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Default investment strategy: annual review questions trustees should table

Reg 37 default portfolio checklist — regular-basis review, not a portfolio beauty-parade.

Topics · ~9 min · Education only

Who Reg 37 applies to — and Reg 40 carve-outs

Reg 37 applies to defined-contribution categories where membership is a condition of employment. Regulation 40 limits application — retirement annuity and preservation funds are carved out of Reg 37 (and Reg 38) in the default-regulation package. Record scope in the pack: in scope, or Reg 40 exclusion noted.

This is not a Reg 28 limits refresher. Prudential asset-class orientation already shipped; here the question is default design under Reg 37.

What “default” must demonstrate: appropriateness, pricing, communication, disclosure

Reg 37(2) expects boards to demonstrate appropriateness — objective, asset allocation, fees, expected risk and return — and to communicate asset composition, default performance and fund returns to members. Fees on the default must be reasonable and competitive for the fund’s size and allocation, with direct and indirect fees disclosed to board and members.

We do not invent a maximum TER or rand fee cap. We do not pick portfolios. Prescribed communication formats and frequencies stay unverified here — confirm against the instrument if you need them.

Passive and active considered; no loyalty structures; switch rights

The design file should show consideration of both passive and active strategies — alternatives considered and why retained or rejected. That is not a mandate to be passive, and not a mandate to be active.

Reg 37(2)(f) bars loyalty, tenure-linked, or contribution-count fee or credit structures on the default. Where rules offer member choice, members must be able to switch out of the default at least once every 12 months, with any admin cost on transfer stated (Reg 37(2)(g)).

“Regular basis” review vs the working title’s annual cadence language

The working title on this checklist says “annual review.” Be precise with the board: Regulation 37 requires review on a regular basis. The express “at least annually” wording sits in Regulation 39 for annuity strategy, not here.

Governance cadence can still be yearly in practice; do not invent a yearly legal duty under Reg 37. Guidance Notice 8 of 2018 interpretive nuance stays unverified until an FSCA-hosted PDF is locked — do not assert GN8 tips as fact.

Checklist — Reg 37(2) questions for the pack

• Scope recorded: DC category / condition of employment in scope, or Reg 40 exclusion (e.g. RA/preservation) noted in the pack.
• For each auto-enrolled category: appropriateness demonstrable (objective, asset allocation, fees, expected risk/return) per Reg 37(2)(a).
• Last review date and evidence pack minuted — Reg 37(2)(h) regular-basis trail, not only a once-off 2019 implementation sign-off.
• Default fees documented as reasonable and competitive for this fund’s size/allocation; all direct/indirect fees disclosed to board and members.
• Design file shows consideration of both passive and active strategies — alternatives considered and why retained/rejected.
• No loyalty, tenure-linked, or contribution-count fee/credit structures on the default (Reg 37(2)(f)).
• If rules offer member choice: switch out of default at least once every 12 months; any admin cost on transfer stated (Reg 37(2)(g)).
• Asset composition, default performance and fund returns communicated to members — against whichever format expectation applies (confirm if prescribed).

Questions to table (no product picks; GN8 detail unverified)

• Is this category in Reg 37 scope, or is a Reg 40 exclusion minuted?
• When was the last regular-basis review, and what evidence pack sits behind it?
• Where is the passive-and-active consideration file — not a beauty-parade slide?
• Are loyalty or tenure-linked structures absent from the default fee design?
• Do not elevate “annual” to a Reg 37 statutory duty; do not invent fee caps, GN8 nuances, or portfolio picks — check primary / ask counsel.