South Africa has been down the road of forcing retirement funds to invest in state-owned assets before and it cost employers. This time, taxpayers and pensioners stand to be the biggest losers.

In the 1950s, the government introduced prescribed assets, which forced funds to invest in bonds of companies like Eskom SOC Holdings Ltd. and chemicals and fuel-producer Sasol Ltd. The policy was abolished by the then apartheid-government in 1989, by which time returns in equities had far outstripped inflation or investments in state-assets, according to data compiled by the Association for Savings and Investment South Africa.

South Africa’s biggest labor federation, which is in an alliance with the ruling African National Congress, is advocating the use of private pensions alongside those of government workers to rescue Eskom. The Congress of South African Trade Unions wants to use some of the 1.8 trillion rand ($114 billion) in the Government Employees Pension Fund to help Eskom repay borrowings and supply sufficient power.

“If investors are being forced to invest in assets through prescription, the investments will give suboptimal investment outcomes that will not be in the interests of investors,” said Janina Slawski, head of investments consulting at Alexander Forbes Group Holdings Ltd., Africa’s largest retirement adviser. “We are extremely supportive of efforts to drive the voluntary mobilization of funds to support developmental objectives.”

Pension funds have changed since the advent of democracy in 1994. Back then, most employees had defined-benefit funds, which means employers would step in and cover losses for staff. While the government employee fund is a defined-benefit fund, most companies nowadays offer defined-contribution funds, which means their life-savings are at risk, Slawski said.

“Every member of a defined contribution fund that produces poorer returns due to prescription will retire, or leave their funds, with less money than they would have in the absence of prescription,” she said. The government, and ultimately taxpayers, will have to foot the difference for state workers should investments in state-owned companies not pay off, she said.

“We do not support any imposition of prescription that prevents investors from investing in assets that meet their risk and return profiles,” Slawski said.