05 Oct 2020

GEPF Bailing-out Eskom?

by Samantha Davidson, Partner, Durban,
Practice Area(s): Pension & Employee Benefits |

Exploring Compliance as per the Rules of the Fund, Relevant Legislation and Common Law.

On 22 January 2020, Cosatu made a proposal that the Government Employees Pension Fund (GEPF) settle a portion of Eskom’s debt. Such a decision will be considered and made by the GEPF board of trustees, as they are tasked with the management and administration of the fund. Highlighted in this article are the relevant legislation and rules that would empower the board of GEPF to make the determination whether to bailout Eskom as proposed by Cosatu, as well as the comparative provisions applicable to other retirement funds.

Statutory Provisions and Rules re: Board of Trustees

Object of the Board

The pension fund, the powers and duties of its trustees, and the rights and obligations of its members and the employer are governed by the rules of the fund, relevant legislation, and common law (Tek Corporation Provident Fund). In terms of rule 4.1.1 of the Rules of the GEPF, the Board of Trustees is responsible for the proper and efficient management of the Fund.

A comparable understanding for other funds is found under the Pension Funds Act 24 of 1956 (PFA). In terms of section 7C of the PFA, the object of the board is to direct, control and oversee the operation of the fund.


In terms of rule 4.2.2, the GEPF board shall in the exercise of its powers and duties be entitled to- ­

4.2.2   Invest, loan, advance on interest and place on deposit moneys not needed immediately for the current expenditure of the Fund or to deal therewith in any other way against such securities and in such a way as the Board may determine and to convert into money, adjust such securities, re-invest the proceeds thereof or to deal therewith in any other way as determined by the Board.

The GEPF is required in terms of its own governing statute to determine, in consultation with the Minister of Finance, the investment policy of the fund. Similar to Regulation 28 which applies to other funds, this policy must determine the appropriate level of risk attributed to each asset class and mix of assets.

Financial Institutions (Protection of Funds) Act (FIA) re: Fiduciary Duties

Section 2 of the FIA contains the principal features regarding the fiduciary duty. The primary feature of a fiduciary duty is the duty of loyalty owed by the fiduciary (for example, the board of trustees) to his or her principal (for example, the fund and its members and other stakeholders). Assets of the fund must be invested in a manner that benefits the fund and its members. This is a key consideration and assists in determining whether a good investment is one motivated by best returns or sustainability or an appropriate combination of both.

One of the features of a good investment is that it is governed by an investment policy statement that is in line with the international trend regarding the sustainability of assets of a fund and Regulations 28(2)(b) and 28(2)(c)(ix) published under the PFA. Regulation 28(2)(b) requires all funds to have an investment policy statement and Regulation 28(2)(c)(ix) requires that boards of funds consider environmental, social and governance (ESG) risk factors before investing in an asset.

Prescribed Asset Limits

This proposal to bail out Eskom has revitalized the conversation regarding prescribed assets. The term “prescribed assets” refers to a policy in terms of which the government directs (obliges by law) pension funds and other financial institutions to invest a set minimum allocation of their assets into specific investments, for example bonds of State-Owned Enterprises (SOE’s) or government bonds.

Several concerns have been raised by the Association for Savings and Investment South Africa. The primary concern is that the country’s savings would become an instrument of State policy and as such would avoid the investment discipline of financial markets and the fiduciary responsibilities of the assets managers and trustees.

Legal Conclusion – Is the Fund legally permitted to Bailout Eskom?

The answer to this question is probably YES. As long as , the board ensures, amongst other things, that it adheres to the law as discussed above, then the board will be entitled to invest, loan, or advance on interest monies to Eskom. The envisaged investment would not be in breach of the board’s fiduciary duty for the following reasons:

Firstly, investing in Eskom would benefit the fund’s contributing members as such an investment would help to minimize retrenchments that may otherwise cause them to lose their jobs. Secondly, Eskom is a key component of the South African economy which plays a crucial role in enabling productivity of the economy. Without any changes or investments in Eskom’s operational ability, this has the potential to impede a struggling economy. A struggling economy will have an adverse impact on the Fund’s ability to generate returns on any investments. On the contrary, an economy that is characterized by steadfastness, productivity and sustainability is to the benefit of the fund and all its members as it will have a favourable impact on the Fund’s ability to generate returns on any investments.

For members that are opposed to the above discussed investment, it is important to note that neither a court nor the adjudicator will be entitled to overturn a decision taken by a board in the exercise of the discretion conferred on the board by the rules on the grounds that if the court or adjudicator had the power to exercise that discretion, it would have made a different decision (Jandruballi v Tongaat Hulett Pension Fund, 2000). A decision based on the exercise of discretion will only be overturned if it has been shown that the board members took into account irrelevant considerations, disregarded relevant considerations, or were biased (Edge v Pensions Ombudsman, 1998).