The promise of SA’s pension reform depends on infrastructure investability

FINANCE Minister Enoch Godongwana did not equivocate in this year’s third iteration of the national Budget Speech: government intends to channel long-term domestic savings ~ particularly pension funds - towards the country’s infrastructure and industrial development priorities.

- MONIQUE CONRADIE

“We are also exploring alternative financing instruments,’ he said, “to allow pension funds, commercial banks, development banks and international financial institutions to participate in financing our infrastructure plans.”

The idea is not new. Proposals to more actively direct retirement savings into public interest sectors have circulated since the ANC’s 2017 policy conference, where the party raised the possibility of ‘prescribed assets’ to mobilise funding for social infrastructure.

With the introduction of the two-pot retirement system, South Africa's RS5.8 trillion pension fund industry, spanning 4 904 registered funds, is well positioned to play an even more direct role in financing national development. The reform separates savings into two components: a ‘savings pot’ allowing limited pre-retirement access, and a ‘retirement pot’ ringfenced for preservation until retirement.

By design, the system discourages early withdrawals while deepening the pool of assets held within regulated vehicles. As more funds are retained and fewer leakages occur, the size of this capital base will continue to grow, potentially unlocking a powerful domestic lever for long-term invest-ment.

But a growing capital pool means little without a clear destination. At their foundation, pension funds must satisfy two fundamentals: diversification and yield.