The unexpected delay of the 2025 Budget and the backlash against the proposed VAT increase have sparked a crucial debate: Where else can the government find money? Many, including civil society groups, suggest options like a wealth tax or reducing tax breaks for the wealthy. While these ideas have not gained traction within Treasury, one proposal under discussion involves the Government Employees Pension Fund (GEPF). As shown below, this fund had a surplus of R60 billion in 2024. A surplus is money left over after all pensions are paid, and its surpluses have averaged just below R50 billion per annum over the past 10 years.
The proposal to pause government contributions to the GEPF for one year has raised concerns about ‘protecting workers’ pensions’, but there is no such risk. Simply, there is no shortage of money in the fund and, therefore, no added risk. In fact, far from risking jobs, using the GEPF could help secure public sector jobs by avoiding harsh budget cuts to essential services. It could work in the interests of workers. Further, the proposal would not stop the GEPF from increasing pensions beyond the meagre 2.9% increase announced at the end of February.
Source: Author visualization, GEPF Annual Report, 2023-24
Understanding the GEPF and how it could be used
The GEPF is Africa’s largest public pension fund, holding a massive R2.38 trillion in assets. Its assets are managed by the Public Investment Corporation (PIC), and its holdings include investments in the stock market, government bonds and loans. To put its size in perspective, its assets are roughly equal to the entire government spending for the 2024/25 year.
The GEPF, like other pension funds, receives contributions from both government employees and from the employer – the government itself. The current proposal suggests the government pause its contributions for one year, meaning that the GEPF would only receive the contributions deducted from members’ salaries each month. This could save the government an estimated R53 billion, similar to what the 2% VAT increase would have generated.
Will pensions be safe?
A key question is: does the GEPF need these government contributions to stay healthy? In 2024, even after paying out all pensions, the GEPF had a surplus of R59.71 billion, while government contributions were R59.67 billion. This shows that the GEPF’s investments generate enough income to meet all of its obligations to pensioners and to keep going, even with a one-year holiday on government contributions.
Crucially, the GEPF operates as a defined benefit pension fund. This means that pension payments are a set amount and do not depend on the performance of the fund. So the amount of government contributions does not affect the benefits of GEPF members. In other words, the amount a pensioner receives from the fund is not affected by how much the government contributes.
Further, the GEPF is financially very stable. But even in the extremely unlikely event of financial trouble, the government guarantees these pensions.
A healthy pension fund, operating under a fully-funded scheme model, needs to hold at least 60% of the money required to pay all its members if they all retire immediately. The GEPF’s own policy plays it safe and aims for a funding level of 90%. It’s not necessary to be 100% funded because not everyone retires at once. And, unlike a small company for example, the government is not at risk of going out of business. Banks operate in a similar way – they hold only a portion of their customers’ deposits.
The GEPF is currently 110% funded. This means it could pay every current working member and all retired beneficiaries their full pension today and still have money left over.
All of this shows that the GEPF is healthy enough to support a proper pension increase that keeps up with inflation, as well as a one-year contribution holiday to plug the hole in the government budget.
Source: Author visualization, GEPF Annual Report, 2023-24
Can the government be trusted with pensions?
The proposal to pause government contributions to the GEPF will not touch the money already in the fund. It simply means that the government would withhold the money that it would have paid into the fund. This is money that already belongs to the government. If it is kept within each department, it will likely be used to cover the shortfall in funding that most departments have suffered since 2020. This could help departments deal with the lack of medicines in clinics for example. If this money was returned to the National Treasury, it could be used for urgent expenses like building hospitals, schools, and roads.
This current proposal will not do anything to change the management of the fund, which is through the Public Investment Corporation (PIC).
Looking beyond short-term fixes
We argue that pausing the state’s contribution for a year would not endanger the fund or the possibility of pension increases. However, this is not a permanent solution. What is really needed is long-term, job-creating economic growth – and the GEPF could play an important role in this.
Currently, the GEPF invests 57% of its assets in stocks (shares), with almost a trillion rand on the JSE. The largest holdings are in Naspers, Firstrand, Gold Fields, Standard Bank, Anglo American and British American Tobacco. Investing in these massive firms does little in terms of creating jobs and growth. Instead, it contributes to the problem of South Africa’s over-financialisation.
When a country’s stock market gets too big, this can start to have negative impacts on the economy. So it can make the value of the rand more unstable and make it harder for small or productive companies to get capital. Warren Buffet is a hugely successful (and massively wealthy) US investor. He created the ‘Buffet Indicator’ to measure the size of a country’s stock market compared to the size of the economy. If the number is more than 100%, this means that the stock market is overvalued because it is worth more than the whole economy. The European Union’s buffer indicator is 54%, and the United States is 155%. South Africa’s indicator is a staggering 320%.
Globally, government pension funds have invested more in bonds (mainly loans to governments) than in stocks. In general, stocks offer potentially higher returns but are riskier, while bonds are safer with lower returns. In South Africa’s slow economy, returns on stocks haven’t significantly outperformed bonds, making the higher risk of stocks questionable.
We believe that switching the GEPF’s mandate to investing primarily in government bonds would provide safer, more reliable returns for the GEPF and a more affordable funding source for the government. Why should the government borrow from the IMF or World Bank with high interest rates when it could borrow from the GEPF? This would not only benefit the fund, which would receive interest payments from the government. It would also benefit the public sector, which would be able to borrow at lower interest rates and pay off its expensive debt.
Investing in bonds has the added benefit of helping the government to finance vital public sector jobs and protecting public services from further deterioration. Finally, if utilised smartly, these additional funds could drive public investment into local green industrialisation. This would create jobs and kickstart the process to fundamentally change our macroeconomic structure. Such a shift will require ambitious, progressive political leadership and pressure from trade unions and mass movements. But it would provide the basis for a long-term solution to employment, poverty and budgetary pressure.
The authors all work at the AIDC’s Economic Justice Unit. For more information, see AIDC’s research on the GEPF.
