SOUTH AFRICA - The establishment of a mandatory state pension fund in South Africa is unlikely to translate into new business for asset managers.
The government insisted it has yet to decide whether to outsource management of the massive sums of money, a treasury spokesperson told Global Pensions.
He said: “Social security funds tend to be managed by the government in many other countries, but there are examples of countries that have opted for competitive provision of asset management services by the private sector. Both options will be subject to further consideration.”
But industry players believe the structure of the benefits, and the lack of depth in the local industry, mean the money will more likely be managed in-house by the Public Investment Corporation (PIC).
Fifth Quadrant consultants MD Antony Lester said: “The government wants to combine it with disability and unemployment insurance, and a fund can’t pick that up.
“I don’t think they will contract it out.”
Investec Asset Management deputy managing director Thabo Khojane said the private sector might actively manage a small portion of the money, while the PIC would manage the majority, claiming it “made sense” to use both sides.
“If we had a very deep market, it would be beneficial for members if all the assets could be managed actively, but there are such large sums of money that there is probably a strong case for passively managing a large portion of it.”
Another key issue to arise from setting up a mandatory state pension fund is the potentially damaging impact on private pension providers.
But while industry players agreed these firms’ cash flows will undoubtedly fall, there will remain a strong incentive for citizens to put money into the second pillar.
“This pool of money covers more than just pensions, meaning people will wonder how much they can rely on
it to provide adequate retire-ment benefit,” said Lester. “So the big pension providers might lose some cash flow, but will still have a legitimate role to play.”
Investment Solutions MD Steve Baudo insisted the government needed to ensure there was an element of choice in whatever route it chose.
“My biggest concern is that people should be given choice, and not have to subscribe to one particular administrator or investment manager, essentially having one company doing everything.
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