Covid-19 impact on pension funds may have catastrophic consequences
JOHANNESBURG – The coronavirus outbreak has created significant turmoil on financial markets in South Africa as well globally and combined with the country’s uncertain economic climate, pension funds under severe pressure.
Meanwhile, employees are relying on their employers for their pension plans to continue as normal.
In an interview with Business Report founder and managing director of Akani Retirement Fund Administrators Zamani Letjane said the Covid-19 pandemic had a severe impact on South African pension funds, which would result in catastrophic consequences going forward.
“Covid-19 has robbed everyone and the lockdowns have brought economic activity to its knees not only in South Africa but throughout the world and retirement funding relies on the growth of the financial market.
“Today most asset managers are growing at about 2 percent, whereas CPI is at 5 percent so you can imagine … there is hardly growth at all. So for the two years where no growth is expected there will be a serious impact on retirement funds,” he said.
Letjane said another important matter was the one where employers were dormant and were not in a position to pay salaries. “Salaries contribute towards retirement funding because employers deduct employees’ contributions and pay over into the pension fund. Now that activity is sort of minimised as well.
“I say minimised because we look at other employers such as municipalities at least 95 percent of them are able to contribute towards their employees’ retirement funds because the employees are there and are providing services,” he said.
Letjane said in the private sector there was hardly any activity and if there was, it was at a minimal level and as a result of that, retirement funding was getting affected significantly.
The national lockdown effected by President Cyril Ramaphosa in March to try and slow down the spread of the coronavirus has resulted in significant financial strain.
Many employers are struggling to pay salaries or have been forced into a position where they can only pay reduced salaries. This directly impacts contributions to retirement funds with some employers seeking temporary relief from the obligations placed on them by the Pension Funds Act.
“We have seen a significant decline in terms of contributions to retirement funds,” said Letjane. “The Financial Services Conduct Authority (FSCA) recently sent out a circular requesting various retirement schemes to apply to the FSCA to have their rules amended to accommodate the shortfall of contributions.”
Letjane said private-sector pension funds had been particularly hit hard by the move by some companies to suspend contributions in an effort to mitigate the effects of salary cuts.
“Government, local government and municipal pension funds have hardly felt the brunt due to the fact that the sectors they service are mostly essential services and as front-line workers, they have been active throughout the pandemic.
“The majority of my clients are local government and about 1 percent have suspended pension fund contributions,” he said.
Letjane urged employers to at least try to contribute towards the risk-benefit so that the employees had some form of protection.
More about Letjane and Akani
It all started in 1980 when Letjane joined Murray & Roberts Building (M&R) as a human resources practitioner. His major role was recruitment and placement of skilled and semi-skilled workers, who were required for construction purposes for various projects. M&R had various projects such as shopping malls, offices and hotels.
“I gained extensive knowledge in the placement of various skilled and semi-skilled workers to various sites where M&R had projects or sites. I was reporting to a training manager who was also my mentor. We both visited all construction sites, doing quality checks.
“During this period, I gained knowledge of the quality of construction work as well as the entire construction processes. I was retrenched from M&R, but fortunately, I got employed at the Midrand Municipality where I worked for 10 years where I performed strictly ruman resources functions.
“In 1985 I became a trustee of the Local Government Pension Fund in the Transvaal. The Pension Fund had an investment in retail/commercial properties. One of my roles as a trustee was to identify site(s) to buy or build retail centres at, and my extensive construction experience aided with this job function,” he said.
Letjane served as a trustee for 17 years and participated in the buying of properties and the construction of shopping malls. “I also gained knowledge from letting property managers on how to secure leases with tenants.
“During 1999 I applied for a license to do pension fund administration and was successful. I started Akani Retirement Fund Administrators (PTY) LTD company, which is now the biggest black-owned administration company in South Africa.
“It is 100 percent black-owned, managed and controlled. This was a massive breakthrough in the industry as there are no meaningful players in this sector of the economy but only old traditional insurance companies.
“I took over the administration of Municipal Employees Pension Fund (MEPF) in 2003. I was given the mandate to maintain and grow the fund which included a commercial property portfolio. My biggest achievement is the growth of the MEPF as when I took over the administration in 2003, the fund had R1.4 billion in assets and to date, the fund has R19.5 billion in assets,” he said.
The success of the Administration Company gave birth to the following subsidiary companies:
1. Munghana Leisure & Tourism
2. Destiny Exclusive Hotel, Gauteng
3. Destiny country lodge Mpumalanga
4. Akani Energy and
5. Akani Properties
“All the above companies that were established are fully functional and operational. We currently have a staff complement of 110 employees and should we receive the requested Funding to build the additional 200 hotel rooms, we anticipate employing 200 more individuals,” said Letjane.
Akani Properties has completed a development called the Ekurhuleni ICC to the value of more than R200 million. This project necessitated the addition of 200 hotel rooms to accommodate conference attendees.
The hotel has 40 rooms which is an impediment on the growth of the facility.