Without regulations prescribing how pension fund assets are to be invested, pension funds have no reason to change their investment allocation from the current equilibrium
Much has been written about pension savings being used to fund domestic investment. Pension fund trustees are currently able to invest in infrastructure projects, and they do. .
The request for pension funds to stimulate the economy through investment in infrastructure may have been aimed at the Government Employees Pension Fund trustees and the Public Investment Corporation . The economic and financial laws of risk and return apply to them as well: suboptimal investment allocation will eventually harm public sector workers, or taxpayers — those asked to pick up the shortfall.
Regulations — other than prescribing assets — can lead to changes in the “asset-class allocation equilibrium” — infrastructure investment can be increased through policies that improve after-tax returns and/or lower the risk . Regulations can also be used to help individuals help themselves. New Zealand's KiwiSaver pension system allows people to make withdrawals from their pension in times of financial hardship. When South Africans with defined contribution pension plans are retrenched, they can access some of their pension fund savings.
Why not extend this, and allow individuals to withdraw a portion of their pension savings if they can show evidence of need, say in a household where income has been meaningfully reduced due to job loss, reduced income from commissions or bonuses, or reduced income in the case of the self-employed? This may mean a later retirement date but at least 2020 will be more cheerful.Send us an e-mail with your comments. Letters of more than 300 words will be edited for length.
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