Unpacking the Debate Around Prescribed Assets

In recent years, the topic of prescribed assets has resurfaced in South Africa’s financial and political landscape. It is a concept that stirs debate among policymakers, asset managers, retirement fund members, and ordinary South Africans alike. The central question is whether government could require retirement funds to invest a portion of their assets in specific local investments, particularly state-owned enterprises or infrastructure projects. While no such policy has been implemented in the democratic era, the discussion around it continues to gain attention.

What are prescribed assets?

Prescribed assets refer to a policy tool where legislation requires institutional investors, such as pension funds and insurers, to allocate a set percentage of their assets to government-approved investments. These investments typically include state infrastructure projects, government bonds, or other developmental assets. South Africa has historical experience with prescribed assets, when during the apartheid era, retirement funds were compelled to invest in government and parastatal bonds. This provided the state with a steady flow of funding but, over time, eroded real investment returns for pensioners. In today’s context, the concern is whether such a policy could be reintroduced to address South Africa’s infrastructure backlogs, support financially distressed state-owned enterprises, or drive economic growth.  

Regulation 28 and how it works

Currently, the investment of retirement fund assets in South Africa is governed by Regulation 28 of the Pension Funds Act. This regulation is designed to protect retirement fund members by limiting how much exposure a fund can have to certain asset classes, promoting diversification, and reducing the risk of significant losses. Regulation 28 allows for a maximum of 45% of a retirement fund’s portfolio to be invested in equities, 35% in foreign assets, and 10% in alternative investments like private equity and hedge funds. The remaining allocations can be directed toward fixed income, cash, and property. The regulation was recently amended in 2022 to increase the offshore investment limit from 30% to 45% of total assets, providing greater flexibility for funds to diversify globally. Importantly, Regulation 28 does not prescribe specific assets that funds must hold, nor does it currently include a requirement for investment in state infrastructure or government bonds beyond general asset allocation guidelines.  

Why the debate about prescribed assets matters

The discussion around prescribed assets is rooted in government’s ongoing efforts to stimulate economic growth and address challenges like energy security, transportation infrastructure, and water systems. There is recognition that public sector budgets are stretched, and attracting private sector capital, including from retirement funds, could help fund critical infrastructure. Some policymakers and labour groups have suggested that retirement funds, which collectively manage trillions of rand in assets, could play a more direct role in developmental projects. Supporters of this view argue that investing in infrastructure not only benefits the country but can also deliver steady, inflation-linked returns for retirement funds over the long term. On the other hand, opponents argue that any form of asset prescription could limit the investment freedom of fund managers and compromise their ability to maximise returns for members. Retirement fund performance is a key factor in ensuring financial security for South Africans in retirement. Forcing funds to allocate capital to specific assets, especially those associated with underperforming state-owned enterprises, could expose members’ savings to additional risk.  

What has government said recently?

In recent years, National Treasury has consistently stated that it has no current intention to introduce prescribed assets. The revised Regulation 28 explicitly made provision for infrastructure investment by creating a new category for it, with a combined limit of 45% for both local and offshore infrastructure assets. This change was positioned as a way to encourage, rather than compel, investment in infrastructure. By creating space within Regulation 28 for infrastructure, government signalled its preference for voluntary participation by retirement funds, guided by appropriate risk and return considerations. Treasury has emphasised that investment decisions should be made in the best interests of fund members and should not be subject to undue political interference.  

The future of the debate

Despite these assurances, the topic of prescribed assets remains a point of political debate, especially during election cycles and in times of economic difficulty. Some political parties and trade union federations continue to call for stronger measures to direct capital into local development. The concern for many in the financial sector is that while current policy avoids prescription, future administrations facing fiscal pressure might revisit the idea. As a result, industry bodies such as the Association for Savings and Investment South Africa have actively engaged with policymakers to promote voluntary, commercially viable infrastructure investments, ensuring that any allocation to developmental assets is based on sound financial principles.  

How could it affect retirement fund members?

If prescribed assets were ever introduced, the primary risk for retirement fund members would be reduced returns if the prescribed investments underperform relative to other asset classes. Retirement savings rely heavily on long-term, inflation-beating returns to ensure adequate income in old age. Forcing fund managers to allocate capital to politically influenced or financially unstable projects could jeopardise this objective. Conversely, if infrastructure projects are well-managed, transparent, and offer attractive, inflation-linked returns, increased investment in this sector could benefit both the country and retirement funds. The key lies in ensuring that investment decisions are driven by financial merit rather than political expediency. At present, there is no formal policy proposal for prescribed assets in South Africa, and recent regulatory reforms have leaned toward encouraging voluntary infrastructure investment within a clear, risk-managed framework. However, the debate is far from settled and will likely resurface in future policy discussions, especially as government continues to seek solutions for economic growth and infrastructure funding. Retirement fund members should remain informed about these debates, understand how their funds are invested, and engage with their trustees and service providers about investment strategy. Ultimately, the protection of members’ interests and the preservation of long-term financial security must remain at the heart