There is nothing like the phrases “Prescribed Assets”, “National Health Insurance” and “Land Expropriation without Compensation” to get us all up in arms and wondering what is going on. These phrases have been bandied around, and without much clarity, it can get us hot under the collar!
It is the fear of the unknown, the uncontrollable that leads us to get upset and speculate as to what this can mean. I wonder whether or not it is all these unknown factors that leads us to jump to conclusions and assume the worst. It may even be the reason so many families are choosing to immigrate. Yet I think we may know even less about the problems in another country, hence we best understand our own better and educate ourselves on our own problems.
Currently, we have Prescribed Assets within Regulation 28 of the South African Pension Fund Act. This regulation requires members to make conservative and aggressive asset class mix when saving for retirement. Members currently on pension, provident and retirement annuities must choose their unit trusts in line with this regulation. The guidelines set, amongst other things, the maximum exposures that retirement fund savings may have to various asset classes, for example: 75% in equities, 25% in property and 30% in foreign assets outside of South Africa
Talking to James Fitzpatrick, Investment Director at Capital International South Africa, about Prescribed Assets, he said that the current furor centers round the possibility of prescribed assets, where pension and provident funds are required to invest in local government assets and investments. James highlighted that South Africa has one of the largest single global pension pools in, US Dollars, in the world. Given this large pool of investment, the thought of mandatory pension fund investment within government owned entities such as Eskom and SAA, does tend to cause alarm. I discussed this view with James and whether prescribed assets is a likely possibility, “It’s not very hard for government to change the Pension Fund Act and enforce pensions to hold government assets”, was his response. James thinks it will start at 2,5%, increasing to 5%. “As we currently have regulation 28, Government can include this requirement within the regulation. If so, a large cash injection would be forced into the State owned entities, giving Government much capital relief that they have been seeking.”
In a utopian society, I think most of us would agree with Government using retirement capital, to inject in failing Government entities, but we do not live in utopia and the lack of clear direction and transparency from Government, makes it difficult for us to trust the process. Cyril has promised to remove the corruption and has started with the leadership but the rot is deep and will take time to remove the corruption in our country.
Whilst there are no clear indications from the South African Government on how or when prescribed assets would be implemented, James Fitzpatrick stressed that there are many great opportunities for South Africans to grow their investments, including both onshore and offshore, and to seek financial advice on the various options available.