Issue: December 08/February 09


GEPF right up there

For classification purposes, size matters. But the GEPF is being incorrectly classified as a sovereign fund, believes Sanlam strategist and former National Treasury deputy director general ELIAS MASILELA. Implicitly, incorrect classification and understanding of the GEPF have a bearing on current policy debate.

I have always marvelled at ratings in world terms of the South African Government Employees Pension Fund (GEPF). This was until I read the latest Watson Wyatt Global Survey, published in September, on the world’s top pension funds. Based on its recorded book assets of $103,6bn, the report ranks the GEPF as the world’s sixth-largest pension-fund. This position stands out in people’s minds. It is not the only a significant metric for the GEPF, making it a world leader by asset size, but it is also the largest on the African continent in terms of membership; the GEPF has over 1m contributing members.

Elias Masilela

Masilela . . . flattering comparison

Ahead of the GEPF, globally are:

  • Government Pension Investment Japan ($1 072bn)
  • Government Pension Norway ($371bn)
  • National Pension Korea ($232bn)
  • Postal Savings Fund Taiwan ($129,4bn)
  • Canada Pension ($123,9bn)

Old debate again rears

Way back in 1998, during a critical phase of deliberations in Nedlac over decisions that had been taken at the Jobs Summit, organised labour and community representatives raised the subject of the GEPF. Their proposal was to divert resources away from the fund into what was then termed “more deserving expenditures”. These included social welfare, education, health and other similar areas of need.

At that stage, the GEPF was grossly underfunded (96,5%). It was a position that deeply concerned government. Two years earlier, the funding level had stood at a miserable 72,3%. Government was justifiably concerned about the state of the fund. But for these two social partners, the underfunded position was considered a non-priority. These partners were clearly in favour of a conversion to a pay-as-you-go (PAYG) arrangement.

The call by the two social partners effectively contradicted government’s intent to improve the (DSD) seems to have jumped onto the bandwagon of the PAYG debate. Since the Job Summit debate, the GEPF has continued to enjoy a decent global rating.

Wrong classification

To my mind, the Watson Wyatt report has brought out a new conceptual conflict. It is that the GEPF makes it to the Top Six in the world by enjoying the highly debatable classification of a “sovereign fund”. This classification rings a note of inappropriateness.

The report has four categories of funds, namely:

  • Sovereign funds, directly controlled by respective states;
  • Public funds, covering public sector workers in provincial and state-sponsored plans;
  • Private sector industry funds, covering workers in industry pension plans sponsored by private sector employers; and
  • Corporate funds, covering workers in company-sponsored plans.

The issue of ownership is critical where sovereign funds are seen as those in the hands of, and owned by, the state. By that definition, the GEPF is not a sovereign fund. One would have expected to see it classified as a public-sector fund, which it is.

However, one can also understand why the authors of the report could have erred in the manner they have. It could be the history of the GEPF. Only in 2005 did it start enjoying the existence of a full board, comprising employer and member-elected trustees, whereas previously the sole trustee was the Minister of Finance. Using a more appropriate classification of a public fund, the GEPF would rank (according to its official documents) as 21st in the world by asset size.

Let it be

On the basis of this analysis and my nationalistic ego, I would not protest the ranking given to the GEPF by the Watson Wyatt report. To continue enjoying this global position, as proposed by the report, the error of classification does not warrant a challenge.

After all, many internationally established classifications remain questionable and sometimes subjective.