Stop the political abuse of employees’ pension money

Flip Buys says there are many crises created by govt which are jeopardising pensions

Stop the political abuse of employees’ pension money

3 March 2020

Hardworking employees’ pension money has been abused for political aims which have already cost pension fund members billions of Rands. This prejudice in many cases boiled down to wastage and even to legalised looting. That is the main reason why only approximately 6% of employees can retire knowing that after a lifetime of hard work they will have enough money to live comfortably when they retire. The South African pension industry is the country’s largest asset and represents the savings of approximately 17 million members to the amount of more than R4,262 million.

The first abuse was the dilution of pensions by companies dishing out free shares to political-related tycoons according to BBBEE laws and codes. In practice, it meant that poor pensioners’ money was transferred to rich empowerment tycoons and was redistributed. In this way, individuals were empowered to the detriment of millions of ordinary employees’ pension money.

The second abuse was the tax on pension money from 1996 to 2006 during which pension fund members lost to tax in the region of R50 billion. Fund members suffered a total loss of more than R120 billion as a result of this.

The third abuse is the limit of 30% which regulation 28 of the Pension Act placed on foreign investments. This resulted in fund managers not having the freedom to invest fund members’ money in the best investments because they were forced to invest the money in the SA Stock Exchange. The problem is that the SA Stock Exchange constitutes only 1% of global stock exchanges and that fund managers cannot diversify properly.

The fourth abuse was poor governance by the state and political interference in the business world which hampered economic growth and the return on pension funds. The quality of governance and government policy are depicted in the extremely weak numbers year on year. This resulted in poor pensioners and ordinary workers subsidising the ANC’s weak policy and poor governance. The demise of important infrastructure like municipal services and railway tracks undermined company and pension returns. The downgrade of the country by the most important grading agencies was the unavoidable result thereof and jeopardised pensions further.

The fifth abuse was the government’s neglect for years to build new power stations or to privatise Eskom. The electricity crisis is one of the biggest causes of the longest economic downturn this country has experienced in 70 years.

The long period of state capture with exemption from prosecution and the accompanying industry scale corruption (the sixth element) cost the country approximately R1,5 trillion and a million jobs, and was to the direct disadvantage of almost five million people. The fact that the alleged guilty people have not been prosecuted yet and that many of them are still in powerful public positions, jeopardising the economy, pension funds and all citizens further.

The seventh disadvantage for pension fund members is the exchange rate which has weakened annually since 1994 on average of 6,5% and which impoverished South African pension fund members in global terms. The exchange rate is regarded as a country’s ‘share price’ which measures the world’s trust in the country’s governance.

The eighth abuse of pension money is the small return hardworking people receive on their hard-earned tax as a result of the demise of the state. The poor governance of public health care and security means that people must procure private health care and security at high costs and then they do not have enough money to save for their retirement. Pensioners cannot afford expensive private services.

The ninth factor is the poor state governance which means that productive taxpayers are now South Africa’s largest export product. The flow-out of so much expertise has already had a big impact on company performance and the returns on pension funds.

The tenth factor is that, after the state has now spent the taxpayers’ money, they want to use pension money to subsidise poorly managed state enterprises. This is being planned without any credible indication that they will amend the policies which lead to a long period of mismanagement of almost all these enterprises. South Africa has approximately 715 state-controlled companies of which only one of them was profitable in the previous year, namely the South African Forestry Company Ltd (Safcol). Most of the large companies also owe enormous debts.

The large pension funds already invest big in government bonds with the government pension fund constituting almost 50% of their assets. Forced increases in state enterprises can consequently lead to lower returns and weak investments.

Apart from the above, there are many other crises created by the government, which jeopardise pensions, such as socialist policy trends and laws based on race which in turn lead to a record unemployment rate, an unaffordable social health care system, expropriation without compensation and plans for an impracticable national health insurance.

Hardworking people and poor pension fund members should not subsidise poor governance any longer. Eskom and other state enterprises must promptly be rendered profitable and effective by freeing them from state control. Then, investment money will flow naturally to the right place, as to any other secure and good investment.

In the meantime, Eskom’s finances must be sorted out by extensive legal action to collect stolen money, municipalities must pay over the money collected for electricity to Eskom, action must be taken against large scale defaulters, Eskom’s management must be empowered to do what is necessary to rescue the power giant, and private service providers should promptly be allowed to generate electricity.

The government must stop enduring crises instead of doing what is necessary to solve them.

Flip Buys is Chairperson of the Solidarity Movement