Changes to Regulation 28: How does it affect you?
Recent changes to Regulation 28 have led to the question: what are the implications for retirement funds?
New retirement investments and any investment transaction on existing retirement savings must comply with the limits of Regulation 28. It is essential to regularly review your financial plan and investment strategy with your financial adviser before making any changes to your retirement investments.
What is Regulation 28?
Regulation 28 is issued under the Pension Funds Act to protect retirement fund members' savings by limiting the extent to which funds may invest in a particular asset or asset classes. It prevents excessive concentration risk, i.e. 'not putting all your eggs in one basket'. It ensures that you invest in different assets or types of assets to avoid unnecessary investment risks. It applies to retirement funds like a retirement annuity, pension, provident and preservation funds.
The changes that became effective on 3 January 2023 can be summarised as follows:
- Introduced a definition for infrastructure and sets an overall limit of 45% for exposure in infrastructure investment (and a limit of 25% per investment).
- Prohibits investment in crypto assets. According to the National Treasury,' the excessive volatility and unregulated nature of crypto assets require a prudent approach.
- Split hedge funds and private equity to further facilitate infrastructure and economic development investment. There is now a separate and higher allocation to private equity assets. The private equity investment limit will be 15%, with a limit of 10% for hedge fund investment.
- Increases the aggregate limit for all 'unlisted securities' from 35% to 45%.
- Increases the aggregate sub-limit for all unlisted shares (excluding property shares) and private equity funds from 15% to 20%.
- Imposes a limit of 25% per entity, which means that not more than 25% of a fund's assets may be invested in one entity (company), irrespective of the asset class, with the exception of government investments.
The changes widen the scope of potential investments for retirement funds but continue to leave the final decision on any investment to the trustees of each fund, who determine the investment policy for their fund.
What does it mean for you?
The limits apply to members of all retirement funds. You can ask your financial adviser for more detail about the limitations and how they apply to you.
After deductions, your retirement fund invests your contributions in the investment portfolios you selected.
An investment portfolio can be a basket of mixed asset classes of equities, property, bonds, cash, and other specialised asset classes, such as infrastructure. It can also include a mix of local (South African) and offshore investments in other countries.
Diversification is key when it comes to investing your retirement savings. Instead of investing all your retirement savings in one country, company, industry sector or asset class, the experts that manage your money and make it grow spread it across a range of suitable companies, industries, and asset classes, including the mix of local versus offshore investments. In this way, when one investment portfolio does not perform well, another better-performing portfolio can compensate for that.
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Take charge and ensure you receive a monthly income to maintain the life you've become accustomed to well into retirement.
We recommend that you get in touch with your financial adviser to plan for your retirement together. South African retirement funds must also give their members access to retirement benefit counselling when they are close to retirement and at retirement.
Select the “Find an adviser” button below if you don't have a financial adviser or speak to our retirement benefit counsellors on 0860 546 533.
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