/ 16 July 2020

All agree: Use pension funds

Up in the air: SAA board member Martin Kingston.
Stop gap: Martin Kingston of Business for South Africa, backs the effective but safe use of retirement funds and savings. (Paul Botes/M&G)

About a year ago, during a question and answer session in the National Assembly, President Cyril Ramaphosa said South Africa should discuss using pension funds to finance infrastructure projects. 

Now the proposal is gained traction in an economy battered by the Covid-19 pandemic. 

Last month, when Finance Minister Tito Mboweni told Parliament’s finance and appropriations committees meeting about the supplementary budget, he said that if regulation 28 of the Pension Funds Act was slightly amended, it would allow investment

managers to invest a percentage of their funds in infrastructure, in addition to immovable property.

The ANC and Business for South Africa (B4SA) recently released their respective economic recovery plans for the country. Both proposals said using savings and retirement funds to finance infrastructure projects with the purpose of driving economic growth should be looked into.

B4SA was formed in response to the pandemic and represents the majority of business organisations. 

Regulation 28 controls the extent to which retirement funds may invest in particular asset classes. This is mainly to ensure that members’ retirement annuities are protected from being invested in poorly diversified investments. Only 15% of member benefits may be invested in alternative investments as such private equity, hedge funds and unlisted property. 

There is no allocation for investment in infrastructure. 


B4SA’s Martin Kingston says the organisation is encouraged by the government’s call to place infrastructure development at the heart of the country’s economic recovery. Long-term investment in the sector is likely to create jobs for low-skilled workers and investment in bankable projects will drive much needed growth and employment generally.

Kingston says there is a need to fund the state’s infrastructure projects and the effective use of retirement funds and savings could help close the gap.

There is an obligation on asset managers to protect the value of their clients’ investments and secure appropriate returns on assets, he says, adding that retirement funds should not be arbitrarily invested in sectors or projects without ensuring that no unnecessary risks will be taken with retirement money.

“If the trustees of the funds consider that it is an appropriate, secure asset class to invest in and they can receive appropriate returns, we support it,” he says

Amending regulation 28 to allow for the more effective use of people’s savings and retirement annuities would create an appropriate regulatory environment in which to invest or lend, Kingston says. The regulatory environment should provide a clear understanding of the different roles, rights and responsibilities that interest groups such as the state, the regulator and the private sector would play in the investment. 

“We managed to do that in the renewable energy programme — although stalled — and we can extend that elsewhere,” he says.


Last week, the ANC’s economic head, Enoch Godogwana, said the party was in discussions with 20 pension funds — including the Public Investment Corporation, which manages the Government Employees Pension Fund — regarding amendments to regulation 28. He said the ANC is not proposing that the state implements a policy of prescribed assets but rather that the party is proposing a “relook” into regulation 28.

The ANC said amending regulation 28 to increase access to people’s savings can help fund long-term infrastructure and capital projects. 

The party notes that development finance institutions face financial difficulties, which prevents them from fulfilling their mandates. The party’s proposal says pension funds should be used to finance infrastructure projects that will be led by state development finance institutions. 

Cosatu’s general secretary, Bheki Ntshalintshali, says the trade union federation agrees in principle to amending regulation 28 on condition that there is a balance between investing in high risk speculative assets and in developmental projects, where returns are more likely to be guaranteed in the long term. 

“There has to be a sober talk about workers’ money,” he says. “It’s not like it’s sitting there [in the banks] and not being invested. The trustees want to ensure that their fiduciary duties are done and the fund managers want to ensure that money is invested where there are healthy returns,” he says. 

The association

The Southern African Venture Capital and Private Equity Association has also called for the amendments to regulation 28 to support South Africa’s economic recovery. The association has proposed two amendments: the separation of hedge funds and private equity into independent asset classes, each with their own caps. 

It also proposes gradually increasing the private equity cap from 10% to 15%. This would allow pension funds to take a larger exposure to the entire asset class, enabling a higher degree of diversification.

If the trustees of the funds consider it an appropriate, secure asset class to invest in, we support it

Martin Kingston

The association’s nonexecutive director, Langa Madonko, says amending regulation 28 would not be unusual because, internationally, on average investment in private equity is higher than the average in South Africa and infrastructure is classified separately as an investment asset class. 

He says that should pension funds be used for infrastructure projects, the returns envisaged would vary based on the nature of the infrastructure that has been invested in. 

“The rate of return is not set for energy, water, roads, hospital or education infrastructure, but in most instances can be predetermined where there are upfront agreements on tolls, rentals, tariffs and concessions that come with these projects,” he says. “The advisers to the funds must also consider the longevity of the Fund and the members’ needs. Then the extent to which products will deliver a return will be aligned to the overall objectives.”