Eastern Cape's Community... PERSONAL FINANCE A FREE publication distributed by NFB Private Wealth Management private wealth management Issue 22 Nov 2012 NFB PERSONAL FINANCE Magazine Eastern Cape's Community... which is a better investment? which is a better investment? which is a better investment? GO GLOBAL OR GO HOME expectations are good for investing internationally GO GLOBAL OR GO HOME expectations are good for investing internationally GO GLOBAL OR GO HOME expectations are good for investing internationally CYBER RISK is your business protected? CYBER RISK is your business protected? CYBER RISK is your business protected? UNIT TRUST OR RETIREMENT ANNUITY UNIT TRUST OR RETIREMENT ANNUITY UNIT TRUST OR RETIREMENT ANNUITY
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Eastern Cape's Community...
PERSONAL FINANCE
A FREE publicationdistributed by NFB Private Wealth Management
p r i v a t e w e a l t h m a n a g e m e n t
Issue 22Nov 2012
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
which is a betterinvestment?
which is a betterinvestment?
which is a betterinvestment?
GO GLOBAL OR GO HOMEexpectations are good for
investing internationally
GO GLOBAL OR GO HOMEexpectations are good for
investing internationally
GO GLOBAL OR GO HOMEexpectations are good for
investing internationally
CYBER RISKis your business
protected?
CYBER RISKis your business
protected?
CYBER RISKis your business
protected?
UNIT TRUST ORRETIREMENT ANNUITYUNIT TRUST ORRETIREMENT ANNUITYUNIT TRUST ORRETIREMENT ANNUITY
“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.
Only the present is within our reach. To care forthe present is to care for the future.”
years. Jeremy is reminded that his ex-wife is still the
beneficiary of his life insurance policy and makes a
mental note to contact his insurance broker to
revoke his ex-wife and nominate Hannah as his
beneficiary in the event of his death to ensure that
the proceeds of his policy are paid out to Hannah.
But what will happen if Jeremy passes away
before he has the opportunity to change the
beneficiary on his life insurance policy? Will the
proceeds of Jeremy's policy be paid to his ex-wife
and will his minor daughter, Hannah, be left without
any rights to the proceeds of this policy? The reality
is that circumstances like these often occur in
practice and in many cases result in unforeseen
and even unfortunate consequences. In this case,
the proceeds of Jeremy's policy would have been
paid to his ex-wife and not to Hannah.
But let's say Jeremy did get the chance to
revoke his ex-wife and nominate his daughter as
beneficiary on his insurance policy so that she
would receive the benefit upon his death. The
question now is, as a minor, would she be entitled
to receive the proceeds? The general position in
South African law is that benefits accruing to a
minor would be paid over to the Master to be
retained in the Guardian's Fund until the minor
reaches an age of majority. Life insurance policies,
however, differ in that the insurer will pay the
proceeds directly to the minor regardless of his/her
age. In reality, this means that the minor's legal
guardian will generally administer the money on
their behalf, unless the guardian is illiterate, in which
event the insurer could decide to rather pay the
proceeds to the Guardian's Fund. Accordingly, in
Jeremy's case, Hannah's legal guardian would thus
be entitled to administer the proceeds of the
insurance policy on behalf of Hannah, and where
the guardian is the natural mother, it could mean
that Jeremy's ex-wife again has control over the
proceeds, even though she is no longer a
beneficiary of his policy.
A
testamentary trust, created in Jeremy's will or even
a family trust established by Jeremy during his life,
can be nominated as the beneficiary of his
insurance policy. The insurer will then pay the
proceeds to the trust and not a specific person, to
be administered by the trustees of the trust for the
benefit of the beneficiaries of the trust. In his will or
family trust, Jeremy can then nominate Hannah as
the beneficiary of the trust as well as determine
who the trustees of this trust should be.
Another aspect Jeremy should be aware of
when reviewing his life insurance policy, is
In the case of a revocable
beneficiary nomination, the beneficiary of a policy
can be revoked without the consent of the
beneficiary being required. In the instance where
Jeremy's ex-wife's nomination in his policy is
revocable, he can revoke her as a beneficiary
without her consent being required. However, with
irrevocable beneficiary nominations you can only
change or revoke a benefit with the express
consent of the beneficiaries. The reason being,
these beneficiaries have aquired rights the
moment they accepted their nomination in writing,
and accordingly these rights cannot be changed
unless they expressly consent thereto, unless the
policy expressly stipulates otherwise.
Lastly, Jeremy should note that
When we are confronted with all the possible
implications flowing from Jeremy's example, it is
clear how important the decision as to
beneficiaries in your insurance policy is as well as
how important it is to regularly review your policy
and beneficiaries. What is also clear is that with
proper estate planning you could also
and it also remains important
to consult an experienced estate planner when
planning for the future.
A trust can be a useful tool forJeremy to solve this conundrum.
thedifference between revocable andirrevocable beneficiarynominations.
if he fails tonominate a beneficiary, theproceeds of his insurance policy willbe regarded as an asset in hisestate upon his death and will bepaid to his estate for divisionaccording to his will or the rules ofintestate succession if he has left nowill.
world encompass basic salaries, travel allowances,
motor vehicle and medical aid fringe benefits and
then some sort of company and employee
contribution to pension and/or provident funds. It is
important to note that there is a difference in the
treatment for tax purposes of the pension fund and
provident fund contributions.
Current pension fund contributions by the
employee may be deducted to the greater of 7,5%
of remuneration from retirement funding
employment, or R1 750.
- Any excess may not be carried forward to the
following year of assessment.
- A maximum of R1 800 per annum may be
deducted as arrear pension fund contributions by
the employee.
None of the current or arrear contributions are tax
deductible for the employee.
There are indications that provident funds
might disappear in the future. The reason is that the
main attraction of a provident fund, namely to be
able to make a 100% lump sum withdrawal at
retirement, will no longer be available to investors.
All future contributions will be subject to a
maximum withdrawal of one-third, as is the case
with pension funds and retirement annuities.
have been clamped down on
by SARS. When claiming a travel allowance only a
detailed log book will be accepted for the travel
deduction. I think it is important to highlight what a
detailed log book entails: it is effectively a
reconciliation of daily mileage split between
business and private travels. Private travels include
traveling from home to work and back again. Just
in case you were wondering how SARS checks up
on this, they have been requesting your last vehicle
service record or copy of your service log to
correspond to the mileage per the log book in the
month in which the vehicle was serviced. So please
be careful when compiling your log books as they
need to be accurate!
It is also important to mention that the
has now been replaced by a “tax
credit” regime that will be effective from 1 March
2012. Basically the employee who is on a medical
aid will no longer be able to claim the deduction
(limited to the capping amount), but a tax credit
will be given which will act in a similar way as the
primary and secondary tax rebates. Tax credits are
not refundable, which means that you will only
qualify for tax credits to the extent to which you
pay tax.
In short, there is very little that is afforded to
straight salary earners that wish to have elaborate
schemes in place to reduce and/or postpone the
taxation that is levied in terms of the PAYE tables.
Cellphone, entertainment and subsistence
allowances are all best left off as no deduction is
permitted against these allowances anymore; it is
far more advisable to have the above on a re-
imbursive basis, which is generally speaking non-
taxable.
In the next issue I will touch on commission
earners who have a far better platform to play
with.
14 sensible finance nov12
SENSIBLY LEGALSENSIBLY LEGALSENSIBLY LEGAL
A look at basic salary structured
packages. By
- Klinkradt & Associates.
Shaun Murphy & Wade
Young
TIME TO BUY?EQUITIES
Excellent returns currently to be gained. By
, Investment Asset Management.Max King
sensible finance nov1218
The recent stimulatory actions of the European
Central Bank (ECB) and American Federal
Reserve caused equity markets to rally, even
after critics pointed out that similar actions have
not necessarily had sustainable positive effects in
the past. Similarly, equities have rallied following
positive economic data and while they might suffer
short-term setbacks, they always seem to bounce
back. This increasing perkiness of equity markets
perhaps suggests a simple truth – that equity
markets want to go up.
To those who have a consistently pessimistic
view about the future direction of the markets and
economy, this is anathema. Economic data
around the world has been disappointing,
suggesting that the global economy has turned
down. Even emerging economies are faltering and
the euro-zone is in deep and irredeemable crisis.
Forecasts for corporate earnings have been sliding
remorselessly.
There is no shortage of long-term equity bulls,
but – almost without exception – they do not
expect an improvement in markets for several
months, and most are looking for another sell-off,
probably triggered by a flare-up in the euro-zone
crisis, to provide a buying opportunity.
The only factor holding back the long-term
bulls is a fear of short-term downside, but should
that downside materialise, then it is likely to be
fleeting. There are just too many buyers into
weakness and not enough nervous current holders
who are liable to be panicked into selling. The
evidence points to increasing investor resilience. In
Spring 2012, markets dropped only 10% before
recovering.
The increased resilience of markets, and
consequent fall in volatility, reduces the risk of
investment – and that makes investors willing to
pay higher prices. The result is a self-perpetuating
confidence loop that pushes prices steadily higher,
reinforced every time that a short-term setback is
recovered. Sooner or later, an even more powerful
factor will kick in: the realisation that equities
represent an each-way bet.
If the economic outlook improves and earnings
forecasts pick up, the current valuation of the
market will appear cheap. If estimates for
corporate earnings in 2013 start to rise, there will be
no holding the market back. On the other hand, if
the economic news continues to be disappointing
or the euro-zone starts to unravel, there can be
little doubt that central banks around the world will
inject liquidity into the global economy
Whether this works in economic terms depends
on how it is done. Purchases of government bonds
by central banks has provided little economic
benefit as the money created sits on bank balance
sheets without being transmitted into the broader
economy, but central banks are becoming more
imaginative. The Fed has encountered some
success with 'Operation Twist' and markets were
encouraged by its decision on an open-ended
purchase of mortgage-backed securities, while the
Bank of England's 'Funding for Lending' scheme is
promising.
One of the oldest common wisdoms on Wall
Street is 'don't fight the Fed' – in other words, buy
equities when monetary policy is being eased; sell
when it is being tightened. The adage has been
forgotten in the current obsession with
macroeconomic data.
In all
probability, a significant rerating of equity markets
without a strongly visible improvement in the
economic or corporate outlook will be regarded
with astonishment and derision by the sceptics, but
before long, the fundamentals will improve.
As growth picks up and corporate earnings
catch up with the market, the sceptics will, at last,
turn positive.
www.investecassetmanagement.com
We believe that thetime to buy equities is now, whilemonetary policy is extremely loose.
However, with a tightening ofmonetary policy then looming, it will betime to turn cautious. Until that point isreached, there are some excellentreturns to be gained.
SENSIBLE TIMINGSENSIBLE TIMINGSENSIBLE TIMING
Retirement years come sooner than expected;
start saving now! By - Birch Bruce
Chartered Accountants.
Eugene Birch
Iwould like to tell you a true story about Sam. It is
something that I experienced personally and I
would like to warn other employees, in
particular, self-employed individuals, in order for
them to make adequate provision for their
retirement years.
Retirement Annuity contributions have the following
attributes:
The most important attribute of RA policies is
that the investment is protected from creditors.
Sam was initially employed, but later became
a very successful self-employed businessman who
was happily married with a thriving business. Life
treated him well as he enjoyed the luxuries of cars,
elaborate homes and found plenty of time for
vacations. His responsibilities grew after a few years
of creating a family. Thoughts of retirement were
far from his mind and very little planning was
pursued in preparation for old age.
Every time that Sam changed employment,
pension policies were merely cashed in to buy a
new motor car or house or put towards an overseas
trip. Retirement was years away in his mind and he
decided that retirement planning would be done
at a later stage.
Sam continued to move from one workplace
to the next and continued to cash in his pension
policies until the time that he became self-
employed, when no pension monies remained. His
years of self-employment is what I like to call the
“danger years”: dangerous, because soon enough
a couple of years have passed while trying to build
up a business, and retirement planning has not
been given a second thought.
Now the years are rolling by quickly and Sam's
marriage comes to an end. He remarries and
before long he is into his third marriage, bringing
with it more offspring. Once again, no thought has
gone into his retirement planning, due to the
expenses of providing for a family. Sam's business
folds at this point in time and he is declared
insolvent, consequently losing all assets. Fortunately
for Sam, his third wife is able to look after him until
he passes away.
The retirement years come sooner than
expected, and if Sam had not neglected putting
money away in preparation for these years, he
would have been financially comfortable to a far
greater extent.
1. They are tax deductible up to 15% of taxable
income (subject to certain conditions).
2. Any unclaimed contributions can be carried
forward to subsequent tax years and claimed.
3. Upon retirement, the taxpayer enjoys certain tax
free benefits.
Sam experienced divorce, married three times,
had more children than expected and lost his
business and assets. These are expensive
experiences, thus the temptation arises to draw on
pension policies and not contribute towards RA
policies. However, if Sam had contributed to an RA
policy, he would not have been able to cash
money in before the age of 55, which is a
beneficial form of protection.
In
Sam's case, where he became insolvent, creditors
would not have been allowed to touch this money.
This fact alone makes an RA policy necessary in
any employee or self-employed person's retirement
planning.
PLANNING FOR RETIREMENTPLANNING FOR RETIREMENTPLANNING FOR RETIREMENT
19
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