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That the Government Employees’ Pension Fund (GEPF), Africa’s largest pension fund, has a significant long-term funding shortfall is bad news for its members and for taxpayers.
It is yet another example of government squandering precious national resources – in this case, government employees and pensioners’ money – with no consequences for those responsible. This has to stop.
Poor use of funds in government ultimately bites taxpayers. In this case, if things go badly wrong, state employees and pensioners belonging to the fund won’t get their benefits or, at the very least, won’t get inflation-based benefit increases. Also, taxpayers could ultimately have to chip in again –raising the cost of living in a time of already high taxes and poor economic conditions.
The wider problem is that the GEPF is a defined benefit fund, so government guarantees the returns for the employees who contribute and for pensioners who draw benefits from the fund. The big long-term funding shortfall of R583 billion highlights the risk faced by defined benefit funds and those who guarantee their benefits – in this case, government and taxpayers.
A defined benefit fund usually has guaranteed benefits and is not dependent on the investment returns of the fund or on the level of member and employer contributions.
On the other hand, a defined contribution fund has no guaranteed benefits as the ultimate return depends on the level of contribution by each fund participant and investment returns.
Converting the GEPF to a defined contribution fund could reduce the cost to the fiscus and the risk to the taxpayer. In the private sector, defined benefit funds have been phased out in favour of defined contribution funds. Maybe it is time for the GEPF and other state pension funds to follow the same path.
