Reference is frequently made to the pool of pension fund assets that could be tapped to alleviate budgetary shortfalls, for example in the context of prescribed assets.

It has also been observed in passing that irregular investments by the Public Investment Corp have no impact on public employees as most (if not all) public sector pension funds are structured as defined-benefit plans, where investment risk is borne by the employer — that is, the state or state-owned entity.

This seems an opportune time to re-examine public sector pension funding in its entirety.

The Government Employees Pension Fund (GEPF), for example, is required by law to be 90% funded. My understanding is that at March 31 2018, it was 108% funded. That extra 28% amounts to R300bn.

Furthermore, its average annual net cash flow before management costs averaged R48bn for the eight years from 2011 to 2018. All of which suggests that a three-year contribution holiday could save R150bn without any impact on pension entitlements and without the need for across-the-board salary cuts. It would at least buy time for negotiation on pay and manning levels.

The GEPF is the largest such fund, but it is by no means the only one. Even the beleaguered SABC has a pension fund surplus of R2bn, which it carries as an asset on its balance sheet.

It is also time to question whether public sector pension funds should be structured on a defined-benefit basis in any case. There is an issue of moral hazard here: as things stand, if antigrowth policies coupled with union intransigence cause markets to stagnate or fall, employees in the private sector — who are mostly on defined-contribution pension plans — and pensioners on living annuities are directly affected by the drop in their investment values.

For the public sector defined-benefit funds, this merely means a drop in the funding level, which, if it continues, has to be made good by taxpayers generally.

I struggle to see why public sector employees, in addition to their generous remuneration packages, should be sheltered from the consequences of their (or their unions’) actions in this way.

Restructuring public sector funds as defined contribution would go some way towards aligning the interests of the government and the population at large.

John Richards


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