Time for financial institutions to come clean with clients – IRR

Institute says public should be concerned about the vulnerability of their pensions and savings

Time for financial institutions to come clean with clients – IRR

4 November 2020

Institutions presiding over the multi-billion rand savings and pensions of ordinary South Africans need to come clean on whether they are party to talks with the government on making these resources available for government or government-run projects, and whether they have informed their clients of any such discussions.

In light of the statement this week by Dr KgosientshoRamokgopa, head of the Investment and Infrastructure Office in the Presidency, on talks with the financial sector on exploiting the ‘big pool of liquidity’ of private funds for government projects, the IRR will today write to leading institutions to ask them to spell out where they stand.

Letters will be sent to Absa Group Limited, First National Bank, Standard Bank, Nedbank Group Limited, Investec, Sygnia Asset Management, Old Mutual, Citadel, Coronation Fund Managers, Sanlam, Alexander Forbes, and Liberty Group Holdings to ask them to clarify their position.

Over the past several months, the IRR has embarked on a broad engagement with many of these institutions and entities to elicit answers on their willingness to make the savings or pensions of their clients available for government projects through the mechanism of prescribed assets.

These efforts have been met with varying degrees of transparency and collaboration.

Mr Leon Campher, CEO of the Association for Savings & Investment South Africa (ASISA) – to whom many respondents to our previous correspondence referred us – dismissed the risk of pensions and savings being used to fund government projects.

Said IRR deputy head of policy research Hermann Pretorius: ‘In light of Dr KgosientshoRamokgopa’s statements, these dismissals now seem misleading.’

The current situation ‘presents worrying conclusions’, Pretorius noted.

‘Either the industry and its members, through ASISA, misled the public on this vital issue; or representatives of the industry and its members misled the public; or Dr Ramokgopa is misleading the public now.

‘Whatever the case may be, it is clear that thepublic should be concerned about the vulnerability of their pensions and savings. Clarity in this regard is now more important than ever.’

In the letters being sent today, the IRR will ask financial institutions:

Have you been party to negotiations with the government or any government representatives relating to making funds available, in the form of pensions or savings, to the government for any form of government or government-run projects?

Have you knowingly been represented in such negotiations?

Were your clients informed of your participation in any such negotiations?

What steps are you taking to safeguard the pensions and savings of clients against the risks of such assets being used for funding government or government-run projects?

In light of vast government corruption, the lack of progress in prosecuting people implicated in state capture, and the reality that much of the structure of state capture remains in place, how do you address the concern that assets or resources made available to the government risk being used to fund corrupt political patronage networks as part of a ‘second wave’ of state capture?

Should the pensions and savings of your clients be made available to government or any government entity, what considerations have been given to liability in terms of the consequences of unsound investment decisions?

Pretorius said: ‘This is a matter of great seriousness. South Africans have entrusted the fruits of careers and of years of prudent financial management to entities that now have these important questions to answer – all of them ultimately questions of trust.

‘The entirety of the savings and financial industry is founded on trust. Countless amounts are spent yearly through sophisticated marketing campaigns to convince people to trust this industry with what they’ve worked hard to earn throughout their lives. As is well known, trust once lost is dearly regained.’

He said it was hoped the companies addressed in the letters sent today ‘will consider this an opportunity to be straight with the South African public and to demonstrate that they deserve their clients’ trust’, and would ‘work with the IRR to protect the pensions and savings of South Africans against a state that has shown itself to be callous at worst and incompetent at best in the management of the hard-earned money of ordinary people’.

Issued by Hermann Pretorius, IRR Deputy Head of Policy Research, 4 November 2020