R400bn decline in pension funds affects South African household wealth

THE REAL value of pension funds declined by about R427.6 billion over the quarter to the end of March. Supplied

THE REAL value of pension funds declined by about R427.6 billion over the quarter to the end of March. Supplied

Published May 26, 2020


JOHANNESBURG - Pension funds in South Africa declined by more than R400billion in the first three months of this year, resulting in a negative chain reaction on households’ net wealth.

A study by Momentum/Unisa research released yesterday showed that households’ real net wealth decreased substantially in the three months to March on jittery markets and the coronavirus pandemic.

The study said households’ real net wealth fell by about R828.2bn from the fourth quarter of 2019.

The bulk of the decline stemmed from a sharp decrease in the real value of financial assets, which were R788bn lower and R40.6bn less than non-financial assets.

Momentum researcher Johann van Tonder said the decline was 52.5percent more than the previous largest quarterly fall during the 2008 Great Recession.

“The recent plummet in household real net wealth - from an estimated R7043.6bn in the fourth quarter of 2019 to R6215.4bn in the first quarter of 2020 - can be largely attributed to a sharp decline in the real value of households’ pension funds and other investments such as unit trusts,” Van Tonder said.

“The real value of pension funds declined by an estimated R427.6bn over the quarter, while other investments lost value of R363.9bn.”

Van Tonder said the negative impact of the Covid-19, the subsequent countrywide lockdown, and South Africa losing its last investment grade credit rating at the end of March contributed to the decline.

He said this also impacted on the real value of households’ retirement funds and investments.

“Households’ pension funds and other investments were mainly invested in two asset classes: shares and bonds,” Van Tonder said.

“The decline in the prices of shares and bonds was caused by worldwide fear and panic selling of these financial assets stemming from the spreading of the coronavirus.”

The South African Reserve Bank last week cut the repo rate by a further 0.5percent to shore up the economy, bringing the total 2020 interest rate cuts to date to 2.75percent.

Anchor Capital’s Nolan Wapenaar said investors earning a 7percent return on their 32-day notice accounts saw their income plummet to 4.25percent in January on that same investment today.

Wapenaar said the latest repo rate cuts would do little for longer-term bonds than short-term interest rates.

He said the coronavirus lockdown implemented in many countries incapacitated economies, as little production was possible.

“Apart from the immediate negative effect on the prices of shares and bonds, the future impact of these decisions will be devastating for economies and households - as company profits will decline, while millions of households are expected to lose their income due to extensive employment losses across the economy, negatively affecting their ability to live properly and save for retirement and other goals,” he said.


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