PRESCRIBING which assets pension funds invest in would be a move in the wrong direction and bring back memories of apartheid when politicians decided how South Africans should invest their savings, according to a Johannesburg consultancy.

One of the many unanswered questions after the African National Congress's policy conference last month was the planned use of pension money for government development projects. Yet two documents retain clear references to it and it remains an element of Economic Development Minister Ebrahim Patel's New Growth Path, meaning a move in this direction could still be ratified at the December elective conference.

To make it work, government may have to convince working class savers and pensioners they should accept poor returns on old age investments. This could be a hard sell politically.

While pension funds could do more to support national developmental goals, the general view among analysts is they should not be forced to accept lower returns in doing so.

Ryan Short, a partner at Genesis Analytics says prescription is unnecessary. "It takes us back to an authoritarian time when political officials decided how South Africans should invest their savings.

"The apartheid government used this extensively, but it led to poor returns and many pensioners went through tough times. It damaged the savings culture in SA."

Genesis Analytics wrote the report the government submitted to competition authorities over the effect on domestic manufacturing of Walmart entering SA. It formed part of the three-person expert panel appointed to conduct the supply chain study.

Mr Patel included "allocative capital" as a pillar in his New Growth Path, which was released in December 2010 and aims to create 5-million jobs in 10 years. He says the government recognises that retirement funds are the savings of real people who need secure returns.

He has said that seeking to put them to "more productive use" will take this into account.

But Mr Short says pension funds are already the largest holders of government bonds, and invest heavily in debt issued by parastatals and development finance institutions, as well as in private socially responsible investment instruments.

"My view is they will invest voluntarily if good developmental investments are brought to market. For instance, pension funds like to invest in infrastructure projects - if opportunities in infrastructure are made available by government, with good returns and liquidity, funds will invest without compulsion."

But it would help if the government clarified the definition of developmental investment.

"The approach should be to encourage and incentivise funds to make sound investments in the wide range of developmental assets already out there - public and private - not force them into politically-selected investments offering poor returns," he says.

The Association for Savings and Investment SA (Asisa) also notes that there is already a high proportion of private investment in government assets, especially into government bonds and bonds raised by state-owned enterprises. Asisa proposed at a recent conference that a new model - being experimented with in Europe - should be considered. This would allow for a mixture of debt and equity in infrastructure investments.

Mr Short says pension funds are not idle pools of capital - they are precious savings for old age. "Our problem is that we don't save enough for retirement. We should be doing more to encourage saving - this is in fact a stated government priority. Forcing investment in below-standard assets would scare savers away, and would be contradictory to that goal."