Western Cape opposes the use of pension funds to bailout SAA

I recently wrote to the National Minister of Finance to reiterate my stance that I cannot support any decision that puts the pensions of public sector workers at risk.

I had previously reiterated this position at the Budget Council of 22 September 2017.

We cannot allow any decisions that undermine our constitutional obligation to ensure the efficient, effective and economical use of state resources. The Government Employees Pension Fund (GEPF) cannot be put at risk.

Media reports advising on the Minister of Finance, Mr Malusi Gigaba’s intent to use the funds under management by the Public Investment Corporation (PIC) to rescue South African Airways remains a great source of worry for the millions of civil servants.

 These reports allude to the possibility of the financially troubled parastatal being allowed to call upon the pension funds invested in the PIC.  Even more worrying are the comments that suggest that the PIC “is not ruling out assisting the cash-strapped airline”.

If allowed to go ahead, this could compromise the returns on the PIC fund, and jeopardise the GEPF’s ability to meet its obligations. Hence, as MEC of Finance of the Western Cape, I am strongly opposed to allowing the use of GEPF/PIC funds to bailout SAA.

Between 2014/15 and 2016/17, National Treasury released funds totalling R40.7 billion as government guarantee exposure. Despite years of guarantees given to the SAA, the Group is posting a comprehensive loss of R9.7 billion over the period under review.

The Public Investment Corporation (PIC) oversaw assets of up to R1.86 trillion in 2015/16. Ninety per cent (R1.65 trillion) is derived from the Government Employees Pension Fund (GEPF). In essence, for every R1.00 PIC funds used or invested, R0.90 is GEPF funds.

The GEPF is required to pay out benefits on an annual basis. The most recent value was approximately R83 billion in the 2015/16 financial year. A worrying trend however is that according to actuarial reports, the GEPF valuation of 2016 showed that on both best-estimate and strict liability measures, the funding position of the GEPF has deteriorated from the 2014 valuation. Consequently, allowing the SAA to draw upon the funds invested at the PIC will further compromise the returns on the investments, and severely compromise the financial integrity of the GEPF and its ability to pay out pension benefits when needed.

Over the past decade, National Treasury has made several transfers of funds to SAA to assist with its recurring financial difficulties. It is clear that SAA (and many other public entities) have become a drain on the fiscus and a further bailout or support has become untenable.

Recently, in September 2017, a bailout of R3 billion was transferred from the National Revenue Fund to address the debt obligations to Citibank. This was in addition to the recapitalisation decision by National Treasury for debt settlement made earlier in the year to Standard Chartered Bank.

The recent appointment of a new board is cold comfort for the millions of current and future retired civil servants who rely on the GEPF to enable them to retire with dignity. The GEPF will be placed at risk if the SAA is given access to funds managed by the PIC. Any attempts by the National Government to do so must therefore be resisted.

ENDS

Dr IH Meyer

MEC of FINANCE

Western Cape Government

23 October 2017