Retirement investors must comply with Regulation 28

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Whether investing via an employer, financial advisor or on one's own, many members are not aware that they have this responsibility. If not compliant, members could be exposed to risks which could have been minimised.

This is the view of Bhebhe Mbongeni, Deloitte Western Cape audit partner, who says that Regulation 28 limits how much of an investor's portfolio is exposed to specific asset classes, such as equities, bonds, offshore and alternative investments.

Corrective action

While retirement fund trustees have an obligation to ensure that funds comply with Regulation 28 on a daily basis, the legislation also puts a fair amount of responsibility on the individual investor to take corrective action where prudential limits are exceeded.

"Regulation 28 is designed to protect members and trustees of retirement funds, which is why members need to be aware of their exposures where they are not compliant. Every time the member is non-compliant, the trustees of that fund ought to communicate and request the affected members to take corrective action and revert back to a compliant status. The member is therefore heavily reliant on the fund effectively communicating this to him or her," says Mbongeni.

He says that it is very difficult to ensure daily compliance because of administration limitations. Retirement fund trustees largely depend on their administration system's capabilities to consistently monitor, identify and correct the investment positions as changes occur on holdings. In addition, certain aspects of the legislation are difficult to implement without an overhaul of the administration system, which comes at a significant cost increase to members.
Exposure to risks

"Regulation 28 is not a restriction in itself, but rather ensures that members' savings are invested responsibly. In the absence of Regulation 28, members and trustees may be exposed to concentration and market risks, exposure to complex and unregulated investment structures and unscrupulous investment managers.

"A fund that is non-compliant may expose itself and its members to some or all of these risks. When putting together your investment portfolio, or preserving your savings, seek expert advice to ensure that your chosen fund has adequate governance and investment management processes to ensure compliance at all times," concludes Mbongeni.