South Africa. Prescribed assets would upset the rationale for pension funds
One of the main criticisms of prescribed assets is that forcing pension funds into these investments would hurt individual savers. Besides the market distortions that prescribed assets would create, everyone understands that they would deliver below market returns.
Under South Africa’s previous dalliance with prescribed assets, this impact was primarily felt by employers. This is because pension funds back then were run in a different way – they were all based on defined benefits.
This meant each member did not have their individual pot of money as they largely do today. Everyone was guaranteed a pension by their employer after retirement, which was a percentage of their final salary. The employer had to carry the risk of making sure that the pension fund had enough money to meet these payments. When prescribed assets lowered returns, employers simply had to put more money into their pension funds to ensure that there was enough there to pay out what was required.
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