“Prescribed assets”

That’s a phrase which should send chills down the spine of all South Africans who contribute to a regulated retirement fund, retirement annuity and the like.

Many of our older clients may remember the dark days of the 1970s when the Apartheid Government of the day prescribed that a certain percentage of all pensions and retirement funds were compelled to be invested in assets like government bonds and State Owned Enterprises.

At the recent ANC Policy Conference held at the beginning of July this year, the party resolved to investigate the use of prescribed assets as a means of financing economic transformation in South Africa.

An article in the Mail and Guardian last month highlighted concerns that such moves would threaten the integrity of people’s pension funds.

Albert Botha, fixed income portfolio manager at Ashburton Investments has said that “should prescribed assets in pension funds be implemented, the effect on your pension fund could potentially be disadvantageous. Assume that 50% of assets are prescribed (this number is lower than at any point between 1956 and 1989) and this leads to a 1% per annum lower return for your pension, this would result in the average pension fund returning 3% above inflation rather than 4%. Or to put that in other terms, the average person would have to work and save for 2 years and 8 months longer to reach the same retirement goals over 30 years. Working to almost 68 rather than 65. Or they would have to be content with a 16% smaller pension fund at 65.

Comment: There is no shortage of uncertainty when trying to decipher government policy for the next few years. Talk of prescribed assets has been around for some years now in South African and, whilst no concrete steps have been taken recently towards imposing new restrictions on how pension funds must be invested, investors should always be mindful of risks.

We have been helping our clients to diversify their investments to address these potential risks by, inter alia, investing discretionary assets in other jurisdictions in terms of existing laws and allowances.

Disclaimer: The information provided is not intended to address the circumstances of any particular individual or entity and should not be considered to be advice in any way. No person should act upon this information without first obtaining professional advice.

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