Pension industry snuggles up to government

Reports Sue Kamhunga in the Business Day today:

THE pension industry has again called on the government to consider mandatory preservation of retirement funds to ensure South Africans do not retire into poverty.

Speaking at the second annual African Cup of Investment Management conference Cape Town, the head of institutional strategy at Alexander Forbes, John Anderson, said yesterday that mandatory preservation was necessary given SA’s low savings rate and the cyclical performance of the economy, which was now at the mercy of global events.

Mandatory preservation usually refers to a legislated portion of a pension fund that would not be withdrawn when a member retires or changes employer.

Pension industry experts said the problem in SA was that thousands of workers chose to cash in their policies and spent the money usually on nonessential needs, such as buying luxuries or paying debts.

Here’s the low-down. Pension funds are getting less and less inflows of savings because, well, households and businesses are being squeezed by higher taxation – both the monetary inflation and SARS kind – so South Africans are unable to keep contributing to retirement plans. Furthermore, as people now lose their jobs, they don’t have a choice but to cash in their retirement savings in order to survive. It means there is an outflow of cash from their funds, so their commissions and earnings decline.  This is what the pension industry wants to prohibit – by turning using the state apparatus to its own benefit, getting laws passed that would prevent people from doing with their own savings what they please.

As an aside, people are also waking up and instead hoarding their savings in gold, realising that pension fund managers, and most hedge fund managers, couldn’t even outperform the gold price over the past decade. Some clever okes who can’t even beat the gold price. Well done, chaps!

Moving on, note this line.

The registrar of pension funds, Jurgen Boyd, has already confirmed the government wants to engage with the pensions sector on its views on mandatory preservation.

The government is licking its lips at this proposal from the private sector. Why? Because pension funds are by legislative fiat obliged to buy government debt and hold this as part of its portfolios. Which is what this proposal ultimately comes down to – that by forcing people to “save” more, it can be funnelled into financing government borrowing.

It is crony capitalism at its ugliest, layed out for all to see.

In reality, there won’t be an increase in real savings. The savings will merely be channeled into wasteful and consumptive government spending.

If the pension industry was really concerned about dwindling savings in South Africa, it would be advising the government to save more on the public’s behalf, and not to borrow 5% of GDP into perpetuity.