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DA challenges ANC pension fund policy

By Staff Writer

The Democratic Alliance (DA) has called on the ANC to reject proposals which will see pension fund assets prescribed for investment in developmental projects. These proposals were set out in the ANC policy documents which it’s set to discuss at its conference in Midrand.

 

The DA argues that the proposals are effectively a tax on pension funds and that financial institutions should be able to invest pension funds based on the prospective return for pensioners and not be forced by Government to invest in speculative projects.

 

David Ross the DA’s deputy minister of finance said he had written to the Pravin Gordhan, minister of finance and 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". Under the proposals, 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,” added Ross.


  
The savings industry has strong reasons for opposing the prescribed asset approach. These include the fact that 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. The policies will also create 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,” added Ross.


 

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