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Government Employees’ Pension Fund: Alarm bells can no longer be ignored

2019-04-03 23:00

As the GEPF bleeds money, the next target may be the pensions of ordinary citizens, writes Ivan Fredericks.

Government’s approach to public servants and their vested interests is creating the perfect storm for expanding poverty and causing a situation in which, in years to come, public servants will also be standing in SA Social Security Agency queues.

The Government Employees’ Pension Fund (GEPF) is regarded as the “custodian of a significant portion of public servants’ wealth”, a guarantee of financial independence for public servants in the years following retirement.

The GEPF has more than 1.2 million active members and more than 400 000 pensioner members and beneficiaries.

The Public Servants Association of SA (PSA), as a union, represents about 207 000 of those members, including pensioners, which gives it a vested interest in the management of not only the GEPF, but also the Public Investment Corporation (PIC), which manages about 95% of the GEPF’s assets.

The PIC also manages the critical Unemployment Insurance Fund and the Compensation Fund.

For several years, alarm bells have been ringing out with increasing volume about the misuse of the fund by means of investments made by the PIC.

The recent release of the GEPF’s actuarial report, reflecting the actual position of its assets versus its pension liabilities, indicates a steep, worrisome downward spiral in the value of the fund.

In 2016, signs were already showing that government would have to increase its contribution rate to the fund in future, and now the actuary recommends an increase in government contributions from 16% to 18.9% and others from 13% to 14.4% of monthly salaries.

The stage has been reached where investment income is no longer enough to provide for current pension payments and the total costs of the fund.

Since 2014, administration and investment costs have increased to an unacceptable level.

Currently, only 59% of the contributions by serving GEPF members are channelled to the PIC for investment purposes.

Between 2015 and last year, contributions of R107 billion were not invested.

This worrying scenario is unfolding against the backdrop of significant investment losses by the PIC, including the failed investments in Steinhoff International and VBS Mutual Bank, costing public servants billions in lost revenue.

To date, no executive has been held accountable for these losses by means of decisive action being taken against those responsible.

Adding to mounting pressure on the GEPF’s funding, it is government’s apparent drive to push public servants into early retirement, with the only apparent benefit being that members can now take early retirement without being penalised between tomorrow and September 30.

As dissatisfaction grows regarding the management of the PIC as the largest asset manager in Africa.

The PSA, on behalf of its members, had filed submissions with the judicial commission of inquiry into allegations of impropriety regarding the PIC.

The PSA also took legal action through the Promotion of Access to Information Act to secure documents related to the appointment of the PIC board of directors, as well as documents relating to a R5 billion loan granted to Eskom in February last year by the PIC to address the utility’s liquidity problems.

In particular, documents were sought showing that the “loan” was, in fact, guaranteed by government.

The PSA remains extremely concerned about the contradictory messages from the National Treasury regarding the appointment of the PIC board and the awarding of the Eskom loan.

As guardian of public servants’ rights and interests, the PSA has consistently called for labour representation on the boards of these two institutions to ensure that public servants’ pension money is not misused to bail out, among other entities, failing state-owned enterprises that are purging money because of corruption and mismanagement.

Revelations of undue influence in investment decisions are being exposed in the commission of inquiry into the PIC.

Data from the SA Institute of Race Relations confirm the fact that “government is running out of money”.

The ratio of government debt to GDP has reached a historical high. Tax hikes are not an option as taxpayers have little left to offer.

The Institute of Race Relations, therefore, warns that the only other option will be to target the pensions of ordinary, hard-working South Africans, including public servants.

The institute further pointed out that, according to economist Mike Schussler, South African pension assets are huge – ranking eighth highest internationally.

At least a third of South African adults have or are investing in a pension.

Schussler has also shown that it will not be difficult for government to force pension funds – including the GEPF – and asset managers to invest in certain sectors, and that no legislative amendment will be required to do so.

The ANC’s election manifesto says prescribed assets (where pension funds and other investors are mandated to invest in certain sectors or companies) will be investigated as a source of funding for economic and social development.

This could mean using the pensions of workers to fund these expenses.

Any attempt to tamper with pensions (taking into account dependants of pensioners) will directly affect half of all South Africans, while any move that damages the value of pensions will have a broader damaging knock-on effect on the South African economy, making everyone poorer.

The PSA is convinced that, should mismanagement of the GEPF and the PIC continue, the impact will not only be felt by public servants, but all taxpayers who are increasingly overburdened by the high cost of living.

The time has come for the accountability of asset managers and members of the GEPF board of trustees to be prioritised.

The GEPF can no longer afford “small” mistakes and generosity at the expense of public servants.

. Fredericks is the general manager of the PSA

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February 16 2020