The fund has seen ‘poor returns’ because the PIC is pressured to invest in fields that are ‘laudable but should not be the responsibility of a pension fund’. Picture: Moneyweb
A state pensioner sent a long letter to Moneyweb complaining that the Government Employees Pension Fund (GEPF) granted an increase of only 2.9% in pensions paid to public service pensioners, describing the increase as an insult. The increase comes into effect in April.
“Those who retired years ago on a low pension will be unable to survive,” he says.
“Appeals that an appropriate increase adjustment has become essential for those with a small pension [have] consistently gone unheeded.
“Cadres in the GEPF and Public Investment Corporation [PIC] prefer to ensure that available funds flow elsewhere; to ‘investments’ that have nothing to do with pensions,” he adds.
“Private sector investors achieved returns of between 12% and 15% in the past year, whilst the largest investor in Africa, the PIC, managed a little over 3% on behalf of the GEPF.
“Why this failure? There was clearly a big mistake,” he complains in an email, asking:
“Rotten management by ANC cadres?”
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The unhappy pensioner says the problem stems from political influence over the PIC and GEPF. “The government is the biggest threat to the pension fund and ensures political control over the pension fund.
“The Minister of Finance determines the investment policy of the GEPF and he appoints the directors serving on the board of directors of the PIC. The Deputy Minister of Finance is the chairman of board of directors of the PIC. This equates to firm political control.
“Investments driven by political considerations are not in the best interest of the fund. State pensioners will continue receiving annual starvation increases until we free our pension fund from political control.
“The political vultures will not rest until the pension barrel has been stolen dry. The President sets the example by making proposals on the funding of infrastructure projects with greedy eyes.
“Politicians want to lay their hands on the money through prescribed investments, motivating it by stating ‘pension funds should be seen as national rather than private assets’,” he says.
“Finance Minister Enoch Godongwana walks around like a hyena with his nose on the ground, looking for extra money and complaining that pension funds are no longer willing to invest in state institutions such as the Land Bank.”
The email further alleges that figures in the GEPF’s annual report reveal that the fund’s sustainability has been decreasing over the last 15 years to the detriment of pensioners.
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The GEPF denies these allegations, implying that state pensioners will actually be better off compared to the expected inflation rate.
“The 2.9% increase is based on the consumer price index of 2.9% for the period from 1 December 2023 to 30 November 2024,” it replies in answer to queries.
“This increase is in line with GEPF rules which stipulate that pension increases must be at least 75% of the average percentage increase in CPI. In this case, the increase granted is 100% of the CPI figure, which exceeds the minimum requirement of 75%.
“We understand the perception that the increase may seem low,” it says.
While it may seem that inflation was higher for most of 2024, it is important to clarify that the headline CPI figures are year-on-year measures.
“If we examine the inflation experienced from the last pension increase on 1 April 2024 to the end of December 2024, the increase in the inflation rate was approximately 1.13%. If we project inflation at the same rate as December 2024 until March 2025, the inflation rate from 31 March 2024 to 31 March 2025 would be closer to 1.4%.
“Even if we assume a higher inflation rate, such as the peak monthly rate of 0.43% observed in July 2024, the expected year-on-year inflation by March 2025 would be around 2.1%.”
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The GEPF increased pensions by more than the inflation rate in 2024, raising questions about why it could not do so again in light of food inflation still running ahead of the average inflation rate.
“The 2024 increase was above inflation as it was affordable at the time and it also took into account that the 2023 increase was lower than 100% of CPI,” according to GEPF.
It says investment returns over the last year allowed for an increase of only 100% of the inflation rate for 2025.
“It’s worth noting that over the past 10 years, GEPF pension increases have, on average, been 100% of inflation, demonstrating the fund’s commitment to maintaining the purchasing power of its pensioners.
“While food inflation is a significant component of CPI, it is only one part of a broader measure that reflects the overall cost of living.
“Increasing pensions based solely on food inflation would not accurately reflect the diverse spending habits of pensioners, as it would assume that individuals spend all their income on food alone. In reality, households spend on a wide range of goods and services and CPI is designed to capture the weighted average increase in the cost of this entire basket,” it says.
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The GEPF also disagrees with allegations that the PIC cannot generate the same returns as private fund managers because it focuses on social issues and investing for the common good instead of investing for the best returns.
“The PIC’s primary mandate from the GEPF is to protect and grow the retirement benefits of GEPF members through prudent and responsible investment management. While the PIC also considers broader socio-economic and developmental objectives, these are secondary and pursued only when they align with the primary goal of generating competitive returns that benefit GEPF members.
“The PIC continues to deliver market-related returns despite challenging economic conditions, ensuring that members’ benefits are safeguarded and enhanced over time. Comparing the PIC to private fund managers requires considering not only absolute returns but also risk-adjusted performance, investment time frames and the PIC’s responsibility to ensure long-term sustainability.
“The PIC’s investment decisions are guided by the need to secure the financial well-being of GEPF members first, with broader economic impacts considered only when they support this core objective,” it adds.
“Regular performance reviews ensure that the PIC’s investments remain aligned with the GEPF’s objectives and continue to deliver value to members.”
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The GEPF says it is a misconception – and inaccurate – that pension fund money is used to fund government projects.
“The GEPF is a retirement savings vehicle for government employees, funded through both employee and employer contributions.
“The GEPF is an independent legal entity, separate from the government, and its assets are managed independently from state funds,” it says.
“The GEPF’s assets are invested through its appointed investment managers, including the PIC, across various asset classes such as equities, bonds, property, and infrastructure. All investments are made with the primary objective of generating returns that protect and grow the retirement benefits of its members.
“While some investments may be in projects that have broader socio-economic benefits, these are pursued only when they align with the Fund’s mandate to deliver returns that benefit its members.”
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“The GEPF is financially stable and well-positioned to meet its current and future obligations to members and pensioners,” it says in response to questions about its sustainability.
“The fund remains committed to granting pension increases that are both affordable and sustainable, ensuring the long-term viability of the fund while providing the benefits promised to its members.
“The financial health of the GEPF is assessed through regular statutory actuarial valuations. The most recent valuation, conducted as at 31 March 2021, reflected a funding level of 110.1%.
“This means that for every R100 owed to members and pensioners, the fund had R110.10 in available assets to meet its obligations. The fund continuously monitors its financial health to ensure that it remains sustainable and capable of delivering retirement benefits to its members both now and in the future.”
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Zirk Gous, spokesperson for the Association for Monitoring and Advocacy for Government Pensions (AMAGP), a non-government organisation representing GEPF members and pensioners, says an analysis of the GEPF shows its sustainability is in a “downward spiral”.
He blames poor returns on bad investments, in that the PIC bows to political pressure that forces it to invest as far as possible in investments that are primarily aimed at creating and protecting local jobs, promoting sustainable development, and transforming the economy and society rather than optimal investment returns.
“These investment fields are indeed laudable, but should not be the responsibility of a pension fund.”
Gous says a big problem is that legislation that regulates the PIC and GEPF is not as strict as the Pension Funds Act (PFA) that regulates private pension funds.
“The PFA has a variety of clauses that protect those funds from potential abuse by the employer, like a ‘best interest of the fund’ clause, a clause of no investment in the business of the employer (but for very limited circumstances), a fit and proper test for key managerial posts and external supervision by independent financial institutions, none of which are found in the Government Employees Pension Law.
“This creates two very different and potentially discriminatory sets of statutory rules regulating the SA pension environment with inferior statutory protection for state pensioners,” says Gous.
He urges the PIC and the GEPF to manage the pension fund against the single criteria of “the best interest of the fund” that will enable it to afford a much better increase in pensions than the 2.9% it announced.
This article was republished from Moneyweb. Read the original here.
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