Regulation 28 – friend or foe?

Cape Town - If you are new to the world of investing, Regulation 28 of the Pension Funds Act imposes limitations on the extent to which a retirement fund can invest in particular asset classes such as equities, bonds, property and cash. It also places limitations on the amount of the fund’s assets that can be exposed to foreign markets.

For the average retail investor this means you can only invest in a fund that has a maximum of 75% invested in equities, 25% in property while no more than 25% of the fund’s assets can be invested offshore (although an extra 5% can be invested in Africa). These restrictions apply to all retirement funds, pension schemes, provident and preservation funds as well as retirement annuities.

The idea is to protect investors from over-exposing themselves to higher-risk asset classes such as equities, which are prone to sudden corrections, by effectively forcing them to diversify into a mix of asset classes. While forcing investors to be prudent may appear to be a noble intention at first glance, a cynical free-market aficionado might argue that it smacks of nanny state interventionism.