Patel's pension plan dangerous - DA

Dion George says 5% proposal would be a return to apartheid-era policies

Patel's apartheid-era pension plan is dangerous and wrongheaded

The recently announced strategic plan of the Minister of Economic Development, Ebrahim Patel that would force all private and public pension funds to invest 5% of their funds into specific state schemes, is a dangerous proposal, which the Democratic Alliance (DA) will strenuously oppose (see here - PDF). Such a move would distort the entire investment allocation of a pension fund.

Such a move would be a return of Apartheid-era financial interventionism, carrying with it severe ramifications for South Africa's financial stability and economic growth. Pension funds are one of the most valuable assets that South Africans accumulate over their lifetimes.

This policy would effectively constitute an additional tax on already hard pressed workers - it forces pension funds into low yielding investments, which means that the amount of money which a pensioner can expect to get out will be significantly lower than without such an intervention.

After a lifetime of saving up money for old age, pensioners will be told that Patel's flaky policy has cost them their standard of living.

Minister Patel clearly has no idea of what he is doing. The plan mentions that "various options are available" for channeling pension funds, and yet the only example he has provided is a "government development bond". There is already a substantial market for government bonds issued by the Treasury and that money is already used for developmental (i.e. infrastructure) spending; so is Patel seriously suggesting a parallel system of government debt? This goes to show that there are no principles behind the proposal - the strategic plan is really a mixed bag of failed interventionist policies.

The fact that South Africa is now threatened by yet another poorly articulated and incoherent policy goes to show that Patel is completely out of his depth, and doesn't understand the relatively obvious ramifications that such a policy would pose. Patel would be well advised to review the history of pension fund interventions in South Africa:

  • The Retirement Funds Tax applied under Trevor Manuel was phased out precisely because it undermines the ability of South Africans to save. 
  • Under Apartheid, pension funds were utilised to fund the Apartheid regime through the implementation of prescribed assets. 

Now government wants to fund its dysfunctional developmental state through the same mechanism. Nothing seems to have been learnt. The DA will submit questions to the Minister of Finance and propose a motion for this matter to be debated in Parliament.

Statement issued by Dr. Dion George, MP, Democratic Alliance shadow minister of finance, March 4 2010

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