The content on this page is not written by Polity.org.za, but is supplied by third parties. This content does not constitute news reporting by Polity.org.za.

The DA will challenge the National Treasury to reject proposals put forward in ANC policy discussion documents that a portion of pension fund assets be prescribed for investment in developmental projects.

Finance institutions should invest pension funds based on the prospective return for pensioners and should not be forced by Government to invest in speculative projects.

This proposal could be seen as a tax on pension funds.

I have written to both the Minister of Finance Pravin Gordhan, and Mr Arthur Moloto of the Government Employees Pension Fund (GEPF), to raise our concerns with regards to the proposals of prescribed investments for pension funds.

The ANC discussion paper on state-owned entities and development finance institutions suggests that the state should "regulate a substantial part of retirement and life assurance funds to be invested in state-owned enterprise and/or development finance institution financial instruments".

The idea is that retirement fund resources could be channelled into an institution such as the Industrial Development Corporation (IDC), which could provide "concessionary finance" or cheap money to state-owned and private entities.

Should this proposal be implemented, it could reduce benefits for pension fund members. Investments at market–competitive rates do not require prescription. The purpose of retirement funds is only to assist savers to achieve comfortable retirements. By doing this job they channel funds into projects that tend to have the most sustainable long-term growth prospects, thereby benefitting the entire economy. No prescription by government can possibly achieve a better outcome for pensioners or the economy.

The savings industry has strong reasons for opposing the prescribed asset approach. These include the following:
Prescribed assets could undermine the value of members’ and policy-holders’ savings.

The policy interferes with the market by creating artificial distortions and negative perceptions.

It has a "crowding out" effect, where healthy competition is undermined through preferential regulatory treatment for state funds.

In other words, the opportunity costs of such a move simply outweigh any potential benefits. Instead, government needs to create the conditions to allow real market opportunities for equity investment which are free from the interventionist hand of the state.