South African retirement fund members received a significant boost in 2022 when the government amended Regulation 28 of the Pension Funds Act. The change raised the offshore investment limit from 30% to 45% of a fund's total assets. This adjustment acknowledged a fundamental truth: in a globalised economy, concentrating all retirement savings within a single country carries unnecessary risk.
The expanded offshore allowance matters because South Africa's economy represents less than 1% of global GDP. By limiting retirement investments to local assets alone, investors miss out on sectors and companies that simply do not exist on the JSE. Technology giants, pharmaceutical leaders and advanced manufacturing firms are largely listed on international exchanges. Access to these markets provides genuine diversification, reducing the impact of any single country's economic challenges on your retirement savings.
However, increased offshore allocation is not without its own considerations. Currency risk is the most obvious. When the rand strengthens against the dollar, pound or euro, the rand value of offshore investments can decline even if the underlying assets have performed well. Conversely, a weakening rand amplifies offshore returns. Over the long term, the rand has generally depreciated against major currencies, which has historically benefited South African investors with offshore exposure.
It is also important to distinguish between types of offshore exposure. Some locally listed companies on the JSE earn a significant portion of their revenue abroad. Naspers, British American Tobacco and BHP are examples of rand hedge stocks that provide indirect offshore exposure without counting towards the Regulation 28 offshore limit. A well-constructed portfolio considers both direct and indirect offshore exposure to avoid unintended concentration.
The key takeaway is that Regulation 28's expanded limit is an opportunity, not a mandate. The right offshore allocation depends on your age, risk tolerance, retirement timeline and existing portfolio composition. A 35-year-old saving aggressively for retirement has a very different optimal allocation compared to a 60-year-old preparing to convert savings into an annuity.
Working with a qualified financial planner ensures your retirement fund takes full advantage of the available offshore allocation without taking on inappropriate risk. If you have not reviewed your retirement fund's asset allocation recently, now is a good time to do so.
Want to understand how offshore diversification fits into your retirement plan? Speak to our team for a personalised portfolio review.