- Government does not intend to force pensions to be invested in certain assets, says Deputy Finance Minister David Masondo.
- Amendments to regulation 28 of the Pension Funds Act is purely to broaden the scope of investments trustees of funds can consider, he said.
- Masondo says trustees have a fiduciary duty to deliver better returns to members of funds.
Government has no intention of forcing pension funds to invest in specified projects or assets which will not yield optimal returns, says Deputy Finance Minister David Masondo.
Masondo was responding to questions in the National Assembly on Wednesday. Finance Minister Tito Mboweni could not attend the sitting.
During the session, Democratic Alliance MP Dion George asked if pension funds would be forced to invest in government's infrastructure programme.
"There is no intention from government to oblige retirement funds on how to invest, be it in government infrastructure or any other projects or investments," Masondo said.
"All investment decisions are ultimately the duty of the board of trustees who decide which assets retirement funds should be invested in as per the fund's investment mandate," he added.
Masondo's remarks come amid debate within the ruling ANC about how to boost local investment. The party's proposed economic recovery strategy includes a proposal to have regulation 28 of the Pension Funds Act "tweaked" to allow trustees of funds to invest in more asset classes, namely infrastructure.
On Wednesday, Masondo explained that amending regulation 28 would allow retirement funds to "broaden the scope" of the type of investments they can make, including public infrastructure projects. "[It is] just to enable trustees to have a wider choice … the intention is not to force them to invest in particular investments that government prefers."
He also said that trustees would have a choice to do so if they wish to, as they have a fiduciary duty towards fund members to deliver better returns. "Savers are not saving money in order to lose money," Masondo said.
Responding to a follow-up question from George about whether government would instruct trustees of the Government Employees Pension Funds to invest in government infrastructure projects, Masondo said it was not government's intention to do so either. "They (trustees) must work on the basis of the investment mandates that they have. There is no government intention to force government pension funds to invest in suboptimal investments."
Masondo also weighed in on the country's economic recovery path, as the lockdown to curb the spread of Covid-19 looks set to result in the SA's already struggling economy contracting anywhere between 7% and 13%, its worst performance in 90 years.
Masondo said work was underway to ensure fiscal consolidation and debt stabilisation is achieved.
"In this regard, there should be no holy cows and no spending items will be automatically protected from possible downward adjustments," he said. Details of spending reductions and revenue boosting measures will be announced in the 2020 medium term budget policy statement, later this year.
Government is engaging with the labour movement to look at the wage bill and government is also looking at state-owned enterprises, which are posing a "serious burden" on the fiscus, he said. When it comes to reforming the country's embattled state-owned enterprises, Masondo said the state is deciding whether all of them are needed or not. A decision around which state companies will be kept in government ownership, and the role of private participation also need to be made.
The only sustainable way to deal with the country's increasing debt burden is by achieving economic growth, said the deputy minister.
This would require rolling out structural reforms, he said, which would have to be a combined effort by government, business, labour and society. "Not everything constraining the growth of the economy comes from government, he said."
Commenting on the recently acquired $4.3 billion loan from the International Monetary Fund to support Covid-19 response measures, Masondo said it was the most "rational" thing government could have done given the circumstances. The IMF loan comes at a low interest rate of 1%, compared to other market options.
"We think this is the rational thing govt could have done because of Covid-19. It is for that reason that we have to make sure we pay it within five years."