With the budget speech looming today, deepening state of financial disarray at the state power utility Eskom is a thorn in the flesh of the national economy that minister of finance, Tito Mboweni will have to address. The much-publicised and forever increasing problems at the embattled parastatal are expected to take center stage at the upcoming national budget speech, due to their stunting effects on the economy – among other things like the discomfort they impose of South Africans.
It seems as if it is indeed true that desperate times call for desperate measures as the Congress of South African Trade Unions (COSATU) recently proposed that a special purpose finance vehicle that involved the use of public servants’ pension savings be used to cut down Eskom’s massive R454 billion debt to around R200 billion. The labour federation wants the government-owned asset manager Public Investment Corporation, which manages close to R2 trillion in investments with the Government Employees Pension Fund (GEPF), and other state development finance institutions to inject R250 billion in the proposed vehicle.
In the dark
There is a risk imposed on public servant’s pension funds should the proposal by COSATU to use the workers’ savings to fund Eskom’s rescue be adopted.
The GEPF, which is the administrator of the public servants’ retirement savings purse through the Government Pensions Administrative Agency (GPAA), itself conceded to being in the dark regarding the proposal by the largest union in the country and the potential consequences it may carry, including the risk on the investments made by the members.
Matau Molapo, spokesperson of the GEPF told FAnews that they had not received a formal proposal from any of the stakeholders mentioned in the topical issue. She added the GEPF “can’t predetermine the risk if we have not seen what is proposed”.
The pension fund’s market value was R1.8 trillion in the 2018/19 financial year, increasing by R17 billion from the year before, according to its most current annual report. This is regarded as the biggest public servants’ pension fund on the continent.
The fund has shown consistency in yielding returns over the years, and as we near the financial year end, it wouldn’t be a surprise if the trend continued.
Eighty three percent of the GEPF assets are managed by the PIC in the form of equity, bonds, money market, and property portfolios, with the remaining 17% managed by other asset managers. Despite the tough economic conditions, the Fund had a return of 2.6% during the 2018/9 financial year.
The fund has over 1.2 million members on its database. All government employees whose conditions of service fall under the Public Service Act are members of GEPF.
Shedding the load
According to economists, there are too many people getting paid by Eskom - too many for it to afford because the economy is not growing at the required pace. The wonky power utility recently announced that it will offer voluntary retirement packages to its employees between March and April of this year - an option which will be availed to its managers in noncore operations and employees over the age of 60 years old.
Minister of Public Enterprises, Pravin Gordhan reportedly commended the push by the labour federation to power the parastatal with pensions as an “innovation” to protect thousands of jobs within the bloated Eskom environment. President Cyril Ramaphosa’s spokesperson reportedly said the president and former unionist was “favourably disposed” to the proposal.
COSATU in their reasoning believed that the proposal won’t jeopardise the government employees’ pension savings as the government “should” be able to afford the shortfall. With this consideration, the question is should the larger share of the 1.2 million registered public servants resign – what would be the overall economic impact in relations to the government’s capacity to pay the pensions? The real concern for observers and experts alike, is the risk the government could impose on public servants’ pension funds should the proposal be adopted.
The decision to invest
The decision within GEPF on how to spread the funds in investments lies with the board which comprises of eight employee nominated trustees, and eight employer nominated trustees, with each installed trustee having a substitute trustee to insure full representation at all times.
The GEPF members are represented on the board and at the investment strategy making level, on paper. At the heart of its operations, the fund claims that legitimate expectations of all stakeholders must also be considered in decision-making and when determining strategy.
“GEPF is a defined pension benefit fund, therefore, according to the GEP law that governs the Fund, the Board of Trustees are sole decision makers as to where the GEPF invests” said Molapo.
It’s a catch-22 considering why and where the proposal emanated from. It’s a result of understandable desperation. As one of the chambers of commerce said, it’s like a father using his child’s education fund to settle his gambling debts. This issue has brought another contentious issue back into the limelight. There have been suggestions of adopting prescribed assets in the country – however the ruling African National Congress had recommended the adoption of prescribed assets in their manifesto and is not government policy as of yet. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts email@example.com.
Article published courtesy of FANews