South African pension funds should be used more aggressively to finance local construction, Oceans Umhlanga Development chairperson and developer Vivian Reddy has said, arguing that current offshore investments divert resources that could rather be used to create jobs within the country.

"I believe one of the unfortunate situations in South Africa is [that] Section 28 in the Pension Funds Act allows you to take money offshore. They increased the threshold from 30% to 45% for pension funds of South African workers to be invested offshore, creating employment in Portugal, London, the US, and the rest of the world, when the employment should be created right here in South Africa," Reddy told delegates at the 2025 National Construction Summit, in Ekurhuleni, on November 13.

He stated that unlocking capital from pension funds could significantly support domestic development projects.

Pension funds in South Africa, including public funds such as the Government Employees Pension Fund, the Public Investment Corporation and holdings managed through the South African Reserve Bank (SARB), as well as various private pension funds, collectively hold trillions of rands.

In February 2022, the SARB raised the maximum offshore exposure for retirement funds from 30% to 45%. While the limit is now 45%, many pension funds have not fully maxed out that allocation. A 2024 Sanlam Benchmark Survey found that many standalone retirement funds are investing between 30% and 39% offshore, and some are already between 40% and 45%.

According to Old Mutual, in 2023, institutional investors in the retirement sector managed more than R4.6-trillion in assets, meaning the increased offshore limit could potentially open up more than R2-trillion that could be invested abroad.

“I believe organisations like the Congress of South African Trade Unions and the other federations should call on all the pension funds, because these funds belong to their workers, and insist that they allocate a substantial amount under Section 28 to support developers in this country. Doing so could unlock hundreds of billions of rands of capital to facilitate development, and that would help a great deal,” Reddy said.

According to Reddy, pension funds offered more flexible financing criteria than banks, making it easier for developers to access capital without requiring extensive balance sheets.

"The criteria for pension fund lending are less stringent than banks, which is why many developers struggle unless they have a big balance sheet. Bank funding is difficult to obtain, whereas pension fund financing is much easier. I believe this could significantly boost the construction sector," he said.

Reddy also highlighted efforts by government to release land for private sector development.

"[Government has] advertised lots of plots of land to be sold to the private sector, and there are thousands of bids. We are hoping that process will also be unlocked as soon as possible so developers can take advantage. As long as there are cranes and jobs, we can tackle the issue of unemployment in the country. The only way to do that is to create more construction sites," he said.

Reflecting on his own projects, Reddy explained how alternative funding mechanisms have been used to bypass traditional bank financing.

"One of the questions people ask is: How did we develop the Ocean Development project worth R5-billion without a cent from South African banks? That is where we went out for alternate funding, using pension funds, import financing and involving broad-based empowerment to raise capital.”

“I want to stress that it is very important that we all work together, especially with the pension funds, to unlock more capital and facilitate development in South Africa," he said.