A Fin24 reader writes:
I am 35 and started late with my retirement savings. I
started to invest in the Allan Gray retirement annuity (RA) with 100% equity.
As I am still young, I feel that I need to invest
aggressively to play catch-up. But since Regulation 28 came into effect, this
fund is now frozen.
I have about R7 000 per month to invest somewhere for the
long term. I would like to know if I should maximise my RA tax benefit and
invest as much as possible into an RA - given that I can only invest in a
balanced fund now - or if I should invest only some of my tax-free benefit and
also keep investing into aggressive equity funds, considering my age.
Christo Terblanche, Allan Gray's head of retail product
As we are not authorised to provide financial advice, we
cannot advise you on whether you should stick with a balanced fund within the
RA and/or go aggressively into equities. We suggest you seek assistance from an
independent financial adviser to help you achieve your long-term investment
However, I can provide some clarification around Regulation
All new RA, pension preservation fund or provident
preservation fund accounts have to comply with the Regulation 28. However, you
do not mention when you took out your RA investment.
If your account predates April 1 2011, you don't need to
comply- provided you didn't transact after that date, and don't transact in
the future. Your investments can stay as they are, even if they don't comply.
Nor you do have to change your existing debit orders into
your RA account. But the minute you do, you will need to ensure your selection
of funds - and your entire account - complies with the new regulation.
This includes setting up a debit order if you didn't have
one, or increasing or decreasing the amount of your existing debit order.
The exception is an annual escalation; this can continue as
is, without triggering the need to make your account compliant. Nor will you
have to make your account compliant if you cancel an existing debit order.
But if you want to switch out of your existing underlying
unit trust investments into your unit trusts, or make any additional
contributions, you will have to make your account compliant. However, an
existing phase-in arrangement, whereby you are phasing an investment into a
fund over a period of time, isn't considered a transaction and so won't trigger
the need to comply.
If you transacted after April 1 and your account doesn't
comply with Regulation 28, you will need to switch into a combination of unit
trusts that is compliant. And if you transacted and have an existing debit order
that too will need to change in order to comply with the regulation.
This must be done by December 31 2011.