DA: Pension plan irrational
2010-03-31 18:38
Cape Town - Economic Development Minister Ebrahim Patel's plan to "force pension funds into certain government sanctioned investments" is a clear reference to expropriating pension fund money, a Democratic Alliance MP said on Wednesday.
"The situation is very similar to the threats of nationalisation of farmland," Dion George said in a statement.
"The policy proposal by Patel is a clear and unambiguous reference to expropriating pension fund money."
The Medium Term Strategic Plan for the department of economic development said it was agreed "during the 2003 Growth Summit, to target investment of 5% of investible funds into development areas and activities".
Development bond
In his recent budget speech, Patel said: "What have been lacking to date have been appropriate instruments to give effect to this commitment.
"Various options that combine prudent investment policy with development goals are open to us, including the issue of a development bond."
George said the plan ignored the fact that pension funds exist to provide their members with the most optimum returns on their contributions to finance their old age.
"In the event that government does guarantee the capital invested and a particular rate of return, it simply means that government debt is increasing along with the liability of current and future generations of taxpayers to meet these obligations," he said.
"If government underwrites the loans, members will be paying tax to fund returns on money that they lent to government."
George said the government already guarantees the benefits of the Government Employees Pension Fund, therefore any sub-optimal return on prescribed investments automatically translated into an additional expense for taxpayers.
'Irrational' plan
Pension funds already have assets invested in bonds and guaranteed portfolios, so the minister cannot compel funds to switch investments and incur penalties on early withdrawals, he said.
"This is not in the interest of members and is irrational. We cannot return to apartheid-era prescribed assets."
According to George, Patel had so far refused to answer the concerns of "ordinary pension-fund holders".
"This kind of avoidance is unacceptable and detrimental to a sound democracy," he said.
Patel says that lessons learned from "centrally planned economies" such as Brazil, Germany, Singapore and modern China showed that development "requires a careful evaluation of financing mechanisms".
"Many of the ideas that we will be putting forward will be based on that rich and interesting international experience," he said.
- SAPA