get to understand, and soon, because this new vehicle is upon us.It’s to the credit of Fairheads chief executive Richard Krepelka and colleague Giselle Gould that they’ve been rushing around the country, doing roadshows that have drawn a 400-strong audience nationwide, explaining what beneficiary funds are and how they will operate (see elsewhere in this TT edition). At least some trustees are keen to learn how they can help prevent damage to minor beneficiaries, who most need protection, from another Fidentia-type debacle.

It’s doubtful that the industry is ready for the new fund, says Krepelka: “Some players will struggle to have systems in place to qualify for licences and register the funds before the January 1 deadline. It’s also uncertain whether trustees and consultants will have sufficient time before the deadline to digest the complexities and implications. There’s the additional challenge of explaining the funds to guardians and minors, among whom financial literacy is low.”

Nevertheless, he believes, beneficiary funds are long overdue. Their innovation will afford the most vulnerable members of society far greater protection than in the past.

The size of the umbrella-trust industry is estimated at R15bn. It’s grown rapidly in recent years, mainly because of AIDS deaths. The average death-benefit payout per beneficiary from a retirement fund is R50 000. Some 300 000 minors benefit from the industry, which serves a vital role in helping to educate and sustain them.

No division

The long-running saga about splitting the Institute of Retirement Funds into two bodies, one to represent service providers and the other to represent trustees, is at an end. Largely motivated by Jan Mahlangu of Cosatu, it was an appealing idea.

One problem, however, was that the envisaged body for trustees needed money. One proposal was that it be obtained from the Financial Services Board.

Various face-saving explanations are offered for the idea’s demise. The real reason, however, could be that higher authorities put the kibosh on it. They didn’t see the justification for funding a platform likely to be dominated by Cosatu, already represented on retirement-fund matters in Nedlac.

No fraud

Also at an end is the suspicion of a scam at the Municipal Councillors Pension Fund. Apparently, without the authority of the MCPF board, Akani Administrators commissioned Gobodo Forensic Accounts to investigate a variety of MCPF transactions that looked to Akani less than savoury.

Gobodo investigated and found that yes, indeed, there had been quite scary goings-on that shouldn’t lawfully have gone on. But it turns out that the MCPF wasn’t in the wrong. Rather, it seems, the Gobodo report was wrong.

An independent examination of the report, by the Edward Nathan law firm, showed that Gobodo hadn’t studied certain records and had misconstrued certain others. In the result, the Gobodo findings were way out.

The MCPF gets a clean bill of health. Also, contrary to the Gobodo recommendations, there is a basis for the MCPF neither to institute disciplinary action against anybody nor to reconsider appointing Novare as its investment consultant.

So much for that then.