Pensioners-to-be must stop the theft of their assets

08 October 2017 - 00:00 By Mike Schussler

More and more South Africans are deeply worried about the Public Investment Corporation investing, or being coerced into investing by government politicians, pension money in failing state-owned enterprises to bail them out.
Is this pension money safe, and will South Africans be able to have the standard of living they have bargained on as pensioners? Or will we be poor and hungry in our old age because of bailouts and other poor decisions guaranteed by pension funds like the PIC?
First, the good news: South Africa has the eighth-largest pension assets in the world in dollars. As a percentage of GDP, it has the fifth-highest ratio of pension assets in the world.
In fact, South African pension assets are more than the combined pensions of South Korea, Russia, Colombia, Sweden and New Zealand.
They have helped form a mighty financial base where the government can borrow money from us when it cannot balance its books.
South Africans have 36 times the per capita pension assets than fellow citizens of the developing world. Our pension assets represent 12.4 million people, and in 2015 65% of the assets were held by black people.
Indirect funds such as life and health insurance, along with mutual funds, probably bring the number of individuals with a financial stake in the economy to about 16 million.
The PIC is the 20th-largest fund manager in the world, and by a long shot the biggest in the emerging markets.
The fund size makes it a great target for the state, along with other government pension managers such as Eskom, Transnet and municipal pension funds. Every time the government or an SOE needs money, they break into "their" piggy bank.The size of the pension funds is the reason why big crooks are interested in South Africa. The Russians know our pensions can fund nuclear power stations; all they have to do is sell power stations as needing no government funding - only a state guarantee.
Effectively, South Africa ends up building something expensive we do not need, and once the power station can no longer afford to pay for itself, the guarantees will be called in and our government will be forced to take away our pension savings.
The risk to government pensioners is long term as the taxpayer guarantees the pensions, but as the bill becomes ever more unaffordable, the net effect will be that less than a decade down the line, the government will be forced to lower the pensions.
Ask Transnet pensioners what happened. Some worked for 40 years at below-average wages for the so-called better pension "for the rest of your life". Now, most get next to nothing.Private funds may think they can get away, but they are vulnerable to rules such as those prescribing that pensions must invest 50% in government bonds.
My worst fear is that South Africa never goes to the IMF for a bailout but misdirects its largest asset - its investment funds. It will be an even worse result. Imagine you are about to retire and have some good stocks and foreign investments in your pension account. Then the government decides three years after you retire that 25% must be invested in Eskom or SAA.
The return you are promised at first sounds OK at 1% above inflation. Two years later the return is less than inflation. Five further years later, at age 70, you get only 95% of the money you had every year, and you and costs consume another 8%. Your pension shrinks at 13% a year with 60% now invested in prescribed government bonds and bank deposits that are kept artificially low.
At age 75 you can no longer afford healthcare and the government can no longer afford much in hospitals and medicine either. Your pension is now worth less than 40% of its original value and you live on bread, coffee and jam - if you are lucky.
Politicians would be in a straitjacket if South Africa had to run to the IMF. But they will dump us in poverty if we allow thieves to use our pension fund assets to fund their theft.
South African pension assets are attracting big-time crooks. They quickly learn to make friends with politicians with sweaty palms and offer them riches beyond belief.
We, the public, must do two things.First, understand that we have these huge assets which have also protected our currency during the downgrades while allowing our firms to fund expansion and the government to build real infrastructure. The reason you don't know the size of our biggest asset is that politicians want it that way.
Then vote with your mind and clear out the rot. The next lot will be more careful, and will know that the public can act.
The indirect owners of South Africa's financial assets are about 16 million adults. That is more than what voted for any political party.
Schussler is the owner of Economists.co.za

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