Pension funds may now invest up to 45% of their capital offshore

‘Two-pot’ retirement legislation expected to be drafted later this year.
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During his budget address to parliament, Finance Minister Enoch Godongwana said amendments to Regulation 28 would be published in March. Regulation 28 sets out the criteria and maximum limits of where and in which asset classes retirement funds may invest.

The Budget Review document announced that local pension and savings funds may invest up to 45% of their capital offshore. This is inclusive of the 10% allowance for investments into other African countries.

Previously, funds could only invest 30% of their portfolio outside Africa, and the amendment means they can now invest up to a maximum of 45%.

The proposed amendments have been through two rounds of public consultations and are seen as an attempt to force or prescribe investments into infrastructure projects.

The minister initiated the process to amend the regulation to enable greater infrastructure investment by retirement funds and improve data reporting on such investment by the funds.

‘Two-pot’ system

National Treasury will publish draft legislation regarding its long-awaited ‘two-pot’ retirement structuring later this year, which aims to give people in financial distress part of their pensions before they retire.

The department will also publish amendments to Regulation 28 next month, allowing retirement funds to invest in infrastructure projects.

Two-pot system

Godongwana said the government is busy with a fundamental restructuring of the retirement system, which includes allowing individuals to allow for greater preservation and partial access to funds through a “two-pot” system.

He emphasised that he does not have the authority to allow people to access funds at their discretion. “I will create an environment where people can do so, but it will be dependent on the approval of the trustees of each fund, and the trustees will have the final say.”

Godongwana said the consultation process is ongoing after having released a discussion paper last year, and he foresees that draft legislation will be published for comment around June.

The proposed restructuring would allow people to access a third of their savings for emergencies. At retirement, you will be able to take one-third of the total amount as a cash lump sum. However, if the individual has made a withdrawal before retirement, the amount would be deducted from the lump sum payment.

The paper also proposes that two-thirds of retirement savings must be retained in a compulsory retirement fund, from which no withdrawal before retirement can be made.

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