Regulation 28 has been amended to increase the offshore limit. Here is what it means for the retirement savings of ordinary South Africans.

News headlines were dominated by global events in recent weeks, in particular with respect to Russia’s invasion of Ukraine, and the subsequent pullback for global markets. Although the current tension in Europe cannot be ignored and will continue to drive market volatility there is also local news that investors should take note of.

In South Africa, it often feels like good news is hard to find, but there is one very important bit of news local investors should pay attention to. In fact, we should be shouting the good news to the mountain tops about the announcement that Regulation 28 of the Pension Funds Act has been amended.

Here is what it means for the retirement savings of ordinary South Africans, and what future retirees must do next.

All retirement annuities, provident funds, and pension funds are governed by Regulation 28 of the Pension Funds Act, which, amongst other things, stipulates that one’s respective investment can only have a maximum offshore exposure of 30%, with an additional 10% for Africa (which nobody really used in the past, in any case). A few weeks ago, the limit of 30% was increased to 45%, with the Africa component falling away entirely.

Thus, this meant a 50% jump from the old 30% limit to the new 45% limit, in offshore exposure for those who want to increase their exposure to markets out of South Africa (and Africa for that case), to developed markets such as the US, Europe and the UK. Although 45% is a far cry from the 100% limit available through living annuities, the increase is certainly welcome. Below is a table comparing the returns of the past 10 years from the JSE Index, with the returns of that of the MSCI World Index and the S&P 500 Index.

Index 10 Year Annualised Returns (ZAR)
FTSE/JSE All Share total return (ZAR) 11.64%
MSCI World total return (ZAR) 19.48%
S&P 500 total return (ZAR) 20.64%

The new limit is a breath of fresh air for those who plan to meticulously contribute to their retirement savings throughout their working lives. The new limit not only enables investors to further diversify their current retirement saving investments but also enables them to hedge their future savings a bit more against the rand and the local economy, should they underperform over the long-term relative to their global peers.

What to do next will largely depend on many factors, and although there is no ‘one size fits all’ approach when it comes to investments, I would strongly advise that all those in Regulation 28 investments strongly consider their options and take advantage of the new limits.

The troubles of the local economy will continue for a long while longer, which makes it imperative for local investors to diversify away from these risks. Especially with retirement savings.

As with all investment decisions or financial planning strategies, it is advisable to navigate it with the assistance of a qualified, experienced advisor, who can offer the appropriate financial advice best suited to your personal circumstances. Read more about planning for retirement.