Investment Regulation 28 Compliance

[srothman]

What does it is mean if a particular investment fund isn't Regulation 28 compliant?

I know what makes it to not be compliant, but what does it mean to me as a potential investor? Are there any implications to investing in such a fund, or is it merely a regulatory requirement that the financial institute make you aware of the fact.

 

[Rkootknir]

What does it is mean if a particular investment fund isn't Regulation 28 compliant?

I know what makes it to not be compliant, but what does it mean to me as a potential investor? Are there any implications to investing in such a fund, or is it merely a regulatory requirement that the financial institute make you aware of the fact.

Regulation 28 (of the Pension Funds Act) only applies to retirement funds (pension or provident) and retirement annuities. So, the only way you as an individual investor are going to be affected by it is with RAs or a retirement fund that offers individual member choice. Simply put, Reg 28 is a risk-control measure. It prevents savings for retirement purposes from being invested in what the regulator (FSB) & government consider to be "too risky". Very simply:

- no more than 75% in equities;
- no more than 25% offshore;
- no more than 25% in property; and
- no more than 5% in the sponsoring employer's shares (this prevents things like Enron where a large portion of the employees' retirement money was invested in Enron's shares)

 

[Shayd]

The regulation ensures that nobody puts all their retirement savings in 1 basket. I have sat with more than a few clients who had their entire pension moved offshore in 2003 and then paid the price when the rand strengthened

 

[BloodBurner9000]

What happens when you manage your own RA portfolio and it momentarily becomes non regulation 28 complaint due to market fluctuations of underlying funds? Do you get penalised, get no tax break, or will fund administrator sell certain parts or is future contributions restricted to make the portfolio compliant again?

Haven't seen that answered yet.

 

[Rkootknir]

What happens when you manage your own RA portfolio and it momentarily becomes non regulation 28 complaint due to market fluctuations of underlying funds? Do you get penalised, get no tax break, or will fund administrator sell certain parts or is future contributions restricted to make the portfolio compliant again?

Haven't seen that answered yet.

Breaches of regulation 28 have to be reported to the FSB quarterly and they have to be corrected within 12 months of the breach first occurring. Usually the trustees of the RA \ retirement fund will require that future cash flows into the RA are such that it would correct the breach, e.g. if you went over the 25% offshore allowance all future contributions would need to go to a "local-only" portfolio.

Regulation 28 has no direct effect on you as RA investor or member of a retirement fund (i.e. there are no penalties for you). The trustees of either vehicle have to ensure compliance with the Act.

 

[supersunbird]

As stated regulation 28 wont really affect you in products invested in outside a Retirement Product vehicle. It affects you slightly if one invests in a normal Balanced Fund unit trusts from most providers since they are Regulation 28 compliant so that people in Retirement Annuities can choose them. So if you want 100% equity, you have to choose a different fund, not the Balanced Fund.

As to what they do when its outside regulation 28 compliance (will only happen if you do you own asset allocation in your RA) for 12 months straight and you don't rebalance it, I have figured out that they apparently withdraw whatever percentage portion is taking it out of compliance and put that into their money market fund until instructed by the investor what to do with it.