Allan Greenblo: Silence of the Pension Funds – Need power of collective

When it comes to financial journalists there are few with the knowledge and insight of Allan Greenblo. He’s the editorial director of the quarterly magazine Today’s Trustee and in the article below Greenblo says pension funds were hit hard by Nenegate and they should have been up in arms. But they were nowhere to be heard. The answer he says is in finding a collective voice; it would carry the potency needed. Because what’s good for the economy is good for pension funds. – Stuart Lowman

By Allan Greenblo*

Allan Greenblo (Today's Trustee)
Allan Greenblo is editorial director of Today’s Trustee.

The injury caused by President Zuma’s dismissal of Nhlanhla Nene, as finance minister, cannot soon be undone. This is despite the balm of Pravin Gordhan’s reappointment to the portfolio.

In the extremes of global market volatility, the collapse in the exchange value of the rand exceeded that of any other emerging-market currency. With it came the spike in bond yields which meant, importantly, reduction in the value of bond portfolios that SA pension funds are obliged to hold. Thus every member of a pension fund – as well as holders of assurance products and other savers – is adversely impacted.

And not only in bonds but, during the widespread sell-off, in equities also. In rand terms, they’ve bounced back. Be thankful for the rand-hedge stocks listed on the JSE, and for the offshore exposures that pension funds are permitted.

Given the scale of the post-Nene disaster, pension funds should have been immediately in the forefront of protest. Instead, it was left primarily to financial institutions seen more as constituents of big business than as fiduciary proxies for many millions of South Africans. It’s wrong: firstly, in that the perception belies the reality; secondly, in that the absence of a coherent organisation to speak directly for pension funds weakens their communications capacity and undermines the potency of members to assert their collective voice.

Read also: SA Banks feel the wrath of Nene’s departure, lose $8.6bn in market value

Who will shout for them should government attempt a raid on pension funds to replenish its coffers; for instance to facilitate service deliveries that wasteful expenditures have constrained? Or in other ways to restrict market returns; perhaps by reintroduction of prescribed assets to support state projects, or to curb offshore diversification by amending Regulation 28?

The silence of pension funds, when it comes to participation in debates on the national economy, is as systemic as it is unnecessary and undesirable. Substantially invested in corporate SA, the fortunes of their members are interwoven with the fortunes of their investee companies. The value of their investments is a function, partly but significantly, of the economic policies that government pursues.

For their members’ welfare, it can be argued that boards of pension funds – including the massive Government Employees Pension Fund – have a duty to become articulate. What’s good for the economy is good for pension funds and, obviously, vice versa.

A related dimension is that pension funds, by the fact of their existence and the composition of their memberships, expose as false the catchphrase of “white monopoly capital”. Recognise this and the obsolete term must evaporate from the political lexicon, to the great advantage of enlightened discourse. It’s as incongruous to talk of nationalising assets already owned by “the people”, through their pension funds, as it is to resist the privatisation of state-owned enterprises where “the people”, through their pension funds, would be substantial investors.

Read also: Govt backtracks on pension reform, 2nd year running. Pushed to 2018.

For the ownership by pension funds of bonds and equities overtakes the capitalism/socialism divide. Those who continue with separate compartmentalisations – and EFF leader Julius Malema isn’t alone in this – display an ideological warp too pervasive to be discounted.

They themselves are blockages to the stakeholder democracy that pension funds are empowered to facilitate; just as they are in a world of their own on the linkages between profits and taxation (to finance state projects) and dividends that flow from corporate sustainability on which members of pension funds (mainly comprising black members, let it be said) rely for benefits.

The flip side of this proposition is in the behaviour of corporates themselves. For all the good that they do, by philanthropy and social investments and employment, around the western world there is a discernable and deepening mistrust of capitalist icons held responsible for financial crises. While they escape penalty, the citizenry pays.

Strong arguments are presented for reform of the system itself. Essentially, they reflect a backlash against short-termism (favoured by managements for bonus and incentive schemes) over long-termism (in the nature of pension funds’ liabilities). Critical to resolution, being attempted in the US, is an initiative engaging the world’s largest fund managers to reduce friction between management autonomy and shareholder rights.

Read also: Anthony Ginsberg: South Africans hamstrung by outdated pension rules.

Attempts at reform in practices of capitalism must resonate in SA too. While business leaders bask in plaudits for their interventions with Zuma, they’ll need to prepare for vulnerability to populist attack. Directly beckoning is the proposed introduction of a national minimum wage to narrow SA’s income gap. It burns in the “triple challenges” milieu of poverty, inequality and unemployment.

The adversarial stances of the business lobby and trade unions are predictable. What shareholders will have to say is not. With the governance codes at their disposal, and the interests of their members paramount, pension funds should assert their say on pay – one way or the other – for executives as much as employees. It’s a hallmark in the reform of capitalism.

Fund trustees cannot on the one hand profess adherence to social responsibility and, on the other, continue to sit on the sidelines while turbulence rages around them. They are SA’s largest and most representative collective voice, were they sufficiently organised to use it.

Business leaders and trade unionists will fight their own corners. That’s why some tasks shouldn’t be left to them alone. Pension funds, whose members and dependents cumulatively exceed the number of voters, can be the catalyst to tie them.

And if social responsibility means anything, it’s permeated by the self-interest to coordinate an attack on the “triple challenges” where the vast army of unemployed presents SA with its biggest single threat to social stability. Little can impact on the long-termism of pension funds more than this.

  • Allan Greenblo is editorial director of Today’s Trustee (www.totrust.co.za), a quarterly magazine mainly for principal officers and trustees of retirement funds.