The government’s plan to amend Regulation 28 of the Pension Funds Act to facilitate easier access to pension funds is “probably unnecessary,” according to Sandy McGregor, an investment analyst at Allan Gray investment company.
The African National Congress (ANC) first announced the plan in July when it released its economic recovery plan for South Africa.
ANC’s policy guru Enoch Godongwana said amending Regulation 28, which puts various limits on the investment of pension funds in specific assets or jurisdictions, would provide development finance institutions (DFIs) cheaper access to pension funds to finance infrastructure projects.
Earlier this month, the decision was included in a government economic recovery document presented at a meeting of the National Economic Development and Labour Council’s (NEDLAC) Forum for Economic Recovery, according to a Sunday Times report.
However, in an article published on Allan Gray’s website on Monday, McGregor said amending Regulation 28 is the “wrong discussion” to have.
He wrote, “While greater clarity and flexibility is always welcome, changing Regulation 28 is probably unnecessary. Pension funds are already investing in infrastructure through debt securities issued by parastatals such as Eskom, Transnet, the Trans-Caledon Tunnel Authority (TCTA) and the South African National Roads Agency (SANRAL).
“The discussion about changing Regulation 28 is therefore the wrong discussion. The problem is not – nor has it been – the availability of funds, but a lack of suitable projects. During the past decade, state institutions tasked with infrastructural development have been crippled by gross mismanagement and endemic corruption. Most public sector institutions have become uninvestable without a government guarantee.”
He added that in contrast, private-sector-led projects, such as those in renewable energy and commercial property sectors, have continued to enjoy significant investments and finance.
Not prescribed assets
McGregor nevertheless noted that the government’s plan does not aim to take away pension fund trustees’ fiduciary obligation to invest prudently in the interest of their members. Godongwana confirmed this during a webinar earlier this month, insisting that the plan does not amount to prescribed assets.
He said, “You will recall that in our conference, we emerged with a proposition which suggests that we should look at prescribed assets. When we talk about tweaking Regulation 28, we are moving in a slightly different [direction] from what conference said.
“We are moving from an environment where there is no enforced prescription, but you create an environment where trustees [of pension funds] can be able to invest in infrastructure projects, as long as those infrastructure projects are profitable.”
McGregor advised the government to “fix the various state institutions involved in infrastructure” to attract greater investments and finance, whether from banks, pension funds or other institutions.