Asset Prescription Hell

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The ANC’s been dumpster diving in Apartheid ideas

The bad news just doesn’t stop. Just when Ramaphosa is walking back the implications of AWC (Acquisition (of property) Without Compensation) the ANC manifesto published in Durban a couple of weeks ago is now resurrecting an Apartheid-era favourite – Prescribed assets. This forces retirement funds to invest a certain percentage in choice government assets. This is taking a leaf out of the Apartheid era playbook – In 1977 this “prescribed asset ratio” reached a peak of 77.5% (and was still over 50% in 1989)! The net result was a dramatic drop in savings – something this country can ill afford – to say nothing of the damage to the pension portfolios.

To quote the manifesto…

“Mobilise funds within a regulatory framework for socially productive investments (including housing, infrastructure for social and economic development and township and village economy) and job creation while considering the risk profiles of the affected entities”.

What on earth are we paying taxes for? There is little doubt that the Zupta years of wholesale klepocracy resulted in a lost decade for SA Inc, and the 5 years of flat equity returns are symptomatic of that. There are currently 17 million people in RSA receiving state grants, up 350% since 2001, now over R150Bn a year.

Unfortunately for those taxpayers who work for either the govt or private enterprise where pension contributions are compulsory, there is nothing that you will be able to do (unless you resign or change jobs). Personal retirement savings can be stopped (if you’ve been smart enough to not have an ‘early termination product with an insurance company), and if you’re over 55 you can ‘retire from’ it.

Why would the ANC bring this mangy rabbit out of the hat now? Quite simply, the investor appetite for government bonds (Eskom, Sanral) has decreased substantially. There are a number of large Unit Trust companies who have publicly declared they will not buy govt bonds. The offshore appetite has been quite robust (making up about half of the purchase of govt bonds) because they can get a far higher return than with their local bonds, but as Western interest rates rise, this has been dropping.

Let’s face it, the government is scrambling for funds. The proposed taxation of expats (ignoring the 6-month rule that has been in place until now) is one such Hail Mary (the fact that those expats can just financially emigrate doesn’t seem to register). This is the ‘stick’ approach to funding government projects when a carrot would probably be much more effective.

Not all SOE are the same. Some are considered by investors to be better managed, and therefore less of a risk – Land Bank, Development Bank for example. If the dodgy SOEs are funded, all this will do is throw good money after bad, and postponed the much needed radical changes many of these SOEs need – SAA, Eskom for example.

How can the ANC be made to see sense? In my opinion get COSATU involved, they have successfully stopped swathes of proposed pension reform in the past and they need to see how their worker’s pensions will be adversely affected.

When the head of the IMF Christine Lagarde came for a quick visit, most of us pundits pricked up our ears – Why? Despite the protestations that SA INC is not looking for IMF funds, they are obviously investigating all options. We have steered clear of IMF funding for 27 years for a good reason – when they lend money it comes with strings attached. Strings like halving personnel or privatizing Eskom and SABC, closing SAA. Things that actually sound like a good idea to us taxpayers but goes against the grain of die-hard socialists still rampant in the ruling party. Relying on the IMF is a slippery slope and rarely pans out right. The austerity would probably plunge us back into recession and could trigger the final Moody’s downgrade and loss of investor confidence.

“Prescribed Assets” is not going to win over working-class voters – but they are in the minority. In the long term, the only answer is to be your own boss.
Action: Wait… do not have a knee jerk reaction! If the ruling party are going to ( or seriously thinking of) implementing prescribed assets, then it likely to be in the budget speech next month. Don’t add to your company pension any more than is required, any new RAs must be on a LISP platform with no early termination penalties. Preserve Pensions/provident funds – you can make one withdrawal if things look really bad.

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