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How does Regulation 28 impact your pension?

Regulation 28 plays a crucial role in your retirement savings.

It can influence and shape your pension, so understanding its impact is vital.

In this article, we look at the impact of Regulation 28 on your South African pension. Let’s start by taking a look at what it is and its intended purpose. 


What is Regulation 28?

When it comes to investing, having the right strategy is vital, and your pension is no different.

The last thing you want is to gamble away your retirement savings by making poor investment choices. That is where Regulation 28 comes in.

A part of the Pensions Fund Act, the main purpose of Regulation 28 is to protect you against poor investment decisions. Ultimately, it limits how much of your pension can be invested in particular assets.

Currently, the regulation limits the exposure for retirement funds to the following:

  • Equities (local and offshore) – 75%
  • Local or international property – 25%
  • Foreign investment – 30%

The whole idea of the regulation is to protect your pension fund. So, why is Regulation 28 often criticised? 


Criticism explained

As an asset class, equities tend to be high risk/high reward by nature.

A common strategy is to invest more in equities when you are younger, then shift to safer options as you approach retirement age. This strategy makes sense. 

Equity-based assets give you the highest returns, and you have one thing on your side to combat the higher risks – time. 

While you are younger, you have years ahead of you to make up for any potential losses. 

Everyone has a different appetite for risk. By limiting equity exposure to 75%, those investors with higher risk profiles have less flexibility. Another downside to Regulation 28 funds is you must have 70% of your assets invested in South Africa. 

Data from the World Federation of Exchanges shows the limitations that come with that. Of the 500 top global brands listed by Forbes, only 15 are in the South Hemisphere, and none are in South Africa.

The number of companies listed on global markets has dropped over the years. The JSE, in particular, has seen a decline. This presents another risk of overexposure, highlighted by the Steinhoff crisis of 2018.

With fewer companies to invest in, it makes spreading the risk more challenging. Of course, saving into a pension product does have its benefits when it comes to tax. Still, is this benefit worth the concentration risk of only investing in 0.3% of the world GDP?



Paying into a South African pension fund can be highly tax-efficient.

You can save up to 27.5%of your income each year, up to a maximum of R350,000. Doing so can reduce your yearly tax liability. 

Investors can include their contributions on their tax return and claim a deduction from the South African Revenue Service (SARS). For those paying a higher rate of tax, the annual savings could be huge.

You should also note that retirement funds are not subject to tax on dividends and interest. You will also avoid capital gains tax on the growth of your investment.

Although discretionary investment vehicles provide more flexibility, they do not offer the same tax advantages.


Seeking advice

There are pros and cons to using a Regulation 28 approved product. The way you set money aside for your retirement will come down to your situation and future goals.

There is no question that having the right strategy in place for your pension fund is crucial. Having a diverse range of assets certainly helps balance the risk/reward of your investments, and pensions are no different.

When it comes to retirement planning, there are plenty of product options in the market to achieve your goals.

Some of these include international alternatives such as offshore pensions offer viable options for South Africans. Offshore pensions allow you to plan and preserve your savings in another currency such as US dollars, pounds or euros.

If you are unsure what the best approach is for your situation, speak to a professional.

Our team of experts offer a wide range of services and bespoke advice to help you make informed decisions.

To find out how we can help you, contact us using the form below.

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