Pensions play: The absurdity of a citizen bailout for the state
MONEYWEB / 13 MARCH 2020 - 10.00 / MIKE SCHUSSLER
Government wanting to solve its funding crises using peoples’ retirement savings is wrong on so many levels …
South Africa has among the most substantial pension assets in the world, even in US dollar terms. South Africa has far more pension assets than Germany or France.
Never were you informed about this asset as it funds SA and makes our median person the wealthiest people in Africa. The fact that SA has the highest typical financial wealth in Africa does not suit the victim narrative.
According to South African Reserve Bank data, in 2017 there were 17 million retirement accounts, representing between 11 million and 12 million individuals, with retirement assets estimated at R6.6 trillion.
The average adult pension saver has invested R576 000 in the system. The typical person has about R340 000 saved for their old age. The typical adult in the system is probably close to 50 years old and needs to save more, and then have the investment grow well above inflation to help make ends meet.
With government having run out of options for funding itself and its state-owned enterprises (SOEs), we now know that we have a very large asset.
Never in a million years would the government mention that this is one of the largest financial holdings in the world and that blacks own over two thirds as this would not suit the BEE narrative.
The typical person receiving this pension in South Africa, we know from BankservAfrica data, only gets R5 531 in the bank every month. The retirement annuity has to pay for medical insurance, water and lights and food to name just a few essentials. So even the wealthiest African are not wealthy but rather only able to get by.
Funding the wealthy
That the typical pension saver has to bail out SOEs, often where the average pay is well above R800 000 a year, means millions of lower paid workers will fund a few thousand wealthy workers.
Our country’s president said R800 billion is just 10% of our pensions and should not be a problem as we need Eskom and other SOEs to grow.
Well it is a problem, and the reasons why are largely listed below.
The problem in using pension money for SOE bailouts
Firstly the money is that of millions of ordinary hard working South Africans, most of them black, and they already have a pension shortfall to maintain their lifestyle as we can see from the BankservAfrica pension data.
This money belongs to future pensioners and we have seen what dud investment returns can do.
Just look at the Transnet pensioners. Unable to stay in their houses with pensions that do not even cover their medical insurance never mind food and water. The government and Transnet did not bail out those pensioners and they were left to die in poverty not being able to work anymore.
One of my old Transnet bosses is staying in his kid’s garage with his wife earning food by looking after the grandchildren.
Secondly, SA pension funds already sit with R2.1 trillion of government and SOE debt directly, and probably another trillion or so via the banking system. So nearly half of our money is invested in government and the development of the country. Taking another R800 billion will mean that pensioners have more than reasonable exposure to a single subsector of an assets class – public debt. Moreover the above will create a concentration risk, which often has fatal results for investors.
Thirdly, the incentive is perverse as SOEs are managed into financial ruin and despite government having bailed them out numerous times, they continue to need more copious amounts of cash.
Rewarding failure with more money is like sentencing a murderer with a gift of an extra guns – it does not make sense.
Throwing money is not the solution when the whole system is rotten.
Fourthly, we have not fixed the SOEs at all. For example, local prices of coal – of which Eskom is the monopoly buyer – have rocketed more than double the inflation rate!
Since April 2008 local coal prices have risen by 195%, while export coal prices only increased 14%. The total return (prices and dividends) of the JSE was 151%, government earned 172% and inflation was 85% over the same period.
The increase in the local coal price screams corruption and has never been addressed, never mind prosecuted.
Not one board has investigated this excessive increase in coal prices. Instead this was promoted as successful BEE commitments.
So 11.5 million pensioners therefore risk losing part of their savings for 15 000 highly paid extra Eskom staff and a few people getting extremely rich on coal and transport contracts.
Also, with many a municipality simply not paying, more money is not going to fix the income problem. The ‘more money’ will plug a gap – and the need for municipalities to pay will be reduced.
I repeat – get the costs under control, and get those non-payers to pay. Our pension money will not fix these problems but fixing these problems will save Eskom without extra money needed as it will again make a profit.
Purchase prices for SOEs excessively high
Moreover not one government official has even asked the obvious question: why are the purchase prices for SOEs increasing that much faster than inflation? Why is the Competition Commission asleep on excessive pricing at SOEs! Since the arms deal nothing has been done to curb excessive pricing to state-related institutions!
While some SOEs have had many different boards, the fact that not one has publicly flagged excessive price increases speaks volumes about the stupidity, insider corruption and probably careless attitudes that prevail.
Before you can save any SOE you have to fix the apparent corruption, the overcharging, and the BEE deals that impoverish the majority of our population. The BEE deals that Eskom brags about in annual report after annual report has resulted in higher power prices for ordinary South Africans. We impoverished millions for the enrichment of the few, and we want to do so again.
When does BEE make sense?
The above leads to the fifth point that is politically difficult to talk about. When does BEE make sense? Certainly not when it results in increasing prices for average South Africans. Certainly not when the result is less investment and few jobs.
Government needs to side with the ordinary citizen. When and if BEE is required, it must make sure that value is added not just translate into extra costs. You cannot create growth and wealth when a few get rich by being inserted into a process that was already reasonably efficient. That is ‘broad-based black disempowerment and impoverishment’.
Lastly, we need a lot more transparency – on tenders especially, but also on pay levels within SOEs, and the qualifications and experience of all management must be made public. No cadre employment. And perhaps we should consider that no civil servant or SOE employee above supervisor level may belong to a political party.
Also forget this secrecy thing, with state-owned firms publishing every tender result online with price, quantity, quality and ownership of the named winner.
The ‘This is a commercial secret’ stuff is a lot of bull dust.
It allows the criminals to hide. And quite honestly we, the citizens, are the owners of SOEs and the government, so tender results are in the public interest. They are unlikely to tell the market the internal secrets of the suppliers, just the price and quantity and ownership.
Transparency prevents much corruption as one can see what is going on.
SAA was paying R17 per bottle of water, and you know they only cost R10 at the shop and R3 wholesale!
Every contract awarded must be published in full in public and the regular checks on the attainment of goals must be published too.
Not addressing the real operational problems will not result in better transport, electricity, water, or roads.
Funding SOEs or ‘development’ without the above will result in less in terms of returns and outright losses for our pension funds and impoverish millions of honest ordinary citizens for the connected few.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER