1. PERSONALFINANCE2 SATURDAY STAR April 25 2015
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YOUR QUESTIONS ANSWERED
I went to Canada in 2001 and planned to
stay for about six months. Almost 15 years
later, I am still in Canada. I did not emigrate,
and I hold dual citizenship.
My retirement annuity (RA) will mature in
a few months. Since I have been in Canada,
I have contributed about R2 million to the
RA. I did not submit tax returns to the South
African Revenue Service (SARS) and did not
claim any tax deductions. The RA was
started 10 years before I left for Canada, and
I claimed those contributions against tax.
Can I use the contributions that I did not
claim since 2001 as part of my tax-free lump
sum (R500 000) and invest the difference in
a living annuity? What is the tax scale if I
decide to take everything to Canada?
Name withheld on request
Marius Cornelissen, a financial adviser at
PSG Wealth in Menlyn, Pretoria, responds:
Your situation is complicated because you
are a non-resident and did not claim the
tax deductions from SARS.
An option is to emigrate formally, in
which case you will have to obtain
approval from the South African Reserve
Bank to access the funds in the RA. This
will be regarded as a withdrawal, which will
be taxed according to the retirement lump
sum withdrawal table. The first R25 000
will not be taxed, if you did not receive any
previous benefits in the form a lump sum.
Any amount between R25 001 and
R660 000 will be taxed at 18 percent; any
amount between R660 001 and R990 000
will be taxed at 27 percent; and any
amount from R990 001 or more will be
taxed at 36 percent.
If you decide to buy a living annuity, you
can take up to one-third of the benefit in
cash, while the balance will be invested in
the living annuity, or you can use the entire
amount to purchase a living annuity.
If you decide to take one-third as a
cash lump sum, it will be taxed according
to the retirement lump sum table. The first
R500 000 will not be taxed, if you have not
taken lump sums previously.
Unfortunately, in your case, you cannot
use a portion of the contributions that you
did not claim from SARS as part of your
tax-free lump sum.
SARS allows taxpayers to deduct from
the lump sum the contributions that SARS
did not previously allow as a deduction.
This has the effect of reducing the actual
lump sum that is taxable, because any
contributions that were not allowed as a
deduction are deducted from the lump
sum before it is taxed.
However, you did not claim these
contributions as a tax deduction, as
opposed to SARS not allowing the
contributions to be deducted against tax.
Therefore, SARS may disallow you from
deducting the contributions you did not
claim from the lump sum.
I would advise you to consult a South
African-based auditor, tax consultant or
financial adviser for advice on the best
way to proceed.
I have a retirement annuity (RA) that will
mature in 2022. Its current value is
R781 416. I contribute R4 268 a month. The
annual premium escalation is 15 percent.
The illustrated maturity values are
R1 737 132 at growth of four percent and
R2 492 870 at growth of 10 percent. Can I
rely on these targets for financial planning
purposes? Should the growth not be in line
with market conditions – about 12 percent?
Kevin Martin
Pierre Puren, a financial adviser at PSG
Wealth in Jeffreys Bay, responds: The
product provider uses the illustrated
maturity values merely as a guideline to
indicate the future value of your
investment if you pay the contracted
premium and certain growth rates prevail.
The actual return will not depend on the
provider’s illustrations or assumptions, but
will depend on the performance of the
underlying fund, or funds, you chose.
Your financial adviser can help you to
calculate the future value.
If you adhere to the contracted
contributions to maturity, the following can
be used as a guideline with your requested
growth rate of 12 percent a year:
◆ Growth of underlying fund less costs:
12 percent a year compounded monthly
◆ Premiums compounded monthly
with annual growth of 15 percent
◆ Term to maturity: Seven years (or
84 months)
◆ Future value of premiums paid
therefore amount to R968 749.61
◆ Plus growth in current capital of
R1 802 510.06
◆ Total illustrative value at maturity:
R2 771 259.67
You should be cautious of assuming
that past performance is an indication of
future returns. Most financial products
have ongoing costs – management fees,
administration fees or adviser fees. The
growth rate that is assumed must
therefore be net of these fees when
projections are made.
Ensure you are familiar with the relevant
costs associated with your RA and that
your underlying investment is allocated to
funds that suit your appetite for risk.
Who can I contact to establish whether my
employer has the right unilaterally to convert
my pension fund from a defined-benefit (DB)
fund to a defined-contribution (DC) fund?
Name withheld
Anton Prinsloo, a financial adviser at PSG
Wealth in Silver Lakes, Pretoria, responds:
Legislation does allow an employer
unilaterally to change from a DB to a DC
fund, as long as the employer has received
prior approval from the Financial Services
Board (FSB). Legislation does, however,
protect members against unfair and
unlawful acts by employers. If you have
any concerns in this regard, you can
contact the FSB to ensure that approval
was granted.
In Personal Finance on February 28, 2015, it
was stated that, for over-65s, credits for
medical scheme contributions must be
taken into account when Pay-As-You-Earn
tax is deducted. When I queried this with the
administrator of my pension, I was advised
that it is still awaiting an official instruction to
implement the change. When will the
enabling legislation be passed?
Peter North
Franz Tomasek, the group executive for
legislative research and development at
the South African Revenue Service,
responds: The change will be included in
the legislative proposals to be introduced
in Parliament later this year. It is likely that
the final legislation will be promulgated late
this year or early next year.
My debt counsellor issued me with a
clearance certificate in December 2014. But
I have subsequently been refused credit,
apparently because my credit report states
that I am still in debt review. How can that
be, and where can I go for help?
Name withheld
Angelique Ardé, Personal Finance’s
reporter who writes about debt, responds:
You have the right to lodge a dispute with a
credit bureau that is carrying inaccurate
information about you. Credit bureaus are
merely the hosts of information received
from various sources; they are not
responsible for listing the information. The
information about you is listed by your
creditors and other data sources, such as
debt counsellors and debt collectors. The
data supplier is ultimately responsible for
listing accurate information.
When a dispute is lodged with a credit
bureau, the bureau must investigate and
report back to you within 20 business
days. If the information is found to be
incorrect, the bureau must remove it.
When you are in debt counselling, this is
noted on your profile, and you will be
refused credit until you have been issued
with a clearance certificate.
Personal Finance asked the National
Credit Regulator (NCR) and the Credit
Bureau Association (CBA) who is
responsible for reporting to the credit
bureaus when a consumer has
“graduated” from debt counselling.
According to Lesiba Mashapa, the
company secretary at the NCR, when a
debt counsellor issues a clearance
certificate to a consumer, the debt
counsellor must notify the NCR and all the
credit bureaus. The regulator must be
notified online, on the NCR’s Debt Help
System (DHS), which is a portal for debt
counsellors to share information with the
regulator about consumers in debt review.
The credit bureaus must be notified via
email and be sent the consumer’s
clearance certificate. These actions should
be done at the same time.
Jeannine Naudé Viljoen, the executive
manager of the CBA, says the bureau
removes the debt review flag from the
consumer’s profile on receipt of the
clearance code from the NCR (via the DHS
portal). Once the bureau has received the
clearance certificate from the debt
counsellor, all relevant negative
information is removed from the
consumer’s profile.
In this case, once the consumer has
lodged a dispute with the bureau
concerned, the bureau will check the DHS
for a clearance code from the NCR. If one
has been issued, the flag will be removed.
We ask experts to answer your financial queries. Email queries to perfin@inl.co.za or fax to 021 488 4119. Feature sponsored by PSG Wealth
RSA RETAIL BONDS: APRIL 2015
FIXED-RATE BOND*
Two years . . . . . . . . . . . 7.25%
Three years . . . . . . . . . . 7.75%
Five years . . . . . . . . . . . 8.00%
* Rates are set every month.
INFLATION-LINKED BOND*
Three years . . . . . . . . . .1.25%
Five years . . . . . . . . . . .1.75%
Ten years . . . . . . . . . . . .2.00%
* Rates are in addition to capital
adjusted for CPI twice a year.
Source:NationalTreasury.Website:www.rsaretailbonds.gov.za
Telephone:012 315 5888.Email:queries@rsaretailbonds.gov.za
INTEREST RATES TO 24/4/2015
MONTHS
1* 3 6 9 12 24
Absa Bank 4.74 4.76 5.75 5.25 6.10 6.25
African Bank – 6.07 6.50 – 7.34 8.12
Bidvest Bank 6.13 6.24 6.84 7.00 7.25 –
Capitec Bank – – 6.00 – 6.45 7.20
F N B – 5.10 5.90 – 6.30 6.50
GBS Mutual Bank – – 5.40 5.61 7.23 7.50
Grindrod Bank 5.80 5.95 6.55 6.85 7.10 –
Mercantile Bank 5.80 5.90 6.35 6.50 6.60 –
Nedbank 5.10 5.30 5.95 5.95 6.75 7.25
Sasfin 5.10 5.30 5.85 – 6.75 7.00
Standard Bank 5.00 5.10 6.03 – 6.10 6.35
*One-month rate applies to fixed deposits only and not to notice
deposits.Senior citizens may qualify for an extra 0.5 percent on
some 12-month investments. All the rates quoted are for interest
paid monthly,apply to investments from R50 000 to R100 000
and are correct at the time of going to press.
Source: Personal Trust (independent agents for
deposit-taking institutions).Telephone 021 689 8975
EXCHANGE RATES TO 24/4/2015
These rates are subject to market fluctuations and are applicable for
amounts up to R160 000.These rates are for indication purposes only,and
neither Nedbank nor Personal Finance accepts any responsibility for any
decisions based thereon. Source: Nedbank.Quoted at 7.20am
USA 11.9700 11.9497 11.9411 12.3200
UK 17.9658 17.9305 17.9188 18.5724
Euro 12.8773 12.8495 12.8379 13.3512
Australia 9.1743 9.1241 9.0580 9.7371
Canada 9.7466 9.7087 9.6899 10.2354
China 1.9019 – – 2.0222
Denmark 1.7138 – 1.7088 1.8008
Hong Kong 1.5270 – 1.5225 1.6103
India 0.1865 – – 0.1968
Israel 3.0048 – – 3.1898
Malawi 0.0265 – – 0.0287
Mauritius 0.3270 – 0.3236 0.3537
New Zealand 8.8731 8.8339 8.7951 9.5329
Norway 1.4988 – 1.4941 1.5967
Seychelles – – – 0.9667
Singapore 8.7413 8.7108 8.6957 9.3721
Sweden 1.3697 – 1.3657 1.4374
Switzerland 12.3001 12.2699 12.2399 13.0719
Thailand 0.3451 0.3431 0.3413 0.4068
COUNTRY BUYING RATES SELLING
Telegraphic Traveller’s Bank
transfer cheques notes
ANNUITY RATES TO 24/4/2015
These rates for a level annuity are based on a compulsory
purchase price of R100 000 for people born on 01/01/1954
payable monthly in arrears, guaranteed for 10 years.
These rates for a level annuity are based on a voluntary
purchase price of R100 000 for people born on 01/01/1955
payable monthly in arrears, guaranteed for 10 years.
These rates are valid on a daily basis. E&OE
Source: Computerised Pension Bureau. Telephone 011 482 3625
Male
Discovery . . . . . . . R691.43
Liberty Life . . . . . . R743.70
Metropolitan . . . . . R781.70
Momentum . . . . . . R759.31
Old Mutual. . . . . . . R761.13
Sanlam . . . . . . . . . R770.44
Female
Discovery . . . . . . . R660.56
Liberty Life . . . . . . R692.55
Metropolitan . . . . . R717.12
Momentum . . . . . . R716.74
Old Mutual. . . . . . . R708.48
Sanlam . . . . . . . . . R723.31
Male
Discovery . . . . . . . R691.43
Liberty Life . . . . . . R743.70
Metropolitan . . . . . R735.55
Momentum . . . . . . R749.20
Old Mutual. . . . . . . R761.13
Sanlam . . . . . . . . . R770.44
Female
Discovery . . . . . . . R660.56
Liberty Life . . . . . . R692.55
Metropolitan . . . . . R681.16
Momentum . . . . . . R708.50
Old Mutual. . . . . . . R708.48
Sanlam . . . . . . . . . R723.31
Note: Letter writers will be sent the unabridged
response that Personal Finance obtains on their
behalf. However, published letters and responses
will be edited for length and clarity.
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DBtoDCfund
The best defence against the threat
of rising interest rates in the United
States and locally is to invest in qual-
ity companies – and the demand for
these companies’ shares has never
been higher, asset managers say.
Rising interest rates in the US
could result in the sale of foreign
investment holdings in South
African equities, listed property and
bonds, which is likely to result in
prices in these sectors falling.
William Fraser, a director at
Foord Asset Management, says that
when valuations are high, as they
are in the local share market, you
should be in quality companies with
strong balance sheets that can with-
stand a change in the liquidity in the
market and can produce goods
and/or services at low cost.
If the factors that are buoying
the market unwind when the US
Federal Reserve starts to increase
interest rates, these companies will
continue to make a profit, and they
may take market share from com-
panies that produce at higher cost.
Foord continues to focus on
future company earnings when
analysing investment opportunities.
Fraser says if the share price of
a company that has strong and con-
sistent earnings falls because of
external factors, such as a change in
investor sentiment, the price will
eventually correct to follow the com-
pany’s earnings.
Clyde Rossouw, the multi-asset
portfolio manager at Investec Asset
Management (IAM), says Investec
also prefers high-quality businesses
that have strong cash flows and
trade at reasonable price-to-earn-
ings (PE) multiples. These busi-
nesses are relatively defensive (they
can maintain profitability despite
tough economic conditions), and
IAM believes they will protect
investors if there is a correction in
equity markets, he says.
Paul Bosman, a multi-asset fund
manager at PSG, says PSG likes
quality companies that are mis-
priced (the share is priced below the
intrinsic value of the company),
because it gives the manager a mar-
gin of safety when it invests.
PSG bought shares in Steinhoff
(which makes, sources and sells fur-
niture and household goods in
Europe, Africa and Australasia)
when it was undervalued. It also
held AVI (owner of a number of food
and beverage brands), which regu-
larly pays out almost 100 percent of
its earnings and still grows its earn-
ings at 20 percent a year.
However, opportunities are more
limited than they were in the past,
because many industrial shares are
expensive, as evidenced by the
FTSE/JSE Industrial Index, which
is very expensive relative to its
expected future earnings (it is trad-
ing on a very high PE ratio), and the
companies in the index have been
reporting high profits. There is a
risk that these companies’ profits
and share prices could come down,
he says.
In the absence of sufficient
opportunities in the market, PSG
will hold high cash reserves and
wait for a market correction to
deliver shares that are mispriced.
Bosman says PSG has started to
buy “unloved” resource and con-
struction shares, but only those that
it believes will be able to make a
profit even if the global demand for
resources stays low and weak eco-
nomic growth depresses the demand
for construction.
If you buy the right companies,
with diverse business activities and
good management, you can do well,
but PSG will not have a blanket buy
on construction and resource
shares, because not all of them are
good quality, Bosman says.
He says that, in the fixed-interest
sector, PSG’s multi-asset funds
bought Capitec bonds when these
were sold down as a result of nega-
tive sentiment during the demise of
African Bank.
PSG has also invested in cash
instruments, such as NCDs with
longer durations, because these are
offering real (after-inflation) yields
of two to three percent a year.
Bosman says, as typically hap-
pens when prices in a sector are ris-
ing steadily, there have been a num-
ber of new listings in the listed
property sector. However, the shares
in the FTSE/JSE SA Listed Pro-
perty Index are now, on average,
trading at a premium of about
40 percent to their net asset value.
Like PSG, Foord has trimmed its
exposure to local equities and is also
stashing cash to buy quality com-
panies when share markets fall dur-
ing periods of volatility.
Fraser says Foord started to
invest in local bonds last year, when
yields were higher, but when the oil
price resulted in lower inflation
expectations, bond yields fell too
far, and real return expectations
became unattractive.
Fraser says Foord is patient and
will gradually increase the alloca-
tion to bonds. He believes a combi-
nation of higher interest rates on
US Treasuries (government bonds)
and higher domestic short-term
interest rates will result in higher
yields on local longer-dated bonds.
Fraser says that when you con-
sider the out-performance of listed
property relative to other asset
classes, it is clear that asset man-
agers made the wrong calls on this
sector over the past year.
However, the fall in listed prop-
erty yields does not reflect the future
outlook for growth in distributions;
instead, it is driven by very low
global interest rates. The sector has
also benefited from foreign inflows,
and prices are not realistic.
Listed property shares may con-
tinue to do well as long as offshore
money is looking for higher yields,
but there is a huge risk in investing
in this sector now, because share
prices are out of kilter with the com-
panies’ net asset values.
Offshore equities have done well,
because company earnings have
reflected the improvement in eco-
nomic conditions, Fraser says. The
end of the upward economic cycle is
not close and there is room for more
economic expansion, because no
central banks have started to raise
interest rates, he says.
The improvement in economic
conditions in the US and a sharply
weaker euro have resulted in
exporters in Europe showing signif-
icantly better earnings.
What may change the outlook for
equity markets is a prolonged rise in
global interest rates. Although the
upward cycle may continue, there
will be much greater volatility in
equity markets, Fraser says.
He says Foord is not overly con-
cerned by the slowdown in the
growth rates of emerging market
economies; instead, it will focus on
long-term themes in sectors that
will grow at a faster pace than over-
all economic activity. For example,
Foord will seek companies that will
benefit from ageing populations in
both emerging markets and devel-
oped markets.
Interestrate
jittersspark
flighttoquality
Efficient companies with robust balance sheets will keep
growing their profits when a rise in interest rates sees investor
sentiment turn against equities. Laura du Preez reports