One of the key principles of investing is diversification: limiting your risks by not having too much exposure to one asset class or investment.
The rules of Regulation 28 of the Pension Fund Act limit a retirement fund's exposure to equities to a maximum of 75%. The rules also limit exposure to any one investment or bank.
Previously these prudential guidelines applied only to retirement funds, not individual policies. As long as the fund maintained these asset allocations, individuals within the fund (with individual policies) could have different allocations. For example if one member chose to have only 50% allocation to equities, another member could have 100% allocation while at fund level the total exposure to equities remained at 75%.
These rules were created at a time when companies only offered one investment option. However today we have member choice where members are able to select their underlying investment profiles. As member choice evolved, so the legislation has had to change. The new provisions in Regulation 28 will, therefore, enforce the prudential guidelines at an individual member level.
Note: Regulation 28 does not apply to retirement products which provide a capital guarantee, such as smooth bonus return funds.
Honouring legacy rights
Government follows the principle of honouring legacy rights. So the Regulation will not affect existing policies bought before 1 April 2011 as investors made those investments based on the rules at that time.
If you don't make any material changes to your existing retirement policy, the new provisions will not apply to your existing policy.
What defines a material change on Liberty policies?
Type of change |
Material change? |
| On-going premiums paid by monthly debit order | No |
| Lump sum contributions (e.g. made as a top-up at the end of the year) | Yes |
| Change to the frequency of your payments from annually to monthly | Yes |
| Automatic premium increases made according to your policy terms | No |
| Premium increases made outside of your policy terms | Yes |
| Switching asset managers (portfolios) but keeping the same asset allocation | No |
| Changing asset allocation in your portfolios e.g. switching from a bond portfolio to equities | Yes |
These new provisions will affect any changes in your premiums from 1 April 2011. If you wish to do a top-up or increase your debit order and do not want to affect your existing retirement annuity portfolio you will have to take out a new policy for the new premiums.
Investing in other assets
Regulation 28 now also provides the opportunity to invest in other asset classes such as private equity and hedge funds. This technically allows investors to increase their equity exposure beyond the 75% level. Retirement funds may use hedge funds to protect the portfolio during bear markets or to enhance returns during more volatile markets such as we are seeing at the moment. However, these would be low-risk strategies to outperform cash rather than increasing the risk of the fund.