ANC knocks retirement funds

RELOOK REG 28: INVESTORS ARE RESTRICTED

Regulation forces pension funds to invest up to 75% in world’s worst-performing equity market.

The biggest obstacle currently preventing most South Africans from creating enough retirement capital is the Pensions Act’s Regulation 28. I can’t recall one industry spokesperson prepared to appeal for a Reg 28 adjustment, which will allow pension funds and their members (us) to have greater freedom to invest our retirement capital.

When the revised guidelines were issued in 2011, the Financial Services Board (FSB) said Reg 28 imposed limits on funds’ investments, “intended to protect funds against imprudent investments”.

The limits are broadly: up to 75% may be invested in equities; up to 25% in property; up to 90% in a combination of equity and property; up to 5% in the sponsoring employer; and up to 25% offshore.

Officialdom knows best

Prior to these amendments, retirement funds were only allowed to invest 15% into listed property, despite it being the best asset class over the previous 10-15 years.

The industry is allowed to flourish on the back of very attractive tax incentives for which it acts as an unofficial revenue collector for the fiscus.

Over the last six years the JSE has been the worst-performing market compared with all other major regions in the world, measured in US dollars or in rands.

How much of a drag has this been on SA pension and retirement funds’ investment returns? I’d suggest it’s been at least 3%-5% per year over the last five years and more.

Yet Reg 28 says you may only invest 25% offshore.

Why can’t individual members of pension funds be given freedom to invest their money where they wish?

In essence, retirement fund members have limited protection against the economic collapse we’re experiencing under the ANC’s chaotic, disastrous rule led by President Jacob Zuma.

What to do?

Current retirement fund members can’t do much, apart from hoping their trustees and advisors use the full offshore capacity.

I advise investors (over 55) to remove their retirement funds from Reg 28’s stranglehold as soon as it’s legally possible.

These investors – with money in a range of retirement investments – have the option of moving their retirement capital away from Reg 28’s clutches, by making permissible withdrawals, taxed/tax free, and moving the balance into a living annuity (LA).

Certain funds also allow a full withdrawal (provident preservation), subject to (onerous) tax.

Money in your hands can be moved directly offshore while a LA can have 100% offshore exposure, in the world’s best asset classes and investment themes.

I’ve done this with my own money and seen the difference in returns.