What to Know About How Your Retirement Fund Can Be Invested
When it comes to saving for retirement, few investors stop to consider how tightly regulated their retirement funds actually are. One of the key pieces of legislation that shapes how pension funds, provident funds, and retirement annuities can invest is Regulation 28 of the Pension Funds Act. While most retirement fund members are aware that their money is being invested on their behalf, many do not realise that strict limits are placed on how fund managers may allocate these investments across different asset classes.
The main purpose of Regulation 28 is to protect retirement fund members by limiting the risk that their savings are exposed to. It does this by setting maximum percentages that may be invested in different categories of assets such as equities, property, bonds, and foreign investments. By enforcing a diversified spread of investments, the regulation aims to ensure that retirement funds are not overly exposed to the volatility of a single asset class or market. This approach seeks to balance the need for investment growth with the need to preserve capital over the long term.
In its current form, Regulation 28 allows a maximum of seventy-five percent of a retirement fund’s portfolio to be invested in equities. This is followed by a twenty-five percent limit for listed property and a maximum of forty-five percent for foreign investments outside the borders of the common monetary area, which includes South Africa, Namibia, Lesotho, and Eswatini. Within this foreign allocation, up to ten percent may be invested in African assets outside the common monetary area. These limits apply both to individual members who choose their own investment portfolios within a retirement annuity, and to the default portfolios of pension and provident funds.
Recent amendments to Regulation 28 have attracted considerable attention, particularly as they relate to emerging asset classes and the country’s evolving economic priorities. In 2022, one of the notable changes was the formal exclusion of cryptocurrencies from retirement fund investments. This means that even if a retirement fund member believes in the potential growth of digital assets such as Bitcoin or Ethereum, they are legally prohibited from including these in any Regulation 28-compliant portfolio. The amendment clarified that crypto assets are deemed too speculative and volatile for retirement savings, given the fiduciary responsibility of funds to safeguard members’ retirement security.
Another significant amendment increased the foreign investment allowance from thirty percent to forty-five percent. This adjustment was widely welcomed by fund managers and financial advisers, as it offers greater flexibility for retirement funds to diversify internationally. Given the concerns around local economic and market volatility, currency depreciation, and political uncertainty, having the ability to increase offshore exposure is seen as an important way to preserve and grow the real value of retirement savings over the long term.
The impact of Regulation 28 on retirement savings growth is a complex subject. On one hand, the regulation’s restrictions help to prevent reckless or overly speculative investments, which could result in significant losses for savers. On the other hand, the limits on higher-risk, higher-return asset classes such as equities and alternative investments may constrain the potential growth of retirement savings, particularly for younger investors with longer investment horizons. Critics argue that the conservative nature of Regulation 28’s limits may not always align with the risk tolerance and growth objectives of all investors, especially in an environment where local economic growth has been subdued.
For retirement fund members, it is important to understand that while they may have some choice in selecting their investment portfolios, these portfolios must operate within the framework of Regulation 28. This means that regardless of personal preferences or market views, certain allocations, such as exposure to cryptocurrencies or excessive offshore investments, are simply not permitted within a retirement fund structure. For those looking to invest more aggressively or with fewer restrictions, discretionary investment vehicles outside the retirement fund environment may be necessary, though these lack the tax benefits associated with retirement savings.
Ultimately, Regulation 28 plays an essential role in balancing the competing interests of risk management, long-term growth, and national economic policy. While it has evolved over time to accommodate globalisation and changing market conditions, its core intention remains the protection of retirement fund members. As the financial landscape continues to shift, it is likely that further adjustments will follow, making it essential for retirement savers to stay informed about how these regulations shape the future of their retirement portfolios.