What changes to Regulation 28 means for funds

The 2021 Budget speech by the Minister of Finance, Tito Mboweni, highlighted changes to regulation 28 of the Pension Funds Act to allow for increased investment in national infrastructure projects, and the introduction of auto-enrolment for all employed workers.


The Pension Funds Act guarantees a high degree of protection for your savings in a retirement fund – far higher than in any other type of investment. It stipulates that your savings must be managed prudently with due attention to risk, and that this fiduciary responsibility lies with the fund’s board of trustees. Regulation 28 ensures that your investment is diversified and is not overly concentrated in a single asset or asset class – so that, for example, the bulk of your savings cannot land up being invested in the company for which you are working, as happened in the Robert Maxwell pension scandal in the UK 30 years ago.

The main limits set by regulation 28 are that not more than 75% of the fund can be invested in the equity market, not more than 40% can be invested offshore (30% outside Africa and another 10% in Africa outside South Africa) and not more than 25% can be invested in listed property. It also limits investment in private equity and hedge funds to 10% of the portfolio. The announcement by the minister that regulation 28 would be changed to allow for increased investment in infrastructure was followed later last week by the publication of draft amendments to the regulation to allow for this.

Until now “infrastructure” has not been defined under regulation 28, which has concerned itself with broad asset classes. The draft amendment does not introduce infrastructure as a new asset class but allows for infrastructure investments to be recognised and recorded within asset classes – they may take the form of listed equities (companies listed on the JSE focusing on infrastructure projects), government or corporate bonds (many infrastructure projects are funded through bonds) or private equity (unlisted companies specialising in infrastructure).

Across these asset classes, the proposal is that infrastructure investment be limited to 45% of the portfolio. Although that may seem a high percentage, it is probable that your retirement fund already invests upwards of 25% in infrastructure through government bonds. Don’t forget, this is merely a limit. Nothing is being prescribed. The retirement fund still has the freedom to invest anything between 0% and 45% in infrastructure. The overriding criterion will always be whether or not a particular investment is prudent, after its risks have been properly assessed. It’s likely most in the retirement fund industry will welcome the amendments. Many infrastructure projects provide solid investment returns at a relatively low level of risk.