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PENSIONS: Survey Reveals Interesting Findings

 





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A recent survey by OMAC Actuaries and Consultants revealed some interesting insight into the views of Retirement Fund Trustees on the draft changes to regulation 28 of the Pension Funds Act.

The draft changes to Regulation 28, which sets prudential guidelines governing retirement fund investments, were presented by National Treasury earlier this year for comment.

According to the survey, 52% of respondents believe that the level of regulation is sound, but that the current Regulation 28 is outdated.

25% believe more regulation regarding investments is needed, while 8% believe that there is too much regulation around investments, and this should be reduced.

Trustees were also polled on their views on the increase in the limits for offshore investments to 20%, as well as an additional 5% for investments in Africa.

15% said their fund currently has African investments, while 52% said their fund does not differentiate Africa from other offshore investments.

11% said their fund will not consider investments into Africa, while 22% were unsure about what African investments are available.

“Results revealed that funds do not have a significant focus on Africa,” says Craig Aitchison, MD of OMAC Actuaries and Consultants. “Africa is still considered the Dark Continent by many investors. While there are high levels of instability and risk when investing in some states, there are also tremendous opportunities.”

He says it is important to view Africa as a diverse collection of many nations. “There are 20-30 countries in Africa that present viable investment opportunities. “Africa is one of the last emerging markets and foreign interest in the continent is likely to increase as investors look for the hidden investment gems of the world. Kenya, Egypt, Malawi and Ghana are all delivering good returns on a risk-adjusted basis and the time has definitely come to look more closely at the investment opportunities in Africa,” says Aitchison.

Another key proposal in the draft regulation is the look-through principle, which requires the underlying investments in collective investments schemes (unit trusts) and life policies (pooled funds) to be compliant.

When asked how this regulation affected their funds, 52% of Trustees responded that their fund was already compliant even on a look-through basis. 17% said their funds would no longer be compliant and they would therefore have to consider changing their investments. 10% were not sure of the impact at this stage, while 21% said their fund does not invest in pooled funds or unit trusts.

Aitchison says that as Trustees are liable for ensuring compliance, it is imperative that they familiarise themselves with the details of new regulation once it is finalised.

Finally, Trustees were surveyed as to their views on the fact that the draft regulation has not made any changes to the way derivatives can be used by funds, despite appeals from some parts of the industry. Derivatives still form part of the 2.5% allocation to “other” investments.

Surprisingly, 40% believed that greater scope for the use of derivatives should be permitted, while only a third thought that the current scope for derivatives is adequate.

”Results from the survey clearly indicated that trustees want more freedom to use derivatives. While derivatives can be extremely useful as an investment tool, Treasury’s cautious approach towards these instruments is also understandable, given the events of the last few years,” says Aitchison.


 
 
 
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