May 6, 2021

3 OF 2021

Draft Amendments to Regulation 28 of the Pension Funds Act

Investment in infrastructure

On 26 February 2021, National Treasury published draft amendments to Regulation 28 of the Pension Funds Act for public comment. Regulation 28 limits the extent to which retirement funds may invest in particular asset classes. The purpose of the amendments is to make it easier for retirement funds to invest in infrastructure and the amendments follow calls for retirement fund investment in infrastructure to bridge the infrastructure gap.

However, Regulation 28 does not currently define “infrastructure” as a specific category, which is currently spread across several asset classes like equity, bonds, loans and private equity. Consequently, current data from retirement funds does not record the exact investment in infrastructure.

The proposed overall limits for investment in infrastructure across all asset categories, is a maximum of 45% in respect of domestic exposure and an additional limit of 10% in respect of the rest of Africa, and aggregate exposure per issuer or entity to 25% of the total assets of the fund.

Hedge funds

The asset class “hedge funds, private equity and any other assets not listed in this schedule” has been split in the draft amendments into “hedge funds”, “private equity” and “any other assets not listed in this schedule” as stand-alone asset classes. This will allow for specific limits to each of these asset classes. National Treasury stated that a number of studies document the attraction of investment in private equity and infrastructure projects. These studies find that private equity investments in infrastructure projects have a positive impact and help in sharing project risk between the project sponsors. It is for this reason that the asset category for private equity, hedge fund and other assets in Regulation 28 is being delinked, with the limit applicable to private equity being increased. Currently, “Hedge funds, private equity funds and other assets not referred to in this schedule” is a single asset class with a collective limit of 15%. Private equity and hedge funds on their own have a limit of 10% and other assets not referred to in this schedule is 2.5%. After delinking the asset class group, the limit for private equity is proposed to be increased to 15%. Hedge funds and other assets not referred to in this schedule would remain unchanged at 10% and 2.5%, respectively. The overall or collective limit is being removed.

Comments were requested on these amendments until 29 March 2021.


The annuitisation of provident funds [refer Retirement Matters 2/2021] took effect on 1 Mach 2021. Administrators of retirement funds will keep separate records of the vested benefits and non-vested benefits of its members. Boards of management must ensure that the rules of their provident funds make provision for this and also that pension fund rules be amended to provide for the transfer into the fund of provident fund vested rights.

The following should be noted:

  • Transfers between pension funds, pension preservation funds, provident funds and provident preservation funds are tax-free from 1 March 2021. Fund rules must be amended accordingly, if necessary.
  • If a member of a provident fund, older than 55 years, transfers to another approved fund, the benefit in the provident fund at the date of transfer, plus fund return thereon after the date of transfer, will be a vested benefit. However, it must be kept in mind that the contributions made to the new fund after the transfer date, will not be vested benefits.
  • Two-thirds of a member’s benefit must be used to purchase an annuity, unless the value thereof is less than R247 500. This means that if a provident fund member’s contribution after 1 March 2021 up to retirement date does not exceed R247 500, the full amount may be taken as a cash lump sum.
  • Deductions in terms of section 37D of the Pension Funds Act (divorce orders, maintenance claims, housing loans), will be deducted proportionately from both the member’s vested and non-vested portions.
  • The payment to a non-member spouse in terms of a divorce order will be deducted pro rata from the vested and non-vested portions of the member’s benefit.
  • Any transfer into a fund resulting from a section 14 transfer after 1 March 2021, will not form part of the member’s vested portion.


SARS has withdrawn several general notes (GN’s) during February and March 2021. The contents of several of the withdrawn GN’s are already included in later GN’s, or has been included in legislation.

The following should be noted:

GN 16 – commutation of small annuities

GN 16 was withdrawn on 17 February 2021. It confirmed the requirements for the commutation of small life annuities and allowed for a full commutation where the full purchase sum at retirement didn’t exceed R75 000, or after one-third commutation, the purchase sum didn’t exceed R50 000.

In respect of life annuities, the opportunity to commute a pension for a lump sum arises on retirement from the fund and therefore the de minimis (now R247 500) is determined at the date when the pension commences. In other words, a person cannot commute his pension for cash if the value of his benefit falls below the de minimis after his pension commenced.

GN 18 – Providing annuities on retirement from employment

GN 18 laid down requirements in terms of which pension funds may affect compulsory annuities in the name of retiring members, thereby terminating their membership of the fund. GN 18 also provided that a member cannot choose a combination of an annuity provided by the fund and an annuity purchased from an insurer.

The withdrawal of GN 18 on 26 February 2021 means that the combination of an annuity provided by the fund and an annuity purchased from an insurer is no longer disallowed, and that a member can now choose a combination.


National Treasury has confirmed that where one person holds multiple living annuities, all his or her annuities must be aggregated when applying the de minimis amount of R125 000. This means that the sum of the values of all the living annuity policies held with an insurer or in a fund must be calculated to determine whether the amount of R125 000 will be exceeded in totality.

It has always been the understanding of the retirement fund industry that the R125 000 de minimis applies per annuity separately and values were not aggregated across all living annuities held with different insurers.​​ The original reasoning behind allowing such commutations was that when an annuity policy reaches a certain size, the cost of administering the annuity policy outweighs the benefit for the annuitant of having the annuity. It makes therefore sense that this would apply per annuity policy. The industry has made a submission to SARS in this regard.


The Financial Sector Regulation Act provides for new regulatory structures since 2017 (Twin Peaks regulatory system). The Prudential Authority, the FSCA, the Financial Services Tribunal and the Ombud Council, together with the Office of the Pension Funds Adjudicator and the Office of the Ombud for Financial Service Providers, are known as the financial sector bodies. In accordance with the Financial Sector Regulation Act, their establishment and functioning are to be funded by means of levies and fees paid by the institutions regulated by these bodies. National Treasury has published the Financial Sector Levies Bill for comment by 31 March 2021.

The Bill seeks to:

  • provide for the imposition of financial sector levies on supervised entities;
  • provide for exemption from such levies under certain circumstances;
  • provide for the allocation of amounts levied to financial sector bodies; and to provide for matters connected therewith.


A member of a retirement annuity fund may currently access their benefit in the fund if the member has discontinued contributions to that fund and the total value of the member’s withdrawal interest is R 7000 or less. It was proposed in a draft notice dated 24 February 2021 that the value of R 7000 be increased to R15 000, with effect from 1 March 2021.


The Minister of Finance, Mr Tito Mboweni, has appointed Mr Unathi Kamlana as Commissioner of the FSCA. The appointment is for five years and is effective from the date of assumption of duty, which is expected to be 1 June 2021.  Mr Kamlana is currently employed at the Prudential Authority of the South African Reserve Bank, where he is the Head of Department responsible for Policy, Statistics and Industry Support. He worked extensively on the implementation of the Twin Peaks reforms from 2011 to 2018, having been part of the original team that proposed the new and tougher system for regulating the financial sector.


Q: Is it still necessary to keep hard copy minute books given that meetings are being held electronically?

A: Regulation 31 to the Pension Funds Act states that every pension fund shall keep, at its registered office, a register or registers containing a minute book recording all resolutions passed by trustees at meetings, the pages of which minute book shall be bound in such a way as to render the withdrawal or insertion of a page impossible and shall be numbered consecutively.

Currently, hard copy minute books remain a requirement. The FSCA recognises compliance difficulties during the pandemic and will provide the retirement fund industry with guidance soon.