What exactly is “Prescribed Assets”?

To understand what Prescribed Assets means, we need to understand how Retirement Fund investments are regulated. The Pensions Fund Act is the overall Act that determines how Retirement Funds must behave. Issued under the Pensions Fund Act is a regulation called “Regulation 28”. This regulation has been often quoted, but not necessarily explained. Very simply, Regulation 28 determines how much and where Retirement Fund money (assets) can be invested. The “where” is often referred to as “asset classes”.

While we currently do not know in what form Prescribed Assets will be implemented, we do know that it will be issued under Regulation 28. This means that a new asset class/es will be created within the regulation. This will force Retirement Funds to invest a prescribed minimum amount of the assets into some form of Government-owned projects or Government bonds.

While this concept is not new to South Africa, having been a form of Government funding between 1956 and 1989, it’s not commonly implemented Internationally for a number of reasons. We will touch on these reasons further in this article.

What are the potential key impact points?

Fund Managers are appointed by decision makers of Retirement Funds to invest the assets. These Managers are given a mandate in terms of what kind of risk the Fund is willing to take and of course, what kind of returns they’re looking for.

The impact of Prescribed Assets is potentially the following:

  • Financial discipline is potentially denied due to how the money is used for Government projects
  • There could be an imbalance of projects that Fund Managers would want to invest in, where some projects are oversubscribed, and others undersubscribed
  • A negative impact on the stock market with money being forcibly moved out of stocks
  • A negative impact on liquidity within Retirement Funds, Insurance Companies and Banks
  • A continued view of State funding of State enterprises, ignoring the need for these enterprises to become more efficient and self-sustaining

What’s happened elsewhere in the world?

Nigeria, Ghana, Zambia and Egypt have at some point implemented Prescribed Benefits to access Retirement Fund assets. Each of those countries experienced:

  • Erosion of Retirement Fund assets
  • Instances of institutions subject to the policy having gone bankrupt
  • Hyperinflation
  • Negative economic growth

Turning to countries where the negative impact was not as drastic:

  • Japan demonstrated excellent fiscal discipline, however, rates of return on prescribed assets were still lower than assets invested in the open market
  • Singapore used the funds to increase foreign reserves (reducing market shocks and allowing for easier foreign trading)
  • Malaysia provided positive real returns
  • Sweden also provided positive real returns

However, each of the above four Countries abandoned the concept solely because the impact on Retirement Funds was negative overall, providing less than open market returns.

Alternatives to Prescribed Assets:

As seen above, in some cases, the influence of Prescribed Assets has had a disastrous effect on some Countries economies, and in others, the impact was located to a negative influence on the value of the Retirement Funds themselves. Either way, there has not been a scenario that has proven to have a positive effect on the money that people save to live off after years of working.

While it is in the interest of all of us in South Africa to support the drive to upliftment, it must be conducted in a responsible manner. The Government’s drive to access funding to improve infrastructure can be met in different ways. For example:

  • A greater investment in public/private partnerships. Corporate South Africa is willing to assist in various ways, including providing financial assistance and the necessary intelligence to help ensure that project outcomes are met accordingly.
  • Private funders are very willing to work with Government on sustainable projects, however, the sentiment is that currently, there aren’t enough projects that are deemed financially viable, for a number of reasons
  • Sale of Government owned assets (e.g. Property)


In order for Prescribed Assets to be a vehicle that has the least disruptive effect on both the Funds being accessed and the economy as a whole, two criteria must be met:

  • Unquestionable fiscal discipline
  • A strong and unencumbered economy

Currently, South Africa is unable to demonstrate a capability in either of the two. This means that should the Government persist with implementing Prescribed Assets, we are facing an almost certain erosion of Retirement Fund values. The wider impact could ultimately lead to damage to the economy in its entirety, which we cannot afford.

Whether or not the alternatives to Prescribed Benefits will be considered is ultimately out of the hands of the Retirement Funds themselves, however, we can hope that due consideration is given to the impact of such an amendment to Regulation 28.

Boards responsible for ensuring the wellbeing of their members’ Retirement Funds must begin considering how to best cater for the implementation of Prescribed Assets as soon as possible. Independent Retirement Fund Consultants that are able to provide advice that is not tied to a certain product are best positioned to assist in making the best decisions on behalf of their members.