IN A NUTSHELL Retirement funds manage large amounts of workers’ savings, which is why the government sees them as a potential source of funding for infrastructure projects. Funds’ caution is understandable, given the state’s track record. But the real issue is not infrastructure investing itself — it’s how those investment projects are run and managed.
The government has been encouraging greater investment in infrastructure to help fund energy, transport, water systems, and digital infrastructure, especially as it does not have the financial resources to do so.
South African workers have good reasons to be cautious. For many workers, state projects like the Medupi and Kusile electrical power stations, or struggling state-owned enterprises such as Transnet and PRASA, may raise concern.
Infrastructure investment does not have to mean gambling with workers’ money or favouring politically connected projects. If done correctly, it can mean investing in roads, energy, and water assets that generate stable income over decades – exactly the time horizon retirement funds need.
Supporting development without sacrificing returns
Despite past issues with some public infrastructure projects in South Africa, infrastructure investment can play a positive role in the economy and generate cash flows for investors. For example, retirement funds have invested in successful wind and solar farms in the Northern, Eastern and Western Cape. These projects have added power to the grid and created jobs while delivering long-term, inflation-linked returns for funds.
What the rules say about infrastructure investing
In 2022, important changes were made to Regulation 28 of the Pension Funds Act. This regulation sets the rules for how retirement funds may invest, to balance growth and protect members’ savings. Under the updated rules, infrastructure is formally recognised as an investment and funds are permitted to allocate a larger portion of their assets than before to approved infrastructure projects – up to a combined maximum of 45% within prescribed limits.
This does not mean funds can invest in infrastructure as they wish. Infrastructure investments must still meet strict requirements.The regulation creates space for responsible infrastructure investing, while keeping rules to protect workers’ money in place.
Asset managers and trustees play a crucial role in choosing projects that are independently founded, transparently structured, well-regulated, and free of political interference.
With proper regulation, governance and oversight by trustees, workers’ retirement money can help build the country while still delivering returns.
Further reading
Infrastructure investing – 11 Questions trustees should ask
Further learning
To learn more about infrastructure investments, check out the Infrastructure Investments Information Hub. Or if you would like more in-depth knowledge, Atleha-edu and the ASISA Academy offer workshops for South African trustees and members of retirement funds on Infrastructure Investments and other themes.
Sources
AIIMAFRICA: The finance behind SA’s renewable energy development
BusinessTech: Government plans to use pension fund money for South African industrial policy projects
EasyEquities: Pros and Cons of Prescribed Assets: A 2024 Perspective
OECD: Infrastructure governance
SA Government: Treasury publishes final amendments to Regulation 28 of the Pension Funds Act | South African Government
World Bank: Infrastructure Governance Assessment Framework December 2020
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