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Protect Your Pension

The Pension Fund Act has changed – and investors need to understand how that affects them.

Bryan Hirsch

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Every retirement fund is served by professional trustees who are either company nominated, employee elected or are there through an umbrella fund.  It’s very difficult for them to make investment decisions as so few have in-depth knowledge of markets and, therefore, must be guided by investment managers. In view of this, there are proposed changes to Regulation 28 of the Pension Fund Act, on how trustees should deal with investments.

The liability profile of retirement funds should define the investment decisions made by trustees. Consideration must be given to the long-term retirement expectation of members and ongoing liquidity required for withdrawals, pension payments and administrative costs. In matching investments with these return objectives, retirement fund portfolios could assume concentration risk. Regulation 28 of the Pension Funds Act was introduced to overcome this problem by limiting the extent of exposure to any one asset class (equities, bonds, cash and other). Further restrictions limit non-South African investments – currently at 20% of fund assets, and an additional 5% if invested in Africa.

Further sub-limits are set for the categories subject to the regulation, such as the 5% limit on unlisted shares issued within South Africa, as part of the broader overall limit for shares at 75% of total fund assets.

New proposals

National Treasury has released proposals that seek to address changes in the industry since the last review undertaken in the 1990s. These focus on:

  • Eliminating problems arising from discrepancies and disparities between various legislations that cross-reference each other and require alignment in their interpretation and implementation, within the context of retirement funds.
  • Innovation in the utilisation of foreign investments in circumstances where the exchange control environment has altered significantly.
  • The use of structured products and derivatives, not specifically catered for within the current regulation.
  • Policies issued with a guarantee that have increasingly formed the basis for flagrant disregard for the regulation.
  • The utilisation of Shariah Compliant investments by funds.

Further specific measures include making Regulation 28 applicable to retirement annuity funds.  Credit rating agencies are given a role in that once they rate an investment, a limit kicks in relating to that specific asset as rated.

Impact of Pension Fund Act

Many commentators have called into question the need for quantitative restrictions in the first place, arguing instead for a more principles-based approach that takes into account the risk profile of the investing fund.

The draft regulation does not enunciate clear underlying principles upon which it is based. For example, in the context of life staging, asset growth may be the more important consideration for younger fund members than income generating assets, which seems retained as a bias in the proposed revision.

Those who circumvented the regulations with the utilisation of derivatives for gearing purposes, will not welcome the ‘look through’ approach and the restriction that hedging be limited to efficient portfolio management. However, it would appear that part of the debate is misplaced as it is evident that there is a lack of understanding of how derivatives are utilised currently by fund investors, and this has led to suspicion on the part of the regulator.

Private equity funds are concerned that the restrictions on their utilisation are impeding upside growth for pension funds. However, the regulatory concerns seem to be the extent to which the managers of private equity funds override the investment objectives of the retirement funds themselves, in the decision making process.

Advocates of Socially Responsible Investments (SRI) may see the reference to Islamic Shariah Compliant investments as a missed opportunity to address wider SRI issues, even though this is not an asset class, but an overlay that will increasingly become the norm in a world guided by sustainability as the watchword.

For individual retail investors, the applicability of the regulations to their retirement annuity fund, and to retirement funds where they have been accorded individual investment choice, would elicit varied responses, dependant on each individual members’ risk appetite. Fatima Vawda, CEO of 27/Four provided assistance and guidance on the complex nature of Regulation 28.

BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.

Personal Finance

6 Ways To Develop A Millionaire Mindset

Chasing money has remarkably little to do with getting rich.

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wealthy-lifestyle

If you truly want to have a million dollars, you must first be and think like a millionaire. By doing so, you will attract the necessary resources to you.

So, you want to become a millionaire entrepreneur? You’re not alone. Many dream of leaving their job and becoming their own boss, enjoying the various millionaire lifestyles we watch on TV. But there’s a difference between those who dream of becoming millionaires and those who do. And it begins and ends with mindset. If you don’t develop that mindset, you will continue to spin your wheels, working just as hard, but never going anywhere.

Developing a millionaire mindset requires you to stretch your thinking. Start by developing the following six attributes.

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Personal Finance

10 Tips To Become A Millionaire This Year

Becoming a millionaire requires changing your mindset and implementing some changes.

Murray Newlands

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Becoming a millionaire may seem out of your reach, but it’s possible with the right attitude and guidance. The fact of the matter is your income can only grow as quickly as you do, so you need to change your mindset to achieve your goal of becoming a millionaire.

Once you have a millionaire mind, you can’t lose it, no matter what financial or business mistakes you make along the way. To get yourself there, you’re going to need some structure. To help you, I’ve outlined the top ten tips you should follow to become a millionaire this year.

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Personal Finance

If You Think These 5 Things, You’ll Never Get Rich By The Time You’re 30

Five common mistakes entrepreneurs make when starting a business and how to correct them.

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Last week, I had lunch with a millennial who wanted some advice about a business he’s starting. After the usual small talk, we got down to discussing his business plan. Within a short time, it was clear that his business idea was great, his plan for executing was fairly solid and he had gathered together a strong team to help him make it happen.

So far, so good. But, to be frank, this guy has no chance of being successful with his current mentality. What it takes to be rich (or successful in any measure) has a lot more to do with your mindset than your ideas and plans.

From the time we started in business at the ripe ages of six and seven, our Grandpa Joe taught my brother Matthew and me many lessons about the details of running a profitable business. Over the years, we learned about how to create a business plan; how to market our products and services; and how to take care of customers, vendors and employees. All this knowledge has been invaluable to us in creating and running successful businesses. But, what our grandfather taught us about attitude and mindset trumps all other lessons.

Without calling out the specific individual I spoke with recently, below are five “hypothetical” attitudes that will get you nowhere in your journey to success – and the attitudes that should replace them.

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