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  • Writer's pictureMr H

If You Invest In A SA Pension You Should Read This

Updated: Jan 14, 2021

UPDATE 25th November - Unfortunately, after just 3 days from writing the post below, the change has been suspended by the government pending public comment. My take is that the negatively affected parties (The Active Investment Managers) must have used their influence to try and prevent this change from staying in place. However, it was legal before the suspension so it will remain legal until it's either reapproved or reversed. I listened to an interview with Magda Wierzycka this morning and if If like me you've already made changes to your retirement portfolio your retirement you should contact your annuity / fund provider to find out if they are going to let you keep your changes until the decision or they want you to reverse the changes.

It seems that it might just be possible I gave the government too much credit for a sensible decision and they are simply going to fold under pressure from corporate South Africa at the cost of pretty much every South Africans future. I strongly advise all of my readers to submit their objections before 15th December against the reversal of this positive change. Maybe if enough of us do, we can also have a voice.

Original Post:

The Supplementary Budget Speech by Tito Mboweni took place back in June and given 2020 has seen South Africa be one of the worst hit countries for COVID-19 infections (in the first wave anyway) and as of yesterday has seen it's economy rating turned to "Junk" status not once, but twice this year, you would be forgiven in expecting the speech to be a fairly sombre affair.

Now I don't engage with politics (In my opinion, politicians can globally be described as blithering self-serving idiots) but I do believe in the concept of "know your enemy" and as those buffoons have so much influence on my future wealth, I generally pay attention to the nonsense they are spewing as it is inevitably a verbal smoke screen for delivering bad news for my aforementioned hard earned cash.

Well in that very speech, something massive happened and I missed it completely so let me not lay claim to this info right off the bat, I heard it just yesterday from the great Magda Wierzycka (Don't ask me to pronounce that!), Passive Investing Guru, Financial Activist, CEO of Sygnia Plc and all round Good Egg in my opinion.

Magda has been busy as a bee getting legal opinion on something Tito said or did for the last few months and is overwhelmingly convinced that he made the biggest and best changed to retirement investing that South Africa has seen in a very, very long time.

So after that big build up, let me tell you what the change is:

Foreign ETFs administered in SA have been reclassified as domestic assets!

"WTAF does that mean?" I hear you cry!

Pull up a seat, make yourself comfortable and I'll explain:

Well, let me clarify that. I'll explain to the best of my knowledge. This is big news and will affect the SA investment industry massively positively for some companies (like Sygnia And Satrix) and pretty badly for others (like Momentum & Coronation) for a time at least. As always, this is my take on the situation and I don't purport to be an expert, I don't give financial advice and it is, like most things in SA finance...well complicated. So do not act on this information without your own due diligence, advice and even then at your own risk.

Ok, lets begin

Chapter 1 - What is Regulation 28?

I'm not going to spend loads of time on this as either you're reading this in SA and into investing so probably know about reg 28 or you're outside SA and don't really care because it doesn't affect you. Either way, Google is your friend if you're struggling to sleep and need to understand the intricacies of regulation 28.

Put simply, there are limits to how much of your retirement savings can be put into certain asset classes, and those limits are:

  • 75% Equities - Stocks, Shares, Unit Trusts Equity Funds & ETF's that are invested in the stock market

  • 30% Foreign - Any investment that is not based in South Africa

  • 25% Foreign (Excluding Africa) - This is the same as above but you basically get an extra 5% allowance for investing in the African continent

  • 25% Property - Investments related to property investments

What makes Reg 28 complicated is that one investment can contribute to more than one limit. E.g. buying shares in Amazon contributes to your Equities allowance and also both of your foreign allowances as they're US based.

And once your limits are used up, you're basically left with South African Bonds, Money Market or Cash for the remainder, which fortunately are not too ugly in SA and can give 6% to 10% returns so it's not as bad as living in Europe or the US where those returns could be 1%-3% at best.

The low foreign allowance is the biggest problem. as for the last 5 years, the SA stock market has delivered very poor returns. In the last 5 years, the JSE Top 40 index which is the SA equivalent of the S&P 500 or FTSE 100 has delivered a measly 4.32% annual return which is about on par with SA inflation, so in real terms has delivered nothing in 5 years. So when you're forced to put a sizeable chunk of your future riding on the SA economy, it doesn't fill one with a great deal of hope right now.

Chapter 2 - Why does it matter?

The poor economy, poor stock market returns and regulation 28 rules have resulted in record numbers of wealthy South Africans financially emigrating from their home country to protect the future of their children's inheritance. That is a big problem for South Africa as a country as there are many more "Have Nots" than "Haves" and the more "Haves" leave, the less tax there is to feed the "Have Nots", and in a country already with an economy at junk status the only end state if this continues is a humanitarian crisis, I don't think anyone wants that.

So the government has to do 2 things. Firstly stop the wealthy South Africans from emigrating and taking their salaries, skills and tax dollars with them to Canada, the UK and Australia who are some of the countries open to them with batter deals. Secondly, it has to attract more skills, job creators and innovators to South Africa to create jobs and wealth. Without a major change, there's basically a disincentive to that if you can't effectively save for your future generations.

Chapter 3 - The Solution

It would appear that somebody somewhere has recognised this issue and has come up with what is actually a pretty genius idea which is a win for the people, a win for the country and from a purely selfish perspective a win for passive index investors in South Africa like yours truly. The losers are active investment managers and I'm afraid I'm fresh out of f***s for those guys and their 1%+ Assets Under Management Fees. I suspect they'll be crying into their Grand Cru champagne in their massive hillside mansions for a few days before they realise they too could offer passive investments at reasonable fees and still make a reasonable living.

What has actually happened by reclassifying foreign ETF's as domestic inside pensions is that you can essentially put 100% of your retirement savings into the performance of the US or the UK or China or anywhere else or even simply THE WORLD and stay in South Africa to enjoy the sun, wine, people and incredible lifestyle that you've worked your socks off to achieve whilst it's wounds heal.

By doing that, you stay in the country paying your taxes and the country wins. Additionally, South Africa can attract foreign investment and skills without disadvantaging the very people who could help get the economy back on its feet. And then because of all of that, there's more money to turn more of the "Have Not's " into "Haves" and the whole cycle is reversed.

Instead of a humanitarian crisis, we go back to being an emerging market and then who knows, South Africa could actually be an emerged market, wouldn't that be a simply splendid outcome!

Now I know South Africans reading this will be thinking "It'll take more than a few pension rule changes to fix South Africa" and you'd probably be right but it's a start, and a start is progress and progress is moving forward, so for once, someone somewhere in politics made a good decision and whilst that's rare it should be celebrated.

Chapter 4 -- So What Now?

Well it seems that this little change almost slipped by without anyone noticing and fortunately and thanks to Magda's pan beating, it's gone off like a rocket in the media causing massive debate as to whether it's true, legal, done and staying, so that battle is raging and playing out on social media. That will take months but as far I'm concerned the change is done so until it's reversed I will be taking full advantage of the opportunity until such time someone tells me I can't.

Fortunately all of our SA based retirement provisions have recently moved to Sygnia (Magda's Company) so yesterday, I tested her metal to see if her online account management would let me breach the old regulation 28 business rules and move all of my investments into the new regulation 28 framework and guess what? Worked like a charm!

When the markets open tomorrow I have placed orders to move my entire SA based retirement savings into two ETFs and a Fund. Those investments are as follows:

  • Sygnia S&P500 ETF - US Exposure - 45% Allocation

  • Sygnia 4th Industrial Revolution ETF - Global New Tech (Think Tesla and Zoom) - 25% Allocation

  • Sygnia Enhanced All Bond Fund - SA Bonds - 30% Allocation

Simple as that. This means I now have used 70% of my equity allocation, and 0% of my foreign allocation so I've still got room to play around although I think that's a great little long term investment.

I made one other investment as a result of this news. I bought R25,000 / £1,600 / £1,250 of shares in Sygnia.


There are only two companies in South Africa today who really get behind foreign ETFs and that is Satrix (owned by Sanlam) and Sygnia and the latter specializes in it more than the former. That means that for the next few months at least until the competition wakes up and catches up, I think the money is going to be flowing into those two organisations at a previously unseen rate, it's that big of a change in my opinion.

This is starting to sound like a bit of an advert for Sygnia and it's not meant to be (And I certainly don't get any benefit from them for saying any of this), I am just a satisfied customer of theirs, their service is good, their fees are some of the best in the market and they let me transact online (a prerequisite for me). I think Magda is a brave, powerful and outspoken advocate of the FIRE and passive investing community and she talks more common sense than most (although she's a bit of a finance ninja so it sometimes hard to keep up), so why would I not want to own a part of her company and benefit from its success.

Warren Buffet eulogises about finding good companies with a good product that you understand and a great management team to invest for the long term. I've always thought that needed months of research and analytics but I realised this week that me investing in Sygnia is me investing like Warren, and I like that.

Time will tell if I can be more like the Oracle from Omaha (Or in my case, more like the Winner of the Western Cape) and I'll definitely let you know if that little investment was worth it further down the time.

Until then, if you have any kind of Retirement Annuity or Preservation Fund in South Africa I implore you to not put your head in the ground on this one and get the appropriate advice to make sure you're benefiting from the biggest change to SA pension in my time here. Also please share this post so others can find out about it also.

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