Retirement fund investments in South Africa are required to comply with Regulation 28 of the Pension Funds Act.
Regulation 28 limits the extent to which retirement funds may invest in asset classes, particularly those asset classes which are considered to have a greater degree of market risk associated with them.
Changes to these limits were first announced during the 2022 National Budget Speech on 23 February 2022 and have subsequently been updated, says Wesley Davids, executive of governance at PPS.
On 25 February 2022 the South African Reserve Bank published the Exchange Control Circular No. 10/2022, which detailed changes to the prudential foreign investment limits for South African institutional investors, in that foreign exposure of all retail assets, such as pension funds, may not exceed 45%, he said.
“It’s important to note that the recent prudential limit increase is not directly related to the proposed amendments to the Regulation 28 of the Pension Funds Act which is focused on pension funds’ ability to invest in infrastructure, hedge fund of a collective investment scheme (CIS) and crypto-assets,” said Davids.
“Off the back of these changes, a Regulation 28 compliant CIS portfolio will now be permitted to have aggregate exposure, as shown in the table below.”
Impact of change to offshore limits
Regulation 28 compliant collective investment scheme portfolios will be permitted to invest up to 45% of the portfolio value offshore.
Previously, the limit was 30% globally and an additional 10% exposure limit for investments in other African markets (outside of SA). These limits have been combined into one foreign prudential limit of 45% and the limit applies to all pension funds, insurance companies and investment funds.
South African portfolio classification updated
The Association for Savings and Investment South Africa (ASISA) Fund Classification for South African portfolios has been amended to accommodate this increase, as follows:
- “South African Portfolios: These are collective investment portfolios that invest at least 55% of their assets in South African investment markets.”
This means that South African retirement fund members, who are able to choose their underlying investments based on the rules of the particular retirement fund, may now take advantage of the opportunity to invest a greater portion of their retirement fund investments offshore,” said Davids.
Time to revisit portfolios
“The industry has for many years advocated for an increase in offshore limits with respect to Regulation 28 portfolios and the change has been largely welcomed,” said Davids.
“We encourage investors to consult with their financial adviser to help them make informed decisions in relation to their investment objectives and ensure that their retirement investments meet their criteria accordingly. As a platform, we have implemented the offshore limit increases across our systems, including the PPS Investments Secure Site.”