Possible changes to Regulation 28
Article by Allan Geldenhuys, CFP®
Many Autus clients will be familiar with the term Regulation 28 which falls under the Pensions Fund Act. This regulation prescribes the various asset classes and limitations into which individuals' may invest their hard-earned savings towards retirement. The main purpose of the regulation is to protect investors’ retirement provisions from the effects of poorly diversified investment portfolios. This regulation only applies to compulsory pre-retirement savings (ie pension funds, provident funds, preservation funds and retirement annuities), and not post-retirement or discretionary investments. Currently, Regulation 28 limits the extent to which retirement funds may invest in listed equity to 75%, offshore assets to 30% and listed property to 25% among others.
There has been much speculation for some time about the government’s intention to amend this specific legislation to access retirement saving to fund their desperate need for revenue. It was recently reported that at a recent National Executive Committee (NEC) meeting the ANC proposed amending Regulation 28. The purpose is to enable pension funds to invest in long-term infrastructure projects and high-impact capital projects as well as facilitate direct access to pension funds’ pool of resources by state development finance institutions. Finance minister Tito Mboweni has supported the idea of pension funds being allowed to invest in infrastructure directly.
Many markets commentators are sceptical about the ANC governments ability to productively invest the capital given their poor track record at managing state-owned enterprises and the very long list of corruption allegations against senior officials. Current legislation limits direct investment in infrastructure or private equity. Minister Mboweni suggested the idea of creating project infrastructure bonds that should be profitable to the extent that pension funds are willingly investing in the bonds, and not through forced prescription.
Others within the ANC and COSATU disagree. They suggested introducing the idea of prescribed assets to help reduce the debt burden. This will effectively mean that there is a minimum portion of investments to be held in government stock. After an initial outcry by the public and the Association for Savings and Investment (ASISA) publicly stating that it is opposed to the principle of prescribed assets, Enoch Godongwana, head of the ANC’s economic transformation subcommittee, stated that nothing is set in stone and that an official policy regarding possible changes will be available by mid-September. He did mention that it will not be in the form of prescribed assets. He also noted that the amendment will not be used to capitalise the state bank or bail out failing SOE. Consultations are still taking place with various role-players to come up with a suitable and workable solution.
Autus, through its affiliation with ASISA, will raise concerns and act in the interest of its clients and the industry to protect clients’ retirement savings from forced investment in sub-optimal returning assets. As financial advisors, we understand the importance of investment returns on clients’ retirement outcomes and therefore we strive to always act in the best interest of clients. We will closely monitor developments and communicate any changes or decisions in this regard.
Allan Geldenhuys, CFP®, is a Wealth Advisor at Autus Private Clients. Contact Allan Geldenhuys at firstname.lastname@example.org or 086 107 7789.
Autus Private Clients (Pty) Ltd is an authorized financial services provider in terms of the Financial Advisory and Intermediary Services Act (Act No. 37 of 2002).