Regulation 28 is legislation in die Pension Funds Act which will prevent too much risk on pension money, by preventing an investor to loose money at retirement, because of investing in high risk instruments. Instruments are categorized and regulated to not have too high percentage of the investment in one category or at one entity/issuer.
For more information on the pension fund act, visit: http://content.momentum.co.za/Content/regulation-28/reg-28-budget-2011.pdf

 

The system validates on the Category rules according to Regulation 28 and the IML (intended maximum limits). On a product level, it is setup whether Regulation 28 validation should apply. If checked on the product, then instructions (invest, switch and withdraw) will be validated to be Regulation 28 compliant. The only way an investment account can go into a non compliant state, is by the effect of market movement, in which case the system will keep the investment account in “Compliant” status and the administrators would need to create manual switches, if required. Chances that this would be needed, are very small, as many Instruments are actually “Compliant” on their own and also by using the IML in stead of the actuals.

 

All investor accounts must be Compliant, except for Investor Accounts, initialised before 1 April 2011.
https://www.fsb.co.za/Departments/communications/Documents/Memorandum%20to%20explain%20the%20revised%20regulation%2028.pdf

 

This is where the term: GRANDFATHERED comes in. This is a special rule for investor accounts, dating back before 1 April 2011, wherein only the “Product” needed to be compliant at the time. As long as the total of the “pool” of all the investment accounts within a product was Compliant. Thus, many of the smaller individual investments could have been in Non-Compliant status.
After 1 April 2011 investment accounts are required to be Compliant on an individual account level.
Investment accounts that were Non-Compliant before 1 April 2011 are allowed to stay like that, except if:

1. the fund selections of monthly contributions change
2. the monthly contribution amount changes (with an amount greater than the salary increase limit, bonuses and investors earning variable income like commission and their contribution is a percentage of the commission).
3. switching existing investments/assets

On submitting any of the above changes on a Non-Compliant investment account, the system will change the Regulation 28 status to  GRANDFATHER in PROGRESS, so that admin can follow up with the investor which of the following options is decided upon:
i) Continue as is – if admin authorises that the amount change is valid. The investment account stays in Non-Compliant status (until a next change).
ii) Make compliant (Granfathered Compliant) – in which case all future instructions will have to be of a compliant fund selection. An email is sent to the admin workflow to load a switch on the investment account and the status is changed to Compliant and can never go to any other Regulation 28 status again.
iii) New account – the system stops the recurring investment instruction in die account, by suspending the account (inactive) with status as GRANDFATHERED NON-COMLPIANT. A new account is also created, in which the compliant investment instructions will continue.


Additional NOTES regarding the Regulation 28 statusses:
Only recurring investments can affect the triggering of the GFIP (Grandfathered in Progress) status.
Buttons triggered by GFIP should work according to the compliancy state of the recurring instruction that triggered GFIP. (refer to red lines in attached diagram)

a) Can’t select the “Continue Non Compliant” button option, if the submitted instruction is compliant.
b) Can’t select the “Grandfathered Compliant” button option, if the submitted instruction is non compliant.

 

Diagram to indicate the flow of Regulation 28 statuses:

Reg28_diagram

 

Last Updated on 9 years ago by Antoinette Van Meyeren