Is your pension fair game? - Saturday Star

Terence Corrigan

The financial squeeze South Africa is facing now may not have the apocalyptic dimensions of the 1980s, but enough common ground exists between the two situations to warrant concern.

Then, as now, prescribed assets were a desperate gasp from a state that was struggling to come to terms with the realities of its predicament.

Like the National Party in the past, the government today is confronted with stark governance and ideological choices, but, like its predecessor, is trying to avoid making them.

Since the controversy around EWC began – long before the 2017 Nasrec resolution, in fact – we at the Institute of Relations have steadily warned that this is a matter germane to property, not to land, and certainly not only to farmland.

We have also stressed that EWC must be understood as part of a broader move on property rights. Its significance is less in the ability of the state to seize a particular asset without paying for it (important as that is), but rather the expansion of the state’s latitude to intrude into people’s control of their property.

Recent developments have confirmed the validity of these concerns.

Quite apart from the drive to amend the constitution, and to pass expropriation legislation that explicitly sets out the principle of EWC, the most glaring example is in the regulations gazetted under the Property Valuation Act of 2014. The regulations set out a formula requiring that when property is targeted for land reform, market value – with a number of specified adjustments – is combined with ‘current use value’ (earnings and outflows on the day of valuation), and then divided by two. In a nutshell, aside from those producing substantial incomes, the result will invariably be around half of market value.

This would amount to an effective expropriation without compensation of half the value of the property. And it is a matter of grave importance. While the state is gifted a substantial discount on acquisitions for (or at least in the name of) land reform, the previous owner is required to take a significant knock. For example, if applied to a home – something without ‘current use value’ – it would in all likelihood cripple the financial prospects of the affected household.

Perhaps more to the point is the recent commitment of the African National Congress to ‘investigate’ the introduction of prescribed assets. It is an idea that has actually been put forward as a policy option for some time, and would require financial institutions to invest a portion of their funds in projects or enterprises identified by the government. This was a regime used by the apartheid government: as access to foreign funds dried up, it compelled local financial institutions (and thus South Africa’s people) to come to its rescue.

That this strategy is being considered once more today warrants concern. As has been widely noted, more than anything, prescribed assets would have important implications for South Africa’s pension funds – and equally important consequences for those who have invested in them. There are large sums at stake. Pension funds controlled assets – in 2016, the latest available – of some R4.1 trillion, while receiving contributions of R227 billion. This is against GDP at current prices in that year of R4.4 trillion. With the value of pension funds being roughly the same as what is produced by the economy as a whole, they are a far more lucrative and tempting target than land.

Invariably, ‘mobilising’ these funds to underwrite the ‘developmental state’ that features in much official thinking would imply depriving individuals of control of their money (albeit through fund managers and institutions), and compelling them to accept the decisions of government.

The expropriation of decision making – albeit as a delegated power – might very rapidly come to mean the loss of actual assets. The prospect of their being used to plug the financial holes in the country’s State-Owned Enterprises is not an inspiring one. Indeed, the failure of these to function properly has made no small contribution to the fiscal malaise the country has fallen into.

Optimists will note, with some justification, that prescribed assets remain a proposal.

But so, once, was EWC – merely something under discussion. To warn of the dangers was to be an alarmist. We believe that the evidence of what is afoot, the mutation of the relationship between the individual and the state in favour of the latter, is enough to make alarm not only understandable, but necessary. 

Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).