Articles

The Grandfather Clause & Regulations 28

What is Regulation 28?

Regulation 28 of the Pension Funds Act aims to reduce excessive risk on investor’s pre-retirement savings by limiting the exposure to certain asset classes. The main purpose is to ensure that member’s retirement savings provide them with sufficient income in retirement and do not face a high risk of large losses due to market fluctuations. These limits came into effect in April 2011.

ASSET CLASS LIMITS AS PER REGULATION 28:

  • Equity 75%
  • Offshore 30%
  • Property 25%
  • Hedge Funds 10%

All lump sum investments and deposits made into Retirement Funds after April 2011 need to stay within these limits.

What is the Grandfather Clause?

The grandfather clause refers to Reg 28, as the rules applied, prior to April 2011 for all retirement funds invested before this date. The limitations were similar however, the assets were managed according to Reg 28 at fund level which meant individual members of retirement funds did not have to comply with the limitations if the funds complied. This allowed individuals to be overweight in certain asset classes because the funds themselves complied.

Any investor that is a member of a retirement fund prior to April 2011 remain exempt as long at they do not make any transactional changes to the portfolio, automatically triggering the Reg 28 requirement. Transactional changes include increasing/decreasing recurring contributions, adding single contributions, adding an annual contribution increase, switching between funds, changing fund allocations and changing the contribution frequency.

If there are no transactional changes, but a fund is in breach of Reg 28, product providers will (after 12 months) switch the non-compliant fund into a money market fund in order to comply (if the investor does not communicate which compliant fund they should go into).

For assistance with your financial plan:

Kimberley Welsh CFP®

Email: kimberley@pwharvey.co.za

Tel: 041 373 2710

Brandon Clayton

Email: brandon@pwharvey.co.za

Tel: 041 373 2710

Gavin Harvey

Email: gavin@pwharvey.co.za

Tel: 041 373 2710

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