South Africa’s R4 Trillion Pensions Pot Is A Gilded Asset At Risk

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South Africans are a funny lot. There is the famous South African exceptionalism, that makes us think we are somehow above the fray of the struggles of other countries (especially on this continent).

That probably still holds true to a degree, considering how the country managed to avoid a civil war when it seemed all but inevitable thirty years ago (although even this achievement is now sneered at by some as a failure).

At the same time, South Africans also suffer from an inferiority complex of sorts. Our cultural touchstones are often abroad (particularly in the United States), rather than here, and despite evidence to the contrary South Africans believe things are far worse than they are in reality.

That’s not to say the country does not face serious problems, especially unsustainably high levels of poverty and unemployment, but on balance the country has fared better than many would have thought likely at the beginning of the 1990s.

One of the areas where South Africa does far better than many would credit us for is in the sphere of retirement savings. Although there seem to be almost weekly warnings about the dire straits average South Africans will find themselves in when they reach retirement age, the truth is that the country has a substantial pot of retirement savings.

The total amount (over R4 trillion) is nearly the size of South Africa’s total gross domestic product (GDP). Very few countries have retirement assets this big, as a proportion of GDP. Of the world’s major economies, only the United Kingdom, Australia, and Switzerland, have pension assets of this size.

In total dollar terms, South Africa’s retirement savings is also very big. The more than US$300 billion that have been saved by the good people of Mzansi makes ours the eighth biggest pension pot on earth – bigger even than Germany’s, and by far the biggest of any emerging market.

Consider too, that while South Africa accounts for about 0.7% of the total world population, it has about 1.2% of global pension assets.

It is not an exaggeration to say that South Africa punches well above its weight when it comes to the size of our retirement pot.

Looking at these figures, however, it is no surprise that the government, which has been as profligate with other people’s money as a Sandton teenager with her father’s credit card, may now be looking to this savings pot to plug a hole in its own finances.

Financially, South Africa is in trouble. As Finance Minister Tito Mboweni noted in last month’s budget speech, the country has to borrow R1.2 billion a day simply to stay afloat. And in the upcoming year, we will again spend more than we earn, to the tune of nearly R250 billion. To rub more financial salt into a self-inflicted wound, the country will collect nearly R50 billion less in tax than was predicted in last year’s budget.

As Ernest Hemingway once said, one becomes bankrupt first slowly, and then suddenly. And this is the case with South Africa. We at the Institute of Race Relations have for many years been tracking unsustainable levels of government spending, which have now brought us to the brink.

South Africa will very soon reach the end of its financial road. What is the likely outcome?

The choices are few and mostly politically unpalatable. Mass cuts in government spending and in the number of government employees is required, but the ANC government will find it hard to do this, given its alliance with the Congress of South African Trade Unions. Another option is looking to the International Monetary Fund (IMF) for a bailout, but this would mean giving up policy control, also unpalatable.

Which leaves South African pensions.

Like an open whisky bottle to a recovering alcoholic, it is very unlikely that the government will be able to restrain itself from using – at least some of – our pensions to fund holes in the fiscus.

What is likely to happen is that the government will amend regulations which will require pension funds and asset managers to invest a certain amount into assets or sectors which they dictate. This is not a new strategy; the apartheid government also used it to shore up its finances.

Asset managers will be happy to invest in government companies or assets if they will be likely to show a return for their investors. However, if South Africa had to introduce prescribed assets, it is likely that this would include such loss-making behemoths as Eskom. Any money invested into that company (or other failing state-owned enterprises) will likely never be seen again, never mind being returned at a profit.

And do not think that any move to pensions will only affect a handful of people. The number of South Africans with some sort of pension savings is very large. About one in three South African adults either contributes to a pension, or is currently drawing from one. Any move which will negatively affect pensions will affect a large number of South Africans. Considering family members who rely on pensioners for financial support, it would not be an exaggeration to say half of South Africans would be directly affected by any move to tamper with pensions.

South African retirement funds are a hidden jewel in the South African crown. We must not allow a rapacious government to make South African savers pay for its mistakes.

Marius Roodt is head of campaigns at the Institute of Race Relations (IRR), a liberal think tank that promotes economic and political freedom. Go to https://irr.org.za/

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