Online Reporter
A South African state pensioner sent a long letter to Moneyweb complaining that the Government Employees Pension Fund (GEPF) granted an increase of only 2,9 percent in pensions paid to public service pensioners, describing the increase as an insult.
The increase comes into effect in April.
“Those who retired years ago on a low pension will be unable to survive,” he says.
“Appeals that an appropriate increase adjustment has become essential for those with a small pension [have] consistently gone unheeded.
“Cadres in the GEPF and Public Investment Corporation [PIC] prefer to ensure that available funds flow elsewhere; to ‘investments’ that have nothing to do with pensions,” he adds.
“Private sector investors achieved returns of between 12 percent and 15 percent in the past year, whilst the largest investor in Africa, the PIC, managed a little over 3 percent on behalf of the GEPF. Why this failure? There was clearly a big mistake,” he complains in an email, asking:
The unhappy pensioner says the problem stems from political influence over the PIC and GEPF. “The government is the biggest threat to the pension fund and ensures political control over the pension fund.
“The Minister of Finance determines the investment policy of the GEPF and he appoints the directors serving on the board of directors of the PIC.
“The Deputy Minister of Finance is the chairman of board of directors of the PIC. This equates to firm political control.
“Investments driven by political considerations are not in the best interest of the fund. State pensioners will continue receiving annual starvation increases until we free our pension fund from political control.
“Politicians want to lay their hands on the money through prescribed investments, motivating it by stating ‘pension funds should be seen as national rather than private assets’,” he says.
“Finance Minister Enoch Godongwana walks around like a hyena with his nose on the ground, looking for extra money and complaining that pension funds are no longer willing to invest in state institutions such as the Land Bank.”
The email further alleges that figures in the GEPF’s annual report reveal that the fund’s sustainability has been decreasing over the last 15 years to the detriment of pensioners.
GEPF rules
The GEPF denies these allegations, implying that state pensioners will actually be better off compared to the expected inflation rate.
“The 2,9 percent increase is based on the consumer price index of 2,9 percent for the period from 1 December 2023 to 30 November 2024,” it replies in answer to queries.
“This increase is in line with GEPF rules which stipulate that pension increases must be at least 75 percent of the average percentage increase in CPI. In this case, the increase granted is 100 percent of the CPI figure, which exceeds the minimum requirement of 75 percent.
“We understand the perception that the increase may seem low,” it says.
While it may seem that inflation was higher for most of 2024, it is important to clarify that the headline CPI figures are year-on-year measures.
“If we examine the inflation experienced from the last pension increase on 1 April 2024 to the end of December 2024, the increase in the inflation rate was approximately 1,13 percent. If we project inflation at the same rate as December 2024 until March 2025, the inflation rate from 31 March 2024 to 31 March 2025 would be closer to 1,4 percent.
“Even if we assume a higher inflation rate, such as the peak monthly rate of 0,43 percent observed in July 2024, the expected year-on-year inflation by March 2025 would be around 2,1 percent.”
Why not an above-inflation increase?
The GEPF increased pensions by more than the inflation rate in 2024, raising questions about why it could not do so again in light of food inflation still running ahead of the average inflation rate.
“The 2024 increase was above inflation as it was affordable at the time and it also took into account that the 2023 increase was lower than 100 percent of CPI,” according to GEPF.– Bloomberg.
