​​​You either sleep well or you eat well

Article by Sherwin Govender. Article from Glacier, Sanlam.

It’s perfectly natural for clients to feel nervous about their investments, given the low-return environment over the past few years, and even more so when the client is nearing retirement.

It becomes very difficult to be optimistic with the constant market shocks and negative news both locally and internationally. It is repeated time and time again but it is important to not let fear lead clients to making adverse decisions.

The true value of an adviser

History repeatedly shows us that markets recover from bad periods and that investors who ride out the tough times tend to do much better than those who sell out of the market.

But if we look at investment flows in times of high volatility, we see the converse of this. This is where the true value of an adviser comes in. Being able to stomach tough times and under-performance becomes more a function of trust in an adviser as opposed to knowledge of investment finance principles. Many professionals in the industry have advisers themselves, because they also need someone to help manage their emotions. Advisers also keep the focus on the long term goal of a comfortable retirement and steer clients away from “knee jerk” reactions.

Contextualising your investment

If clients understand upfront what they’re buying, it makes it easier to tolerate future volatility. It’s quite common for clients to refer to investment returns as “interest”. If a client views a market-related portfolio the same way as they would a fixed deposit at the bank then they are more likely to see negative returns as “losing money”. However, if the client can see that they actually own small units of companies (equity), provided loans (bonds) or own a piece of property, then it becomes easier to relate to the under-performance.

It gives investors a different perspective when they look at the JSE Top 40 with the significant negative returns year to date and see a “sale” on top quality companies as opposed to seeing loss.

Major challenges

There are two major considerations when it comes to saving for retirement. Firstly inflation, the ultimate detractor of value. Conservative investments give you a smooth and low-stress ride but they are never going to beat inflation in a meaningful way. My previous manager used to have a saying when it came to risk: “You either sleep well, or you eat well.” I personally would prefer the latter.

The second big consideration is longevity risk. Life expectancies have increased steadily over time and many of us have a high probability of reaching 100 and beyond. This means that our retirement life may well be longer than our working life. This means that growth investments become more of a necessity than a personal choice.

Stay the course

Once your retirement strategy is in place, it is usually best to trust in the plan and keep to the time frames. Adverse decisions are usually made based on short-term market fluctuations which will have long-term ramifications on your retirement. If the focus remains on the ultimate goal (retirement) then the noise tends to soften.

It may seem difficult to ignore the negatives around us. The way I like to think about it, is that investing in the market is essentially betting on the progress of everyone around us. Sure, the challenges and obstacles are numerous but we have, and always will, persevere.

41% of South Africans don’t have any form of retirement plan - report

Article by Personal Finance

A first-of-its-kind report reveals the extent of South Africa’s private retirement savings crisis and its pending impact on government resources in the coming years, as well as the savings disparity among racial groups and the massive divide between men and women.

The first 10X Retirement Reality Report (10XRRR) - the findings of a survey of more than 11-million South Africans - indicates that 46% of people have a profound lack of trust in the retirement industry, while 41% people have made no provision for retirement at all.

The report, commissioned by 10X Investments, reveals a profound lack of understanding of what they have saved and what they need to have saved among existing clients of the retirement industry.

The poll further highlights some worrying trends across within South African demographics.

  • 62% don’t have any form of retirement plan or have little understanding of their existing policy

  • 53% don’t know how much their pension is worth

  • 62% lack trust and confidence when it comes to investing money

  • Less than 35% of black respondents have a pension or provident fund

  • Less than 20% of black respondents have a retirement annuity

  • More than 40% of women across all demographics have no investments or savings in any form

Says 1X Investments Founder and CEO Steven Nathan, “The industry has amassed wealth at the expense of its clients, who frequently discover how poorly their retirement products have performed only when it is too late to do anything about it.

“The industry’s messaging makes strong emotive appeals. It’s high time that the facts get some air time,” he said.

The survey pointed to the gender pay gap in South Africa, where women are understood to earn around a quarter less than their male counterparts, which has a knock-on effect on retirement savings. The report noted that the gender pay disparity is often “exacerbated by the increased likelihood that women’s careers will be interrupted during pregnancy and child-rearing”.

A total of 36% of female respondents said they neither saved nor invested, and 37% saved cash but did not invest it. Very few women, a mere 16%, reported investing their savings in order to grow their wealth.

Emma Heap, Head of Growth at 10X Investments, said: “If women aren’t investing their money for growth they will have little chance of beating inflation and having enough money to draw a decent income after retirement.

“Hopefully the report will inspire women to take control of their finances and ensure their money is working as hard for them as they are for it.”

10X Investments believes that the release of the 10XRRR will promote action and awareness in addressing the underlying issues that are poised to financially cripple the South African economy and millions of individual South Africans.

The release of the 10XRRR comes amid heated debate on rising poverty levels in South Africa, despite government’s national development plan to eliminate poverty by 2030.

The report also aims to spark debate about the lack of transparency and, in some cases, daylight robbery committed by fund managers in terms of hidden costs and fees. 10X Investments is a disruptor financial institution that recognises that the retirement industry has done disproportionately well for itself, but has failed its clients.


Things I wish I’d known in my 20s

“I wish I had known earlier how much the financial decisions I make today will affect tomorrow. If I had, I could have avoided many costly mistakes in my youth,” says Peter Tshiguvho, the new Chief Executive of Metropolitan Retail.

Tshiguvho says he hopes that by sharing some of the financial lessons he and others have learnd the hard way, it will prevent young people – like his two daughters aged 16 and 18 and son of 11 – from making the same mistakes.

He has the following tips:

Say no to instant gratification and peer pressure

When I was younger, many of my friends wanted to impress women and each other by buying expensive things that they actually couldn’t afford. This resulted in them taking out multiple credit and store cards when they first started working. It was great for a while because they could buy whatever they wanted, whenever they wanted, but a year later, all their earnings were going towards paying off their debt.

While it might be tempting now to take out credit and store cards, you’ll be paying the price later on – sometimes even for several years. You need to ask yourself if whether the people you are trying to impress are worth the pain. Your friends and partners should like you for who you are, not what you own.

Find a financial advisor

 It’s important to have a financial advisor from the minute you start earning money so that you can make better decisions on what to do with it (and don’t end up drowning in debt). Many people are reluctant to speak to a financial advisor because they are worried that their money will be taken from them. However, a financial advisor will work with you to come up with a financial plan that can be reviewed on an ongoing basis and adjusted in line with your needs. If you allow yourself to engage with a financial advisor at this early stage, you can make informed financial decisions that can pay off handsomely in future.

Plan for retirement right away

While retirement may seem a long way off, you need to plan for it as soon as you start working so you can harness the power of compound interest and be set up for a life of leisure. Those who don’t save early often feel caught off guard when retirement age starts creeping up on them and, while they might try put away large sums of money at the last minute, they won’t have the benefit of compound interest and may even compromise their current quality of life by doing so. Your financial advisor can guide you on the best policy to get, based on what you can afford at the moment.

Get life insurance early

Taking out life cover at a young age comes with a number of advantages - you’re in good health, it’s cheaper and you get much higher cover. If you leave it too late, by the time you apply your premiums will be more expensive and you won’t be as healthy.

“Young people today are fortunate that they have a world of information at their fingertips and don’t have to learn these lessons the hard way,” concludes Tshiguvho.

Common mistakes when drafting a Will and how they impact your wishes

Article by Kezia Talbot, Legal Advisor and Remay de Kock, Legal Adviser at BDO SA. Article published on Maya on Money.

It is officially National Wills Week. Wills can get quite tricky – there are several common mistakes that are made when drafting a Will that can have a serious impact on your wishes.

One of the most difficult aspects we have had to deal with in recent years, is to ensure that clients realise the importance of having a valid Will in place. The most difficult part is probably to make sure clients understand why we “sell” the concept of having a Will. Many people’s first reaction to this topic is that there are many other more pressing issues that have to be dealt with – tax, education, investments (for the short and long term), holiday funds, etc. These are things which have to be handled in the present in order to ensure a stable and secure future. The second reaction is that there are excessive – and “unnecessary” – costs associated with drafting a Will. If I know to whom I want my estate to devolve, why do I need to pay avoidable costs?

If we rely on the client’s perception of dealing with a means to an end to ensure a stable and secure future, the importance of having a valid Will in place is one of the foundations to achieve this. When drafting a Will you ensure that your affairs are in place in order to guarantee a smooth process of administration, but you also ensure that sufficient means are met in order to guarantee that your family will be looked after at your death. Thus, you are essentially ensuring a game-plan in order to suffice for current and future events.

When dealing with new clients and their estate planning needs, we often have to deal with Wills which are not only outdated, but as a result of changed circumstances reflect neither the client’s current affairs nor their wishes. A properly drafted Will warrants a process where you are certain of a document which is in line with your current circumstances and any changes are in line with your wishes.

Whether you already have a valid Will or not, these are some of the most important the factors to consider:


When nominating an executor, ensure that successive nominees are mentioned in case of failure, for whatever reason, of the first nominee. I have come across situations where the spouse passed away, followed by their children. There were no other family members and the administration process suffered heavy delays as a result thereof.

Defining heirs

To avoid confusion, heirs should be appropriately defined considering their relationship to the Testator and identity number, in order to easily identify them during the administration of the estate. A bequest of “R100 000 to Chris Marx” is insufficient taking into account the fact that there are three people with the same name related to the Testator.

Successive heirs

Testators all too often do not provide for alternative heirs in the event of the heirs predeceasing the Testator. Although the Testator’s intention might be to have a specific person or class of persons inherit failing the others, if this is not clear from the Will, your executor will have to refer to the Wills Act to provide for a solution – a solution which might not be consistent with your wishes. To avoid these situations, ensure that provision is made for alternate heirs for all bequests mentioned.

Provision for minor children

When dealing with minor children, a lot of confusion exists as to the proper manner to deal with this situation. Proper advice needs to be obtained to confirm if a Trust is to be established for their benefit or if funds can be paid directly to the guardian. In most cases it is advisable to make provision for a Testamentary Trust, but each case needs to be assessed on its own merits, depending on the facts of each situation. Remember, if you do not make provision for a Trust or insert a clause that funds can be paid directly to a guardian, then all funds payable to a minor will be paid into the guardian’s fund.

Foreign assets

If you own foreign assets, it is of the utmost importance to ensure that you properly deal with these assets. When considering if a South African Will alone is sufficient for your worldwide estate, consider the following common law rule which is used in most scenarios: when dealing with movable assets, such as bank accounts and investments, the law of the Testator’s last domicile governs the validity and distribution thereof, whilst, when dealing with immovable property, the law of situs thereof is used to govern the validity and distribution thereof.


Your Will needs to be signed by yourself and two witnesses in your presence and in the presence of each other. Ensure that the witness signing the Will is not a beneficiary, executor, guardian, trustee in terms of the Will or any spouse of the aforementioned persons. Should any of these persons sign as a witness, although not invalidating the Will, they will be disqualified from receiving any benefit stipulated therein.

Liquidity constraints

Remember that before any distributions can be made to your heirs, all liabilities – both before and after death – have to be paid. Thus, when attending to your Will, think about the consequences of the bequests:

  • Will you have sufficient funds available to settle your debts?

  • What are the consequences if funds are not available?

If no other alternatives are available, assets will have to be sold from the estate, or heirs will have to have liquid funds available, adding pressure to their financial capabilities, in order to settle outstanding debts so as to prevent assets, which may have a sentimental value, from being sold from the estate. Take cognisance of your policies, investments, retirement annuities and how these assets fit into your wishes at death. If you have a policy with a beneficiary nomination, then these funds will pay directly to the beneficiary, regardless of your Will. Testators tend to forget these funds and do not even take them into consideration when attending to the Will. These funds might prove to be useful in establishing surplus liquidity in your estate.

Tax consequences

Taking into account liquidity constraints and your ability to settle taxes which arise at death, be aware of the tax implications of each of your bequests. If you wish to bequeath your entire estate to your spouse, as it entails a tax free distribution, you are probably not completely doing this for the right reasons. Remember that you are in effect only delaying payment of taxes and that your spouse will have to take responsibility for all taxes payable thereon at their death. The section 4A abatement of R3.5million is also at your disposal, thus fully utilise your tax relief before making decisions which do not correlate with your actual wishes.

Drafting a Will entails an understanding of all factors which may have an influence on your bequest. Consider speaking to a fiduciary specialist to guide you through the dynamics of proper estate planning, taking into account all of the above, and how it impacts your wishes regarding your family and loved ones.

What to look for in a good fund manager

Article by Martin Hesse, Personal Finance

You’re looking for somewhere to invest. You have decided what types of collective investments you want to be in (which are appropriate to your circumstances), and must now decide on asset managers that you believe will do the best job for you.

This is not a decision to be taken lightly, and an experienced, independent financial adviser would help you enormously.

Two investment experts, Prasheen Singh, a Director and Consultant at investment consultancy RisCura, and Rory Maguire, the Managing Director of British investment consultancy Fundhouse, offer the following advice.
(For clarity, the unit trust management company is referred to as the “asset manager” and the person managing the fund the “fund manager”.)

1. Do your research

Singh says, given the wealth of information available today, you can do your own research. “Visit the asset managers’ websites and compare the fund fact sheets (or ‘minimum disclosure documents’) of the funds you’re considering. Ensure you understand the risk profile of the portfolio and the mix of asset classes.”

Also research the company, fund manager and fund on websites apart from the company’s own to get a balanced picture.

2. Find a company you can trust

Speaking at the recent Allan Gray Investment Summit, Maguire says: “Asset managers are stewards of your capital. It’s important that they understand that the money they manage is yours – there must be trust.”

There are a number of things you can check for:

  • The business structure must allow for a long-term view, without shareholders pressurising the company to chase short-term earnings. Privately owned companies and family- or staff-owned companies tend to do better in this respect, Maguire says.

  • Be cautious of large funds and companies with many funds. “Asset managers get paid on the size of assets that they manage. A large fund can constrain a manager by being less liquid and less able to access smaller companies,” he says. “So look out for asset managers with limited capacity. It’s frustrating when an asset manager closes a fund to new investment. As hard as that is, it is telling you that they are putting their profits second to your returns.”

  • There must be honesty and transparency. “Look for honesty, clarity, someone who admits mistakes. Avoid managers who are obfuscating and put catch-phrases and jargon in front of you to throw you off the scent,” Maguire says. Singh agrees: “Good fund managers should be able to explain their approach and how they intend to achieve their objectives in a manner that makes sense, even to a novice investor.”

  • Fund managers who have their own money in their funds have a higher success rate than those who don’t, Maguire says. “They are going to care more and try harder. They have to eat their own cooking.”

3. Look for good-quality people

Maguire says there must be consistency in how the fund is managed, and this comes through a stable, professional team. The key things to look for are:

  • Passion

  • Experience

  • Differences of opinion. “Look out for companies that may be employing similarly-minded people. You get better answers through disagreements and proper debate,” Maguire says.

  • The quality of the people behind the scenes.

  • Employer of choice. “It’s a poor indicator if a company is losing people to its competitors. You want to be attracting good people and retaining them for fairly long periods,” Maguire says.

  • Temperament. “Managers that add value to your portfolio are those that take different views to the market. But to do that requires the right temperament, which is a very hard thing to pinpoint. However, negative temperament is quite easy to spot. When you get defensive, ego-based answers to performance dips, be careful.”

4. The investment process must be consistent

Asset managers employ different investment styles: some focus on value (assets at below-average prices), others more on quality (how well a company is run, its profitability, and its prospects), and others on growth (young, progressive companies with the potential to grow exponentially).

Whatever the style, the company must be consistent in its investment process, which should counteract the human biases that result in bad investment decisions. This process, Maguire says, must be fairly simple to understand and “must be implemented ruthlessly”. But it also needs to allow for differences of opinion. “We look for outliers, where fund managers are sticking their necks out. And the process needs to allow for that. When you look at a fund manager’s decisions and track record, those outlying moments are important to pin down.”

5. Look at the manager’s track record

The two experts say you shouldn’t pay much attention to awards, although Singh says it may be worth looking at a fund that has consistently won awards over an extended period. Don’t forget, the person managing the fund may have changed since the fund's last award.

If you are looking at past performance, which is no guarantee of future performance, Maguire says it’s worthless looking at anything less than five-year periods. “The top South African fund managers are quite consistent for five-year performance over long periods. Any shorter period is absolutely meaningless. There is nothing predictive to be gained by looking at shorter than five years, and five years is slightly less predictive than 10,” he says.

6. Consider fees in context

All management fees should be clearly stated on the fund’s minimum disclosure document, and these may include a performance fee. Singh says the lower the risk for the fund, the lower the fee should be. For example, a cash fund will have lower fees than an equity fund because it is lower risk. “Remember that fees represent the type of product, not the quality of the product. Higher fees are not an indicator of better quality in the investment world.”

Importantly, make sure you understand the total investment cost, which may include advice fees, Singh says.

7. Be patient

It’s essential that once you have made your choice, you stick to it. “It takes time for a fund to achieve its objectives – typically between three and five years,” Singh says. “There will be periods when the fund’s strategy is out of favour, and that’s okay. You need to consider it in a long-term context and understand how and why the strategy that is out of favour today can make a comeback in a few years’ time.”

Savings bonds will no longer bypass your estate

Article by Personal Finance.

Investors in RSA Retail Savings Bonds have been informed by National Treasury that, with effect from October 1, the savings bonds will no longer offer the option to nominate beneficiaries to receive the proceeds on the investor’s death.

In a report in the Alexander Forbes Lighthouse newsletter, Jenny Gordon, the Head of Legal Retail at Alexander Forbes, says that, in future, the savings bonds will, on the death of a bondholder, pay directly into the deceased estate.

The intention is to align the savings bonds with the Administration of Estates Act, which states: “Any person who at or immediately after the death of a person has the possession or custody of any property book or document which belongs to or was in the possession or custody of such deceased person at the time of his or her death… shall upon written demand by the… executor … surrender any such property … to the executor… provided that it shall not affect the right of that person to remain in possession of such property under any contract or right of possession or attachment.”

Gordon says: “The right of an investor in an RSA Retail Savings Bond to nominate a beneficiary for proceeds or ownership of the bond was a feature which was inconsistent with the law of succession, which requires property of the deceased to pass on death in terms of a will.

“An RSA Retail Savings Bond is property that exists in the estate at date of death. All property and assets that exist in an estate should be bequeathed via a will and should be dealt with in the estate of the deceased.”

Gordon says the exception to this rule is the proceeds of a life insurance policy.

“The proceeds of a life insurance policy are payable on death. The proceeds do not exist in the estate before death. A beneficiary nomination on a life insurance policy is a special contract called a ‘stipulation alteri’, or a contract for the benefit of a third party. The policyholder contracts for the insurer to pay the proceeds to the beneficiary on the death of the policyholder and not to the estate.

“The death benefit did not exist in the estate of the policyholder during his or her lifetime, so it need not be bequeathed via a will. Current practice extends this to beneficiary nominations for ownership on endowment policies and sinking funds, although this is not clear-cut in law,” she says.

Treasury introduced the retail bonds in 2004, and they have proved a popular means of saving. There are fixed-rate bonds with terms of two, three and five years, and inflation-linked bonds, with terms of three, five and 10 years.

Pay less tax? Is there a way?

Article written by WellSpent

I am sure that many of us have thought about how we can pay less tax. As you’ve worked through the tax season, you’ve likely reflected on the amount of money you’ve handed over to SARS this last tax year.

There is a perception out there that, by being extremely clever, you can pay less tax.

People also think that if they can find the right tax ‘guy’, that he’ll help them save a bucket-load of tax and get a fat refund.

Tax advisors get asked this all the time, so it’s likely something that weighs on people’s minds – a LOT.

It’s frustrating to get asked this so often. It sounds like people are wasting a lot of time on false and wishful pursuits. There are much better personal finance questions one should be asking – ones that’ll actually make a difference. Allow us to give you an honest account as to what your options really are and how important tax advice is – or isn’t.

Your expense account is not what it used to be.

Our tax laws, especially around remuneration (the stuff you get paid by your employer every month) have come a long way in the last 10 years. Way back when the West was wilder – it seemed like everyone had a car, travel and cellphone allowance.

The old days of salary structuring are essentially over. If your employer has agreed to pay you an amount of R25, 000 per month – you will pay tax on this amount, no matter how you try and carve it up between allowances and benefits[1]. In most cases, employers don’t give you options. Simply because if they get it wrong, they are responsible for the PAYE that SARS should have received. It’s not worth their while to try and structure a package for you.

So let’s conclude on this and move right along. If you’re a salaried employee and you’re not a small business owner or earning rental income from a property, or from a side gig – you do not have options around structuring your salary to pay less tax.

Tax Guys are helpful, but for boring reasons

Finding a good person to help you with your taxes is not a bad idea. Tax has become increasingly complex of late, and it can be daunting to complete a tax return by yourself. The mental stamina and patience required for correcting mistakes with SARS can take months. People generally don’t like to deal with SARS for any longer than they need to. So if you’re uncomfortable with completing a tax return by yourself, then find someone who can help you out. See what they do and give it a go next year. If your circumstances don’t change, it’s unlikely that how you complete your tax return will change much either.

If you’re a salaried employee and not a business owner, then finding someone to help you with your tax should only be driven by your desire to get your taxes done quickly and correctly. Not be because you think a very clever advisor will save you lots of money. That doesn’t happen. It cannot. You’ll notice how emphatic I’m being here. That’s because “Oh you’re a tax consultant, can you get me a huge refund?” is as annoying as “Oh, you’re a comedian, tell me a joke.”

Your options are limited by tax laws, and a reputable tax practitioner can only operate within the framework of those laws. They can’t make stuff up. If you’re wanting to pay a premium for a tax advisor with the hope of getting a big refund, rather save your money and spend that on a good financial advisor.

Common-sense tax savings.

There are ways to pay less tax, but they don’t involve clever maneuvering or allowances. Come to think of it, we’ve discussed most of them already at WellSpent, but to put this discussion to rest, we’ll list the biggest and easiest to achieve.

Contributions to a pension, provident or retirement annuity fund

This is by far the most common and effective way to reduce your annual tax bill. The laws around making contributions to retirement annuities, pension, and provident funds have changed recently. You can now get a whopping 27.5% deduction for amounts contributed to your retirement. The general rule is that this deduction is limited to R350, 000 per tax year.

So let’s just assume that you have some idle cash lying around, perhaps money in an emergency fund that is superfluous to your needs; let’s go with R100, 000.

Simplistically put – If you started a retirement annuity today and made a starting R100, 000 contribution, you would get a deduction of R27, 500 in your current tax year. If your effective rate of tax payable was 30%, you should get a refund from SARS of R8, 250 (R27, 500 x 30%), assuming you don’t owe SARS any other tax.

You’ve effectively saved R100, 000 for retirement, in a way that will maximize your long-term growth, but that only cost you a net R91, 750.

Well done – the South African National Treasury has just subsidized your investment!

Why not use your SARS refund money to start a Tax-Free Savings Account and see how big you can get it, all with refunds from SARS.

Making a donation to a Public Benefit Organisation.

Making donations to Public Benefit Organisations, registered such that they can issue an 18A certificates, will allow for the deduction of donations made from taxable income. Deductions of this nature are capped at 10% of taxable income.

You may feel that the government is incapable of spending your money wisely. If that’s the case, you could identify a charity or other Public Benefit Organisation that is doing work you think is important, and give them a big chunk of your tax bill.

Manage your interest income

As a natural person, you’re eligible to earn a certain amount of interest income per year, without paying tax on that amount. At present, that amount of interest is R22, 800 p.a. Earn any more than that, and you start paying tax at your marginal rate of tax.

If you are in a position that you need to hold a certain amount of stable value for a short term need or goal, consider splitting some of your investment in something that is not interest bearing – just enough to avoid paying unnecessary tax on your return.

In our article on emergency funds, we mentioned a stable fund. These are unit trusts that might consist of half interest-bearing instruments and half dividend income. The Dividend Tax you would pay on your dividends at 20% (from March 2017 onward) is most likely a lot less than your marginal tax rate.

There are many stable funds on offer. Do some Googling and investigate some.

Be aware that earning slightly more interest in a tax year that is tax-free, is likely to push you over the provisional taxpayer threshold. This would require provisional taxpayer registration. This is not too dire. It does add more tax return complexity to your life. It also means you need to submit additional tax returns to SARS during the tax year.


There are quite a few legitimate ways to save on tax, and no sneaky, brilliant scheme ways. So, no, I can’t get you a huge refund. Kindly stop asking.

Why you may not have a claim on your partner’s living annuity

Article written by Maya Fisher-French

Court case highlights the lack of rights for spousal claims when it comes to a living annuity.

When it comes to retirement vehicles such as a provident fund, pension fund or retirement annuity, depending on the marriage regime, a spouse could have a claim to the funds on divorce. Based on the “clean break” principle, the non-member ex-spouse could receive a lump-sum payment from the fund.

The rules of the Pension Funds Act require the trustees to consider all financial dependants when the member dies. If the spouse is a financial dependant, he or she would receive benefits from the retirement fund. This is not however the case with living annuities, which are purchased post-retirement, as living annuities do not fall under the Pensions Fund Act.

A recent court case further confirmed that on divorce, the spouse would not have a claim on the capital amount of a living annuity. The Supreme Court of Appeal ruled that the capital of a living annuity does not form part of the assets of the annuitant (the person with the living annuity) on divorce. This is very different from a pension or provident fund where the spouse could have a claim.

The court determined that as the living annuity is part of an insurance contract, the underlying capital value cannot be included as part of the annuitant’s accrual. In other words, the capital belongs to the insurer and not the annuitant.

While the spouse does not have a claim on the capital, he or she could have a maintenance claim on the monthly income from the annuity. However, according to Jenny Gordon, Head of Retail Legal at Alexander Forbes Retail, the problem with the court ruling is that while the annuity income can be used in the assessment of a maintenance claim in the case of divorce, “what is not clear is how this income is calculated since the annuitant can choose an income of between 2.5% and 17,5% of the capital.” This means that the annuitant could select the minimum income of 2.5% in order to avoid paying significant maintenance.

The court case also ruled that this payment from the income of the annuity can only be paid for as long as the annuitant is alive. On death, unlike a retirement fund which falls under the Pension Funds Act, the annuitant does not have to select the spouse as a beneficiary and could in fact leave all the funds to another individual if he or she chooses. If the annuitant has not selected a beneficiary, then the living annuity is paid to the estate.

“There is obviously a level of unfairness in the law at present,” says Gordon, who explains that during membership of a retirement fund, the law recognises the pension interest as being an asset in the estate of the member spouse for the purposes of divorce. However, as soon as the member exits the fund and buys a living annuity with the benefit, the other spouse loses those rights.

Gordon says industry organisations have made submissions to the Regulator for the law to be changed to recognise a way for the pension to be split between divorcing spouses after membership of the retirement fund has ended. Feedback on this is still awaited.

Rand decline 'more complicated than domestic issues'

Article by Khulekani Magubane, Fin24.

The reason for the decline of the rand on global currency markets may have more to do with external than domestic factors that many would blame for its weak performance in the week that was.

This is according to Peregrine Treasury Solutions’ Corporate Treasury Manager Bianca Botes. When the rand fell this past week, spectators were quick to point the finger at local factors including remarks about land reform.

Botes wrote in a circular from Peregrine Treasury Solutions that emerging markets largely suffered severe blows due to the sale of riskier assets by investors. As such, she wrote, there are many factors that contributed to the emerging markets sell-off.

“The trade war has played a key role in the global economic dynamic and the effect we have witnessed on emerging markets. Initially starting as a spat between China and the US, this is now a full blown trade war filled with retaliation in terms of tariffs from countries across the globe,” said Botes.

Botes said Turkey, a key player in the emerging market sector, is the latest target with US President Donald Trump doubling tariffs on Turkish steel and aluminium imports.

“On Friday, Turkey experienced what could be classified as a currency bloodbath as the lira plummeted by over 18% bringing its 2018 losses close to 40%. Turkey is now accusing countries – the US being the most obvious subject of discussion – of engaging in economic warfare on the country following a failed coup in 2016,” Botes said.

Emerging markets have been lagging behind on the journey to stability and recovery from the economic crises of the past decade, she wrote. Turkey, South Africa and Brazil have all been victims of slow economic growth, rising government debt and poverty.

“We all owe something to someone, whether it's a lunch or a thank you note. It is no different in the market environment. Unfortunately, in the financial markets this debt is expressed in billions of dollars, and an IOU simply won't suffice,” Botes wrote.

A slowdown in manufacturing in China – a result of the trade wars and China’s move from a being producing economy to a consuming economy – impacted on emerging markets that rely on trade between the two economies.

“As China consumes over 50% of the world's hard commodities, one can see how a commodity driven country such as South Africa can feel the pinch when this number starts to decline,” she wrote.

Emerging markets, then, were the riskier element in the global economy and often bore the brunt as investors sought to protect their investments, she concluded. 

The Liberty ship turns slowly

Article written by Sasha Planting, MoneyWeb

After a year in the hot seat Liberty CEO David Munro appears to have succeeded in stabilising the company, at the very least. His challenge now is to grow new business volumes in an economic climate that is not supportive of growth.

The financial services company delivered normalised operating earnings up by 18% to R958 million, supported by increased earnings from its South African insurance operations and Stanlib businesses. However, weak investment markets detracted from the shareholder investment portfolio earnings (which delivers a return on shareholder funds invested) resulting in normalised headline earnings increasing by just 5% over the prior period.

“The results for the half year [to June 30th] were good, but not good enough,” Munro told Moneyweb. “They reflect a stabilisation of our business, but we are still some distance from where we need to be.”

Efforts to restore the financial performance of the SA retail insurance business, improve the investment performance of Stanlib, simplify the group’s overall organisational design, expand its relationship with the Standard Bank Group, and optimise investments in growth businesses have gained traction, but the financial metrics are not reflecting this yet.

This is visible via Munro’s key “measures of progress” which shine a light on current and future performance. According to these measures new business is being written at a margin of 0.7% (almost a giveaway); the return on equity is unchanged at 12% and growth in embedded value is 5%. “All of these metrics are better than the baseline established in December, so there has been change,” says Munro. In December the new business margin was 0.4% (the target is 1% to 1.5%) and growth in embedded value was 1% (the target is 12% plus). The return on equity (ROE) target is 15% minimum.

1 Screen-Shot-2018-08-02-at-5.46.14-PM.png

Source: Liberty results presentation

To be fair, these targets are to be achieved by 2020 – but Munro is in a hurry and wants to see visible signs of change. For instance, while on the surface the 5% growth in normalised headline earnings is acceptable, when you drill into the operating numbers there are some disappointments, which is why the ROE remained flat, he says.

The first of these is that while the value of new insurance business grew by an impressive 57%, this was thanks to cost cutting, efficiencies and better product design rather than new insurance business written. “We are doing the right things, but we need to see an improvement in the volume of new business coming in,” says Munro. “That will be our focus in the second half.”

The performance of Liberty Health and Liberty Africa Insurance, which returned losses of R45 million and R5 million, was also disappointing. “You absolutely have to make money from your financial services businesses,” he says. “It is critical. These are good businesses, with growth potential. But they lack scale.”

In addition, while much work has been done to improve investment performance within asset manager Stanlib’s multi-asset and equity franchises, with increased third-party net customer cash inflows into non-money market portfolios, it is a long-run game, Munro says. Stanlib South Africa saw net customer cash inflows increase to R8.4 billion from R5.6 billion in the prior period. Stanlib Africa however experienced outflows of R7 billion, mainly related to the termination of one large institutional mandate.

“These results suggest that Liberty’s turnaround is on track,” says Adrian Cloete, a portfolio manager at PSG Wealth. “They started the process of turning Stanlib around and the business is contributing positively to earnings and individual arrangements [the South African retail insurance business] is showing positive results. I think they are doing the right things.”

Liberty share performance

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One area that requires attention, he says, is the bancassurance agreement with Standard Bank, which sees Standard Bank selling Liberty insurance, health, and investment products through its distribution network. The total indexed new business premiums sold under the agreement increased by a disappointing 3% on the prior period.

Liberty also needs to improve its new business margin. “Liberty’s share price is currently trading at a 15% discount to its group equity value, which is R138.66cps,” says Cloete. “But if they can bump up margins and grow enterprise value by about 12% a year, the market will reward them. But it needs the evidence.”

To put it in perspective, MMI trades at a 38% discount to group equity value, while Sanlam trades at a 26% premium. “The market is cautious, but has already given Liberty some credit for changes made,” he says.

Liberty has declared an interim dividend of 276 cents per ordinary share.

How SA trusts with offshore beneficiaries are taxed

Article written by Phia Van Der Spuy, Personal Finance. 

South African families who have created a trust in South Africa may be living in another part of the world. It is important to understand the tax rules and other implications for foreign beneficiaries.

Where do trusts pay tax?

Trusts are taxed in South Africa if they were formed or established in South Africa. They are also taxed in South Africa if they are foreign trusts but are managed in South Africa. If a foreign trust holds assets, such as property, in South Africa, the trust is required to register with the South African Revenue Service for tax purposes. Foreign trusts, therefore, are taxed on a “source” basis; on such income and not on a “residence” basis. 

These rules may result inlead to  a trust – whether South African or foreign trusts – being taxed in more than one jurisdiction. South Africa has entered into treaties with various countries that determinein order to agree in which one country a trust will pay tax. In most cases, the country in which a trust is managedThe place of effective management of the trust  will in most instances  determine where the trust pays tax.

According to the Income Tax Act, a South African-registered trust is defined as a South African resident. TheOECD Organisation for Economic Co-operation and Development (OECD) treaty takes this one step further and states that if a trust is registered in South Africa but conducts its business, or earns its income and capital gains offshore, it is still deemed a resident of South Africa and will be taxed in South Africa. Furthermore and conversely, the OECD treaty states that if the trust is managed in South Africaeven if it is registered offshore, it is deemed a South African resident, even if it is registered offshore, and will be taxed in South Africa.

South Africa is one of the many non-member countrieseconomies with which the OECD has a working relationship, in addition to its 34-member countries.

How are South African residents taxed on income distributions to foreign beneficiaries? 

If a South African discretionary trust distributes an amount to a non-resident beneficiary as a result of a donation, settlement or other similar (gratuitous) disposition, such as a soft loan, made by a South African resident, and this amount would have been included in the non-resident beneficiary’s income if he or she had been a resident, such amount will be deemed to be income in the hands of the South African resident donor or funder and included in his or her taxable income.

If an asset is disposed of for less than its market value, the difference between the selling price and the market value will be deemed a donation. The resulting income on the difference between the selling price and the market value will be treated the same way as above.

Where there is an expense, allowance or loss that the foreign beneficiary could have claimed as a deduction from the income (if he or she had been a resident in South Africa), such expense, allowance or loss is deemed to have been incurred by the donor or funder, but is limited to the amount of income distributed. As a result, a loss cannot be created from such deductions. 

If a non-resident paid foreign tax on the same amount (which actually accrued to him or her), the South African donor or funder may deduct a rebate equal to the foreign tax that has been paid.

How are South African residents taxed on capital gains distributions made to foreign beneficiaries?

Where a South African discretionary trust distributes a capital gain to a non-resident beneficiary, the South African resident donor or funder who made the donation, settlement or other similar (gratuitous) disposition (such as a soft loan) – not the non-resident – will be taxed on the capital gain that results from the disposition.

If a non-resident paid foreign tax on the same amount (which actually accrued to him or her), the South African donor or funder may deduct a rebate equal to the foreign tax paid.

Other tax implications

It is important to understand whether other countries may tax foreign beneficiaries on South African trust income, apart from the taxes discussed above. Trustees need to do a proper assessment of beneficiaries to understand and plan for any possible negative international tax consequences.

Exchange control implications

A South African trust runs the risk of being classified as an “affected person” if it has foreign beneficiaries.

An affected person is a body corporate, foundation, trust or partnership operating in South Africa, or an estate in respect of which either:

  • 75% or more of its capital, assets or earnings may be used for payment to, or to the benefit in any manner of, a non-resident; or
  • 75% or more of its voting securities, voting power, power of control, capital, assets or earnings are directly or indirectly vested in, or controlled by or on behalf of, a non-resident.

“Affected persons” may obtain financial assistance in South Africa subject to certain restrictions. Financial assistance includes taking up securities, granting credit, lending currency, discounting, factoring and guaranteeing or acceptance any obligation. In other words, if the trust needs to borrow money, it may be restricted.

A possible way to counter the negative effect of a trust being labelled an “affected person” is for the trust deed to include a clause stipulating that if a non-resident beneficiary’s participation in allocations, payments or applications for his or her welfare results in the trust, or any company or other entity in which the trust has a direct or indirect interest, being classified as an “affected person” for the purposes of the exchange control regulations, the trustees may, by unanimous decision, restrict such a beneficiary’s participation in allocations, payments or applications for his or her welfare, to avoid such classification, treatment, preclusion or restriction, with the right to reinstate such person’s participation when the restrictions are no longer necessary or operative.

Be aware of the implications

It is important to be aware of the tax and other implications of non-resident beneficiaries of South African trusts. Always use the services of a professional to draft your trust deed. It may be wise to appoint an independent trustee who can guide the other trustees on technical issues such as those described above.

Phia van der Spuy is a registered Fiduciary Practitioner of South Africa and the founder of Trusteeze, which specialises in trust administration, and the author of Demystifying Trusts in South Africa (Createspace).

Portfolio Managers talk Modern Portfolio Theory

Source: Investopedia

At Meet the Mangers on Monday 23 July, top financial advisers were opened up to speak directly to portfolio managers.

One of the topics raised from the day was the Modern Portfolio Theory (MPT), hypothesized by Harry Markowitz.

Also called "portfolio theory" or "portfolio management theory," MPT is an investment theory based on the idea that risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward. It is one of the most important and influential economic theories dealing with finance and investment.

MPT suggests that it is possible to construct an "efficient frontier" of optimal portfolios, offering the maximum possible expected return for a given level of risk. It suggests that it is not enough to look at the expected risk and return of one particular stock. By investing in more than one stock, an investor can reap the benefits of diversification, particularly a reduction in the riskiness of the portfolio. MPT quantifies the benefits of diversification, also known as not putting all of your eggs in one basket.

Consider that, for most investors, the risk they take when they buy a stock is that the return will be lower than expected. In other words, it is the deviation from the average return. Each stock has its own standard deviation from the mean, which MPT calls "risk."

The risk in a portfolio of diverse individual stocks will be less than the risk inherent in holding any one of the individual stocks (provided the risks of the various stocks are not directly related). Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rains or shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio. 

In other words, Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's nest egg.

To help further understand this notion, watch the video below or click here.

The new insurance act - what you need to know

Article by Business Tech

A raft of changes to insurance legislation came into effect on July 1, 2018, which will enhance consumer protection and provide new opportunity for insurers.

The Insurance Act was passed by the National Council of Provinces in December.

It brings with it changes to the Long Term Insurance Act (LTIA), Short Term Insurance Act (STIA) and more specifically the Policyholder Protection Rules (PPR), creating new opportunities for existing insurers and providing for licensed micro-insurance products.

Amendments to insurance legislation aim to give more South Africans the opportunity to cover themselves and their assets and will provide for greater protection for policyholders, including a 48-hour turn-around time for funeral pay-outs.

Johan Ferreira, Legal and Compliance Officer for Africa Unity Life (AUL) said that a number of new products can be provided under a micro-insurance licence.

“Insurers will go through a process with the Prudential Authority to convert their current licences and, if part of their strategy, apply for a micro-insurance licence which can include a number of different life and non-life classes of insurance as set out in Schedule 2 of the new Insurance Act,” he said.

Schedule 1 of the Insurance Act amended the LTIA and STIA to differentiate between registered insurers and licensed insurers.

During the transition period, under these new amendments the LTIA and the STIA will govern market conduct while the Insurance Act will apply from a prudential point of view, to all insurers.

These amendments are designed to introduce micro-insurance products – traditionally funeral plans – more accessible, affordable and fair for consumers.

The second tranche of amendments to the PPRs will bring into effect the National Treasury’s Microinsurance Policy Document, which specify micro-insurance product standards under Rule 2A of the draft PPR’s.

The new Insurance Act and the PPRs provides for regulatory and supervisory frameworks which will make it easier for low-income earners to access quality insurance products, said Africa Unity Life.

It also aims to turn informal insurance providers into formal, regulated and resourced insurance providers, the financial service provider said.

The PPRs will also see that products are designed in such a manner to support an improved consumer understanding of the different insurance products.

The Insurance Act introduces new authorisation classes for the industry.

Under this Act, micro-insurers may offer life and non-life insurance. Life insurance includes classes such as credit life insurance, risk insurance and funeral cover.

Non-life insurance includes motor insurance, property insurance, legal expense, as well as accident and health insurance, Africa Unity Life said.

“Insurers will have a blank canvass to roll out new innovative products subject to products standards, of course. These standards protect customers in a number of ways, like the maximum term cover that can be provided; shorter waiting periods and so on,” said Ferreira.

“Active policies written under a traditional licence will not be affected at this stage unless transferred into a microinsurance licence.”

Prudential Standards state that micro-insurers may not, without the approval of the Prudential Authority, issue a life or non-life insurance policy that provides for a loyalty benefit, no-claim bonus or rebate claim.

Under the Prudential Authority, policies will be capped at R100,000 for life insurance and R300,000 for non-life insurance.

There will also be caps on the maximum benefit for funeral policies, whether provided by micro-insurers or traditional insurers, at R100,000.

Consumers will now have a range of micro-insurance products to select from if they want to manage their assets and should therefore be on the lookout for new policies.

“South Africa is a unique country and we need something unique in order for everyone to manage their own risk no matter how rich or poor you are.

“The Insurance Act and the micro-insurance product standards under the new Policyholder Protection Rules will make this a possibility. It is exciting times in the insurance industry,” said Ferreira.


Important changes for micro-insurers includes:

Caps under micro-insurance policies are limited to R100,000 for life insurance and R300,000 for non-life insurance;

Caps on the maximum benefit for funeral policies offered by both micro-insurers and traditional insurers will be capped at R 100 000 to ensure that policyholders are afforded the same protection;

To avoid confusion, only micro-insurers will be allowed to use the word “micro-insurance”;

To ensure that policies are easy to understand, micro-insurance policies and funeral policies may only provide risk benefits with no surrender value or investment elements. A micro-insurance policy may not make any of its policy benefits subject to the principle of average;

Contract terms: Micro-insurance policies should have a contract term of not more than 12 months for life business;

Variations of the terms and conditions of micro-insurance policies are prohibited unless the insurer can demonstrate that reasonable actuarial grounds exists to justify the variation or change, and that the variation will benefit the policyholder or member concerned;

Waiting periods are restricted to a quarter of the contract term for death or disability due to natural cause; no waiting periods are allowed for policies covering accidental death or disability; no waiting periods are allowed for credit risk policies; no waiting period may be imposed when a policyholder cancels a policy with one insurer in favour of a policy providing similar cover with another insurer;

Exclusions will not be allowed for funeral and credit life classes of micro-insurance policies; exclusions for suicide will be allowed for a period not exceeding 12 months from inception of the policy regardless of whether a micro-insurance policy or a funeral policy has been renewed during the 12 month period. No exclusions should be allowed for pre-existing health conditions for funeral polices and credit life insurance policies;

Excesses will only apply to non-life micro-insurance policies. These may impose only one standard excess per risk event covered which may not exceed 10% of the value of the policy benefits payable for the risk event, or R1,000, whichever is the lower amount;

Micro-insurance and funeral policy claims must be settled within 48 hours after receiving all the necessary documentation;

Insurers must reinstate policyholders on the same terms as previously, after a lapse. It is, however not mandatory for the insurer to reinstate a policy when it has lapsed and the insurer and policyholder may choose to rather enter into a new policy instead;

Micro-insurance policies may not provide that a policy benefit, paid as a sum of money, is payable directly to a service provider;

Insurers must submit all proposed new micro-insurance policies and funeral policies to the FSB / FSCA at least 31 days before launching the policies.


A new approach to living annuities

Article by Investec Asset Management. 

One of the biggest risks pensioners face is running out of money.  A lack of retirement savings and depressed investment markets have left many pensioners and financial advisors anxious about the future. 

Q: How should pensioners invest their capital and what level of income can they afford to draw? What exposure to offshore equities should be considered and what is the significance of volatility on ensuring a comfortable retirement?

Investec Asset Management's in-house research introduced some new ways to approach this age-old problem.

Watch Jaco van Tonder outline our findings and present a new approach to living annuities.
Click below to watch

Building a sound retirement strategy when you’re slow off the mark

Article by Well Spent.

Original title: Listen up, late starters

One of the more common questions we get asked, is along the lines of: “What do I do if I’ve left retirement saving a bit late in life?”

The answer is relatively simple.

‘Relatively’ in the sense that it’ll require some changes to your lifestyle, and can’t be dismissed as inconsequential. Let’s not forget that you’re planning on saving; saving means ‘not spending’. Unless you have a money tree growing in your garden, sacrifices are going to have to be made.

‘Simple’ in the sense that those few variables that account for 99% of your investment performance over the long run, can probably be explained in a few pages. Appreciating them, and committing to them, means you’re 99% of the way – the rest is out of your hands.

Getting the basics right

It is important to realise that there are very few ‘things’ that will dictate your investment returns over the long run. Get them all right, and there is little more that you can do to give yourself the best shot at your long-term investing goals. To go into all these ‘things’ now will likely confuse you, so allow us to focus on the one that really matters right now.

Costs: think of them as negative returns

Increases in the value of your unit trusts is good.

A quarterly report from your pension fund showing a 6% return for the quarter is great.

Increased investment returns are good.

Anything that would look to reduce those investment returns is bad.

One item that is generally responsible for a reduction in your investment returns are costs. Costs can creep in, in many places. Annual unit trust costs, platform fees, policy admin fees, investment management fees – the list goes on.

We don’t think of this as being contentious, so we’ll leave it at that.

Taxes: Just another cost

It’s when you start to appreciate that taxes paid on your investment money as being nothing more than a cost, that you start to appreciate the power of ‘tax deferred investing’.

All your investments will earn things like dividends, interest, capital gains, maybe even some rental income. As and when these income sources are earned, taxes need to get paid. You are left with an after-tax amount, which can be reinvested and so the cycle continues.

What if you didn’t have to pay tax?

What if you could earn all those investment returns, tax-free, and only pay tax when you want to access the money?

If you think of tax as a cost (which it is), and you consider how avoiding this cost is possible within a tax deferred investment vehicle, then you must realise the long term benefits of avoiding tax, especially when you appreciate the negative effects of compounded costs that add no value.

We don’t think paying tax adds any value to your investment balance.

Retirement annuities

When it comes to investing and doing what you can to get more out of your investment balance, paying attention to things like taxes is one of the few things you can actually do, to enhance your investment returns.

A Retirement Annuity or RA, allows investors to invest in typical underlying investment products, but all within the confines of the RA ‘wrapper’, meaning that you pay no tax on your investment returns while you’re still saving towards retirement.

The economic advantages presented by saving on your taxes, and those savings compounding over years and years are enormous. You could end up with 10%-30% more money in your bank account when you retire based on how much tax you can defer, and the kinds of asset classes you invest in.

Takeout: If you don’t have an RA, consider getting one.

RA’s are designed to incentivize you to save. Whether it be the taxes deferred or the very generous income tax deductions for contributions, utilizing an RA offers real tangible benefits for long-term investing.

So if you’ve left all this saving stuff a bit late, the important things to remember:

The best time to start is today.

The basic principles of long term investing are proven to work better and more reliably than risky shortcuts.

Cutting costs and avoiding tax will greatly increase the compounded growth of your investments and savings.

The journey is long and these things take time. Sometimes the only way to really believe or appreciate the difference it does ultimately make, is to listen to sound judgment like our own, or that of a financial advisor who can take you through the nitty gritty of how an RA might compliment your long-term investing goals.

Here’s what you need to know about your retirement funds when you leave SA

Article by Business Tech

If you are thinking of leaving South Africa (SA) permanently, you may wish to know what to do with your retirement annuity, says Daniel Baines, author of How to Get a SARS Refund and tax consultant at Mazars.

You have two options in this regard, you can withdraw the entire amount and take it with you or you can leave your fund as is, without contributing more, he said.

These two scenarios have different tax implications.

Scenario 1 – Withdrawing your Retirement Annuity

There are not many circumstances in which you are allowed to withdraw your retirement annuity funds prior to reaching retirement age; one of these occasions is upon emigration, Baines said.

The tax effect of withdrawing your retirement annuity when you are emigrating is illustrated by the following example:

·         Amount in Retirement Annuity: R2 000 000

·         Amount of tax payable upon withdrawal: R567 000

·         Amount available to take with upon emigration: R1 433 000

If you withdraw your RA you will pay quite a large chunk of tax, the tax expert said.

“You must have formally emigrated with the South African Reserve Bank to be able to withdraw from your retirement annuity; if you do not do this you will not be able to withdraw your fund. Also note if you have previously withdrawn from any fund that the above calculation will differ.”

Scenario 2 – Leaving your retirement annuity

Your other option is to simply leave your retirement annuity as is and make no further contributions, said Baines. “Your fund should grow in value and when you reach the age of 55 you will be able to leave the fund and receive an annuity (monthly payment) from SA. This is only an option if you do not formally emigrate; formally emigrating will result in a forced withdrawal from your RA.”

The place of taxation of this annuity will depend on the country that you have become tax resident in. For example, if you have become a tax resident of the United Kingdom (UK), the annuity will only be taxable in the UK i.e. you will be paid the annuity from SA, but it will be taxable in the UK, Baines said.

This is in terms of the Double Taxation Agreement (DTA) between SA and the UK. It would then form part of your taxable income in the UK and be taxed according to the UK tax rates, he continued.

“If you become a tax resident of Australia the situation is different. Under certain circumstances this annuity may be subject to taxation in SA in terms of the DTA between SA and Australia.

“This would mean that if the amount of the annuity that you receive exceeds the tax threshold (currently R78 150 for persons under 65) it may be subject to taxation in SA. The annuity could, however, also be subject to taxation in Australia. Australia may, however, grant you a tax credit for the tax, thus potentially avoiding any double tax.

“If you are considering leaving SA permanently, you should carefully consider the tax implications of withdrawing your retirement annuity as opposed to leaving it in the fund and letting it grow in SA.”

Factors to consider when ceding your life policy

Article by Lee Bromfield, CEO of FNB Life.

Editor's note: Since publishing, Wealth Planning became aware that as of August 2017 changes have been made to the National Credit Act. The NCA has introduced new provisions when ceding a policy for credit insurance.  

Many consumers who are eager to finalise the house-buying process often rush into taking out and ceding life insurance without first doing their homework.

The ceding of a life policy involves legally transferring a portion of the cover amount to be used as collateral by a creditor in the event that the policy-holder is unable to meet their debt obligation.

When applying for a home loan, banks may require that you take out life cover as security if you do not meet certain earnings criteria. The life cover is then ceded and used as collateral against the home loan to ensure that your loved ones or beneficiaries still have a home in the unfortunate event that you pass away.

Key factors to consider when ceding a life policy:

Cover amount – when ceding an existing life policy, it is recommended that you increase the cover amount to avoid leaving your beneficiaries underinsured in the event that you pass away. This is because a portion of the cover amount will now be used to settle the home loan. You also have the option of taking out a new life policy or mortgage protection plan if you do not want to interfere with your existing policy. If you are taking out a life policy for the first time, consider a higher cover amount to ensure that your family or dependents are also protected financially in the event of death.

Inform beneficiaries about the cession – it is important for your beneficiaries to understand how this process works to avoid unnecessary complications should they have to claim.

Joint home loan – when applying for a joint home loan, the bank may require both parties to take out life cover to insure their respective portions of the loan, should one or both of them pass away before settlement.

Home loan settlement – when the home loan account has been settled and closed, it technically means the policy is no longer ceded. It is therefore important for you to immediately follow up with your lender and insurer to update the status of the policy.

Ceding conditions – before ceding, familiarise yourself with the terms and conditions stipulated by your lender, to understand how they impact your life policy.

Although home loan providers may make it mandatory for you to have life cover in place, it doesn’t mean you shouldn’t take your time to go through the policy wording or seek advice when you need clarity. At most, you will delay the process by a day or two, while making sure that you are adequately covered.

Value investing in a world of accelerating change

Article written by Steven Romick, NedGroup Investments

Accelerating change swirls around us, placing us in the middle of a vortex that is not without investment implications. In this new world of change, traditional value investing – buying a business or asset at a discount that offers the potential for upside appreciation while providing downside protection – is not what it used to be.

The existential risk to corporations is greater than it has ever been and businesses are either disappearing or facing shorter lifespans in the face of digitisation, technology and data availability.

In the 1960s, the vast majority of corporations listed on a stock exchange would be expected to remain in the index for at least five years before they were either acquired, bankrupt or overtaken in market capitalisation by other public companies. Now, those odds have fallen to the mid-60% range and are continuing to decline. Furthermore, where in the late 1970s and early 1980s, the average company had been in the S&P 500 for almost 40 years – a study by Innosight* suggests that the average lifespan of a company in the S&P 500 index is expected to hit a new low of 12-13 years.

A case in point is General Electric (GE). It is the only company currently listed in the Dow Jones Industrial Index that was included in the original 1896 index. One can only wonder if its Dow days are numbered.

The art of finding value today

When we model a company’s potential outcomes, we do not try to predict earnings this year or next, let alone this quarter. We build a low, base and high case. We make investments in those businesses that should offer a reasonable rate of return in our base case, have upside to the high case and the low case should not be too bad. Furthermore, we expect the base or high cases to be more likely than the low case.

A good investor must always understand the competitive pressures from existing and new businesses and technologies but we would argue that it holds even greater importance today. We have evolved to recognise that many of the better investment opportunities have seen the margin of safety shift from the balance sheet to the business. A business that can increase its free cash flow over time and appropriately reinvest or distribute that cash flow might afford greater downside protection than another business that could be liquidated at a premium to its current market price. This is because the business that could be liquidated at a premium to its current market price could have stagnant or shrinking cash flow in the face of new, more innovative competition.

We face the daily choice of change or decay. We opt for the former. Whereas we once might have been more willing to buy mediocre businesses at unbelievable prices, we are now committed to buying good businesses at great prices and great businesses at good prices.

How much you could make in a tax-free investment?

Original title: How much you could make in a tax-free investment account over 2, 4 and 10 years. 

Article written by Business Tech

As of 2015, the National Treasury has introduced a number of incentives for tax-free accounts in a bid to encourage long-term, disciplined saving.

With respect to the tax-free savings and investment limitations, an individual may currently contribute up to R33,000 per year with a lifetime contribution limit of R500,000.

According to Roenica Tyson, Investment Product Manager at Glacier by Sanlam, tax-free savings and investment accounts tick many positive boxes as part of a diversified financial plan.

She added that she would encourage every investor to consider including one in their portfolio, and take advantage of the opportunity to grow their savings without paying any tax on the interest, dividends or capital gains they earn.

All good things come to those who wait

“Life happens, and unforeseen events result in us sometimes having to dip into our savings, but I would encourage investors in this product to resist the temptation to withdraw from it to ensure disciplined, lucrative saving,” Tyson said.

In this way she said that investors should consider tax-free investment plans as complementary savings for your retirement investment.

As an example of why this money is best left alone for as long as possible, she provided the following example.

The table below demonstrates the sample values (including the tax savings relative to a normal investment plan) based on a monthly investment of R2,750 over a period of 2, 4, 6, 8 and 10 years, for an aggressive investor, and with intermediary fees of 0.50%.

The noteworthy point is that over a 10-year period, total contributions of R330,000 can grow to R536,048, which is R29,222 more than a similar plan without the tax savings.

*Table assumes return of 11% per annum and marginal tax rate of 35% on investment plan returns.      


Ten Rules for income investing

Article by Nedgroup Investments

In an environment where investment returns are becoming increasingly strained, many investors could be tempted to chase yield. This however is a very dangerous investment strategy as it often fails to take the associated risk into account.

Sean Segar, Head of Nedgroup Investments Cash Solutions, provides the following rules to guide investors to avoid potential investment traps:

Rule #1 Use the risk-free rate as the base reference point

The risk-free rate is the yield on government paper for the comparable period, and is efficiently determined by the market.  Therefore, once the risk-free rate has been established, it is easier for investors to assess if additional yield is worth the additional risk. Be wary of outliers on this spectrum and avoid investing where the risk appears disproportionate to the yield.

The main types of risk to consider are:

Credit risk: This is the risk that a borrower may not repay a loan and that the lender may lose the principal of the loan or the interest associated with it.

Liquidity risk: This risk occurs when an individual investor, business or financial institution cannot meet short-term debt obligations. For example, the investor or entity may be unable to convert an asset into cash without giving up capital and/or income due to a lack of buyers or an inefficient market.

Interest rate risk: This is the risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve, or in any other interest rate relationship.

Rule #2 Understand what you are investing in

-When investing in an interest paying instrument ensure you understand the following:

-A guarantee is only as good as the entity issuing the guarantee. Understanding the strength of the guarantee is crucial as certain guarantees are worth very little. A common mistake is to assume that nothing can go wrong simply because a deposit is guaranteed.

-Understand if the rate quoted is effective or nominal, and if it is net or gross of fees.

-Ensure costs are reasonable. Income type funds should typically be cheaper than equity and balanced funds.

-Ensure there are no once off costs to buy or sell income bearing investments.  These can distort net yields enormously, especially for shorter dated income investments. For example, a 1% fee to enter a six month investment yielding an annual rate of 8% results in a net annualised yield of only 6% over the period of the investment.

-Before investing in an income fund, review the investment mandate to ensure that this does not permit investment in instruments you are not comfortable with. For example some income funds are permitted to invest in property, preference shares, offshore currencies, non-investment grade credit, or very long dated bonds.  All of these instruments can offer generous yields - but they also come with a higher risk of capital fluctuations.

-Avoid fads and look beyond the marketing message. Rely on the data and talk to a financial advisor for guidance.

-Understand the regulatory environment of the product and the issuer and be clear that you are investing legally and ethically.

Rule #3 Make use of pooled income funds

-Pooled investment funds are convenient and offer the following advantages:

-Higher yields than call accounts, but access to funds is similar to being on call

-Spread of counterparty credit risk through diversification of investments held in the fund

-Ability to invest in longer dated instruments at higher yields but still having easy access to funds

-Unit trusts are regulated and in many cases rated by independent rating agencies, offering an additional level of comfort to investors

-Professional, specialist investment management

-Minimum investment amounts are relatively low, or even zero when the investor has no surplus cash to invest, unlike direct investments where the top interest rate is only earned by the largest of investors, or the interest rate is subject to a minimum balance or minimum term

-The scale that unit income unit trusts have keeps fees low and provides the fund with buying power with banks and other issuers. Small investors invest alongside large ones with the same benefits.


There are no transacting fees, low investment management fees, and fees are only applicable while funds are invested

Be comfortable with the investment mandate and the investment manager of any income fund. Ensure that they are reputable; credible, their investment philosophy is sound; they have a robust process; the team is suitably qualified and experienced with a good track record and finally; that the track record belongs to current team/individual manager.

Rule #4 Ensure that you have suitable access to your money

It is always tempting to earn higher yields by fixing investments for a set term. However, should you for some reason need to draw on such funds there are likely to be penalties. So the lesson is: If you make fixed term investments ensure that you will not require the funds over the life of that term and do not “lock up” your funds if you may need access to them. Fixing a deposit term for higher yield may backfire.

Rule #5 Match income receipt dates to your needs

Taking Rule #4 a step further, ensure that the frequency of the income distributions of the investment is in line with your needs. It will create unnecessary administration and even penalties should you have to tap into the investment’s capital to fund cash flow requirements.  Some investments only distribute every six months or at the end of the investment term. On the other hand, should an investment distribute income more frequently than you require, reinvest this income rather than draw it unnecessarily. This will allow for compounding of returns and ensure you are not tempted to waste these funds.  Always favour steady, predictable income streams.

Rule #6 Don’t leave cash on one-day call unless you really might need it in one day

Ensure potential yield is not being sacrificed for the luxury of having immediate access to funds, which in fact is not really needed. The yield on daily call monies is lower than that on funds placed for fixed term because it is immediately accessible. Unless funds are possibly required at short notice, cash should be put to work without forfeiting potential yield uplift until it is required to be deployed. This simple planning of future cash flow requirements enables funds to be better deployed. It is worth spending some time forecasting cash requirements to ensure optimal investing, and sweeping cash into funds from inefficient current or call accounts into appropriate higher yielding vehicles. The incremental interest adds up fast and the discipline of efficiency becomes entrenched behaviour.

Rule #7 Don’t be too conservative

There is such a thing as being too conservative. Most people can afford to take on an element of risk for which they should be appropriately rewarded through higher interest rates. Understand your level of risk tolerance and apply it. A financial advisor can provide valuable assistance in assessing your investment risk profile before you decide where and how to invest.

Rule #8 Consider the implications of tax

Interest is taxable as are capital gains.  However, there are both annual interest and capital gains exemptions available to individual tax payers. Utilise such tax allowances before investing in tax structured products. Retirement fund wrappers like Retirement Annuities and Preservation funds offer a total shield against all taxes on interest and capital gains made within such structures. Use of Tax-Free investments is also a very attractive tool here and should also be maximised by individuals.

Rule #9 Remember the power of compounding, but also the effects of inflation

This applies both to the length of time that funds are invested and to the interest rate achieved which drives growth. To maximise the power of compounding re-invest distributions where possible. Of course inflation is the enemy of the investor, and also compounds. This can make investing feel like paddling upstream. If yields are lower than inflation then real returns are not being achieved and the investor is effectively going backwards in real terms.

Do not remain in income investments that do not generate inflation beating returns for too long. In volatile and uncertain times, even inflationary times, it may make sense to park funds in cash until normality resumes. Even though yields may not be above inflation, or returns potentially as high as other asset classes, at least the investment will be liquid, the capital is likely to remain intact, and a positive return should be achieved being the interest received.

Rule #10 Pay off high cost debt before investing for interest

Interest paid will almost always exceed interest earned, especially after tax. The best interest rate is therefore the saving that can be achieved by paying down debt. Always consider first paying off debt before beginning to invest for interest.