Original Research

A comparison of retirement saving using discretionary investment and Regulation 28

Gizelle D. Willows, Thomas Burgers, Darron West
South African Journal of Economic and Management Sciences | Vol 21, No 1 | a1995 | DOI: https://doi.org/10.4102/sajems.v21i1.1995 | © 2018 Gizelle D. Willows, Thomas Burgers, Darron West | This work is licensed under CC Attribution 4.0
Submitted: 24 June 2017 | Published: 31 July 2018

About the author(s)

Gizelle D. Willows, College of Accounting, University of Cape Town, South Africa
Thomas Burgers, College of Accounting, University of Cape Town, South Africa
Darron West, Department of Finance and Tax, University of Cape Town, South Africa


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Abstract

Background: There is growing uncertainty in global society with regard to how retirement savings should be approached. The primary reason for this is that most societies do not save enough and their citizens run out of money during retirement.

 

Aim: This study investigates whether the limitations imposed by Regulation 28 of the Pension Funds Act of South Africa encourage optimal asset allocation and reduce investment risk for retirement savings when contrasted with discretionary investment.

 

Setting: The study looks at hypothetical individuals who are subject to tax and retirement consequences as administered by South African legislation.

 

Methods: A quantitative risk and return analysis was performed while considering two hypothetical investors who are identical in all aspects other than their choice of investments.

 

Results: The findings indicate that Regulation 28 is effective in reducing the investment risk of retirement savings; however, it may also force the investor to sacrifice wealth.

 

Conclusion: Depending on the tax bracket in which the investor sits, discretionary investment may be preferential to investing in a retirement fund under the mandate of Regulation 28.


Keywords

Regulation 28; retirement savings; pension funds; investment; taxation

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