Edition: June - August 2015


Contradictions abound

An undertone of political interventions contrasts with trustees’ primary duty.

Congratulations on the tenth anniversary of Today’s Trustee. I enjoy reading every edition with all the relevant topics and lighter stories. In the latest edition (TT March-May) you have touched upon three matters to which I refer with comment:

First, on page five you quote the views that a previous Minister of Finance (Trevor Manuel) expressed 10 years ago on the role of trustees. He mentioned the need for trustees “….to stand up for the rights of members and to protect their savings in the face of sharp finance talk”.

Absolutely correct. But, unfortunately, one year later this same Minister introduced a tax on certain incomes of pension and provident funds that cost them R52bn in the 10 years to 2006 when this ruling, thankfully, was abolished.

The tax was effectively a tax on savings. More than this R52bn, I calculated the amount of income foregone as a result of the taxes paid. Conservatively, this looks to be a staggering R68bn. Thus, the Minister did harm to the pension fund industry to the tune of R120bn. So this lost R120bn is money on which the industry could have earned income for its members even today.

Second, I agree with the then Minister as quoted: “Trustees should stand up to protect the interest of members”. After all, they are the trustees of trust funds. This brings me to the article “Transformation from the top”, on page 10, containing views of the ANC Gauteng on the role of pension funds as shareholders in JSE-listed companies.

I regard these views as extremely problematic. In fact, they contrast with the view that trustees should stand up to protect the rights of members and to protect their savings. I sometimes get the impression that certain people believe that there is a lot of “idle money” around in pension funds to be used for all kinds of other purposes.

Many of the issues raised are in the ambit of government. Pension funds can only assist in so far as they might invest in government bonds and other paper issued by institutions such as Eskom, provided the pension funds can obtain competitive market-related returns that reflect the risks involved.

Further, in this article ANC Gauteng chair Paul Mashatile remarked: “We’d also expect the directors to report back on how they address workers’ pay. They must be held accountable for policies that worsen inequalities.” Really?

If “workers” do not respect the forces of supply and demand in the labour market, and if wage increases are not aligned to labour productivity improvements, unemployment will stay high and increase. Inequalities in income will therefore rise further. After all, an unemployed person has no income.

According to the latest information published in the SA Reserve Bank’s Quarterly Economic Bulletin, nominal labour costs increased in the period 2000 to the third quarter of 2014 by 276,5%. Over this period, labour productivity fell by 14,1% while the consumer price index rose by 122,3%.

The ANC in Gauteng should say whether it expects boards of JSE-listed companies to comprise directors who are capable, well trained and experienced. In my view, directors must be elected on their capabilities, honesty and integrity to oversee the investments of pension funds. Otherwise we’ll land up with more disasters such as those now experienced at Eskom.

Third is your article at page 30, headed “A loud silence”, which refers to pensioners’ money invested by the GEPF/PIC in Independent News & Media SA. My arguments above, on the issue of sound investments, are relevant here too.

We should also address the GEPF/PIC investment in Camac shares. At time of writing, the last sale was at R6 and the last bid was at R4,50. There is practically no liquidity. What was initially paid, and what were the reasons, for this highly speculative investment?

-- Adam Jacobs, Clubview (via e-mail).