Never underestimate the power of being clued up and learning the basics of retirement speak. These terms should get you off to a good start: Provident Fund If you are working for a company, you’ve probably heard of this one. It is a compulsory saving tool set up by your employer. Your contribution is taxed, but your employer’s isn’t, so often the employer makes the contribution on the employee’s behalf. At retirement, the fund’s benefits are fully available in cash once the tax has been paid. Retirement Annuity This is similar to a provident fund but is a retirement-saving vehicle largely used by self-employed individuals or those without a provident fund option at work. There is a tax saving, as contributions are subtracted from your gross annual income before tax is calculated. At retirement, only a third of the capital can be taken as a lump sum. The remaining two thirds must be used to purchase a compulsory annuity product such as an investment – linked living annuity or life annuity. Fund benefits can only be accessed at retirement (usually after the age of 55). Preservation Fund If you’re planning to change jobs, this is definitely one to remember. Preservation funds are literally meant to preserve capital. There are two types of preservation funds: a pension preservation fund and a provident preservation fund. If you belong to a pension fund: On resignation, you can transfer your funds to a preservation pension fund. No tax is paid when the money is transferred and the fund allows for a single withdrawal of any capital prior to retirement. At retirement, a maximum of one third of your capital can be taken as a cash lump sum, while the remaining two thirds must be used to purchase an annuity. If you belong to a provident fund: On resignation, you can transfer your funds to a provident preservation fund. No tax is paid when your money is transferred, and the fund allows for a single withdrawal of any capital sum prior to retirement. At retirement, the total capital can be taken as a lump sum, or you can use the cash to purchase an annuity. Defined-benefit retirement fund This is a traditional pension fund that considers, among other factors, the number of years you have been part of the fund and your salary at retirement, to define the benefits accrued. The advantages are that you don’t take on the investment risk, and you can calculate the exact amount you receive at retirement (that is a percentage of your final salary). The downside is that your pension may not keep pace with inflation because increases in contributions and benefits are at the discretion of the fund’s trustees. There are not many of these funds around today because most companies have moved over to defined contribution funds over the past few decades. Defined contribution retirement fund Contributions to this fund are paid by the employer and the member but, unlike a defined benefit retirement fund, the amount of money you receive on retirement is not guaranteed. The member decides where the fund invests their contributions and takes on the full investment risk. If the markets yield good returns, you may have a much higher pension at retirement but if they do poorly, you could stand to lose. To get an appointment with our Financial advisor to discuss the different options, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Sanlam
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There are many ways to build a thriving business, but all successful entrepreneurs share a few common habits. While some of these traits are obvious, others might take you by surprise. And they all have real-world investment relevance. 1. Successful entrepreneurs set SMART goals It goes without saying that smart entrepreneurs set SMART goals. SMART is an acronym which refers to goals that are Specific, Measurable, Agreed upon, Realistic and Time-based. Smart entrepreneurs know that it can take a long time to build a business and even longer to make real money. They have cash flow plans and sufficient liquidity to cover their basic overheads for a couple of years. What can we learn from this as investors?
Successful entrepreneurs don’t bluff, and they’re honest about their shortcomings. They incorporate strategies for overcoming their personal vulnerabilities into their business strategy, and in so doing foster trust with clients, suppliers and – significantly – staff members. This creates a safe base from which to operate. A great example of entrepreneurial honesty is the recent admission by Dara Khosrowshahi, the new CEO of Uber, that he is fearful of his ability to succeed in one of the most challenging jobs around. Despite it being regarded as one of the most successful market disruptors to date, the reality is that about 50% of the cost of every trip you take is subsidised by Uber itself, using some of the stockpiles of cash it has from its venture capital investors. What can we learn from this as investors?
Consistently great entrepreneurs never attempt to do business they don’t understand, even if they’re excellent at delegating and employ professionals with superior knowledge and their own great ideas. Understanding a business includes understanding the ins and outs of the industry, and being aware of your capabilities, competitors, limitations and priorities. Highly successful entrepreneurs know that, at the end of the day, they are personally accountable for all their investment decisions. What can we learn from this as investors?
The good thing is that we’re all entrepreneurs. We’re all creative, adaptive survivors and we all can make SMART investment decisions for long-term success. Investing in unit trusts is an easy way in which to use goal setting, honesty and limited knowledge to our advantage. There’s a large variety which all cater to different (and specific) goals. There are those geared for shorter-term investing, including money market and bond unit trusts; and those geared to long-term growth including local and offshore equity unit trusts. As ever, the age-old principle of time horizon-based investing and diversification applies. When it comes to honesty and lack of knowledge, unit trusts provide peace of mind as they allow investors to relying on highly-qualified and experienced portfolio managers who have in-depth insights into choosing the best assets for a specific portfolio. To set up an appointment with our Financial Planners to assist in your investments planning with our Financial Planners, please contact Kevin, email: invest@daberistic.com tel no: (011 658-1333) Source: Prudential The end of February is the end of the tax year. Carla Rossouw explains why this is a good time to take maximum advantage of the incentives the government has put in place to encourage us to save. There are certain annual tax benefits available for you through your retirement fund and tax-free investment (TFI) account. You forfeit these if you don't act each year. As we approach the end of the tax year (28 February), it is worthwhile looking at your finances. If you have cash to spare, consider taking full advantage of the tax incentives. Individuals are allowed to invest R33 000 per year up to a lifetime maximum of R500 000 in a TFI account. Like a retirement fund, you benefit from growth free of dividends tax, income tax on interest and capital gains tax - a big win if you invest for the long term. In terms of flexibility, TFIs are similar to unit trust investments, but your return potential is higher than in a basic unit trust, as you can see in Graph 1, which shows the impact of tax over 10 years. The red line illustrates the 10-year return of the Balanced Fund, while the black line reflects the return an investor would receive after tax - although of course this differs for everyone as it is based on your personal tax rate and circumstances. The catch is that if you exceed the maximum investment amount in a TFI, the tax penalties are high. To top up or open up a Tax Free Savings account , please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Allan Gray Discovery Balanced Fund is a flagship fund offered by Discovery Invest. It is only available on the Discovery Invest platform. It is managed by Chris Freund of Investec Asset Management, a very experienced and successful portfolio manager. He manages investments using an earnings revision approach. Discovery Balanced Fund has attracted a lot of inflows, in fact the fastest growing balanced fund in South Africa, thanks to clients and advisors' support, benefiting from the integration and unique features of a range of Discovery Invest products. Discovery Balanced has been a consistent top-quartile performer in the high-equity balanced fund sector, with the (annualised) performances figures as follows: 10 years: 10.14% 5 years: 11.52% 3 years: 8.05% 1 year: 11.34% This fund has a high cost, with a Total Investment Charge (TIC) of 2.12%. This makes it one of the most expensive balanced funds to invest in. I question this high fund management fee, even given its good performance figures. Were it not for various integration and fee reduction structures offered by Discovery Invest for investing in a Discovery fund, this will erode net returns to investors over the long term. Discovery Balanced Fund is suitable for general long-term investment. Being Regulation 28 compliant, it is suitable for use in a retirement product.Below is the link to download Discovery Balanced Fund's fund fact sheet as at end December 2017. To invest in Coronation Fund, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Kevin Yeh (LInkedin) SARS would to remind taxpayers of their obligation to submit outstanding tax returns. Taxpayers who do not submit their returns are charged a penalty, which can range from R250 to R16 000 per month, depending on the taxable income of the taxpayer. It is a criminal offence not to submit a return, and continuous non-compliance will lead to criminal prosecution. SARS’ responsibility is to collect tax and customs duties on behalf of the country, and is committed to ensuring that each and every taxpayer pays their fair share towards the growth of our country. The Revenue Authority will be taking a tougher stance on those who do not submit their returns and deliberately seek to avoid their tax obligations. If you have any queries on your personal or business tax, contact our Finance Department, email finance@daberistic.com, tel (011)658-1333 Source: SARS When it comes to annual contract renewal time, short-term insurance policyholders will often receive a notification from their insurance company of a premium increase. Understanding the reasons why a premium increases can better equip a policyholder to negotiate a lower premium increase. This is according to Christelle Fourie-Colman, Chief Executive Officer of MUA Insurance Acceptances, who says the short-term insurance market has become increasingly competitive over the past few years and consumers are now spoilt for choice when it comes to providers. “As a result, renewal of a policy is a time when South Africans traditionally shop around, but it is important to understand the difference between inflationary increases on sums insured and actual premiums increases, in order to avoid inadequate cover from a cheaper provider.” Inflationary increases on sums insured, such as a home, its contents and all risks (the belongings the policyholder carries with them outside of the home e.g. a mobile phone or laptop) is not technically a premium increase, she explains. “The cover for these belongings is heavily influenced by the Consumer Price Index (CPI) and the reason why insurers have to increase the sum insured (the value of the cover) is that these items will cost more to replace or repair a year later due to inflation.” She says sum insured increases will typically give the policyholder more cover at the same rate. “For example, the insurer will increase the policyholder’s building value by 6% and then the monthly premium for building will also go up by 6%. This is done to ensure the policyholder has adequate cover and that they will not be subjected to the average condition when submitting a claim.” The value of items such as jewellery are very important to adjust upwards as these belongings are greatly influenced by fluctuations in cost of precious metals and stones as well as the impact of Rand, she adds. When it comes to premium increases at contract renewal time, insurance companies will review the frequency, severity and type of claims experienced by the insured during the past year and then the premium or insurance rate will be adjusted upwards according to this data. “This can result in a higher premium being paid for the same amount of cover, especially if the insured has claimed quite often during the period,” she says. It is a good idea for policyholders to ask how their premium will be affected at renewal before submitting smaller claims, as often it is not worth claiming when considering the annual increase in premium as a result, she says. “In addition, insurers will more often than not also impose an inflationary increase on the actual rate to ensure premiums remain adequate to cover projected claims.” Often an increase due to claims as well as an increase in property sum insured value can compound the effect of the increase, says Fourie-Colman. “This is why it can seem as if the increase is above inflation but in real terms it is not the case.” When it comes to motor insurance, policyholders often find this aspect of insurance often most confusing, as the market value of cars typically reduce but premiums tend to increase at renewal, she says. “Insurers do take the value of the vehicle into account when calculating a premium, but it is by no means the only factor which determines the premium. The majority of claims paid (as much as 80% of total claims paid) are for accidents and not write-offs or stolen vehicles. So one of the main factors in determining motor premiums is the actual cost of repairing the vehicle. The cost of parts and repair are heavily influenced by fluctuations in the Rand due to the fact that most motor parts are imported from foreign countries. The prices of the parts also constantly increase with inflation.” As a result, we have to increase our premiums every year, regardless of whether the insured claimed or not, to cater for the increase in the cost of repairing accident damage, explains Fourie-Colman. She says most insurers will be prepared to renegotiate renewal increases if a good client is not happy with the increase proposed. “If the policyholder looks after their insurance claims record, they will be in a position of power to successfully negotiate increases down, without having to change insurers. However, policyholders must make sure they are not confusing sum insured increases where they get more cover with actual rate increases. “Another word of caution, not all insurance policies are created equal. Typically by paying less, the policyholder will have less cover and it is therefore vital to do a proper comparison of cover. Check excesses, driver restrictions, policy cover and limits of extensions. When in doubt, it is always a good idea to ask a broker for help,” states Fourie-Colman. Finally, Fourie-Colman provides the below list of tips for consumers to evaluate whether they are paying an optimal insurance premium; • Review your policy and shop around when it comes to renewal time; • Be sure to compare apples with apples; • Only consider dealing with insurance providers who are prepared to guarantee your insurance premium for the annual term, regardless of claims filed; • Consumers should not claim for every single little loss as most insurers also consider the frequency of claims that the client submit, even though it is for small amounts; • Do revalue and adjust the value of jewellery in the insurance policy at times when the rand is under pressure. This will ensure that the increased replacement value is adequately catered for; • Do not move insurance providers for a small saving in premium. Rather ask your current insurer to reconsider and adjust your premium if needs be. A long standing relationship with your insurance company can come in very handy when experiencing challenging times; • It is always worthwhile to deal with a broker who could add weight to negotiating premiums. To get price comparison when you have a renewal, please contact Jan or Po-Lin in our Short Term department shortterm@daberistic.com tel no: (011) 658 – 1333 Source: FA News Choosing medical cover for your parents is no easy matter. There are several factors to consider such as their medical needs, their financial situation, the facilities close to them and what level of cover would be appropriate.Medical cover for a parent can cost anything between R1 000 and R5 000 per month, not taking into account late-joiner penalties. It depends on the level of cover (hospital plan or full medical scheme) you choose, and the specific option on the scheme. Many people who are healthy all their lives suddenly need extensive medical care when they become elderly. Private healthcare is enormously expensive, and few can afford to foot that bill themselves, even if they are wealthy. In fact, fewer than 10% of retired South Africans can afford to maintain their lifestyle post-retirement, and often high medical scheme contributions is one of the first casualties. Q. Can I put my parents on my scheme as dependants? A. Yes, you can. In fact, any member of your family can qualify as your dependant if you can prove that they are financially dependent on you and that you are liable for family care and support.This includes spouses/partners, parents, grandparents, children, step-children, the child of a spouse, grandchildren and in-laws. Once a child has left home and is self-sufficient and working, they can no longer be registered as a dependant. Q. Is a hospital plan enough for a retired person? A. It’s not ideal, but it is a lot better than no cover at all. Most really expensive medical treatments take place in hospital, and a hospital plan will cover your parents for 270 prescribed minimum benefits, which cover 90% of hospital procedures. But as one grows older, medication costs and certain out-of-hospital expenses can become substantial. Q. What is the principal difference between a full medical scheme and a hospital plan? A. A full medical scheme covers in-hospital and portions of out-of-hospital treatment, whereas most hospital plans only kick in once you are admitted to hospital. That means visits to the GP and all day-to-day medical treatment, as well as acute medication costs, will be for your own pocket.But the monthly contributions for hospital plan membership are also substantially lower than those for full medical scheme membership, which may be a consideration if your parents are under financial pressure. Q. Can a medical scheme refuse to accept my parent as a member? A. No, they can't, but they can subject them to waiting periods before they can claim: usually a three-month general waiting period, and also a 12-month condition-specific exclusion for the treatment of certain pre-existing conditions. Q. What is gap cover and how does it work? A. This pays a multiple of the difference between what your scheme pays, and what a private doctor or specialist charges in a hospital. This is an insurance product, and your parents need to belong to a scheme in order to qualify for gap cover. Just check, as some gap cover products have a cut-off age for applications. It is not expensive, and can make a real difference in a medical crisis. Q. What does it mean when it says a plan covers 100% or 200% of the medical fund rate? A. That is the rate that a scheme will pay for certain doctors, specialists or procedures. It might be substantially less than the rate private doctors or hospitals charge, so if you can afford it, take the 200% of medical fund rate, otherwise you could be landed with large co-payments for your parents. Q. How does the payment for chronic medication work? A. There are 25 chronic conditions for which all schemes (hospital plans included) have to pay. They usually have a medicines formulary listing the medications for which they will pay. These are often generics, which are much cheaper than brand medications – but they are equally effective.Some schemes have a fixed amount they will pay per condition. You need to register your parents with the scheme if they have been diagnosed with any of these chronic conditions before they can claim for this medication. Q. Does a full medical scheme pay for all medical treatment? A. No. If your medical savings account for day-to-day expenses has run out, you could find yourself in a self-payment gap. Until then, a scheme will pay for treatment at registered healthcare providers either partially or in full, depending on your option. Some schemes have above-threshold benefits if you have gone through your self-payment gap. Q. What is a designated service provider and how will it affect the choice of scheme? A. These healthcare providers (hospitals and private doctors) are on a network and undertake to charge the medical fund rates. So if you use network hospitals and doctors, there should be no co-payments. Healthcare providers outside this network could charge substantially more, and this will be for your own pocket. Check to see if there are any DSPs in the area where your parents live – there is no point in paying for medical scheme membership if they are unable to access the care. Q. What if they have never belonged to a scheme? A. If your parents have never belonged to a scheme, they can be made to pay up to 75% of the scheme contribution as an ongoing late-joiner penalty. Q. What if there has been a break in their medical scheme membership? A. The scheme will calculate the late-joiner penalty based in the number of years that your parents did/did not belong to a scheme. They will need to have the paperwork to prove their membership. Q. Does it cost anything to change schemes? A. No, it doesn't. The only possible costs are if you have to pay for something while your parents are subjected to a waiting period. Q. Do pensioners pay more or less on contributions than other medical scheme members? A. Pensioners pay the same as everyone else. A small number of options take income into account when calculating contributions – proof of income will have to be provided. Q. Do my parents’ former employer/s subsidise their medical scheme contributions? A. Some do (such as GEMS), but this is becoming rare in the private sector where, increasingly, your scheme contribution is part of your total cost-to-company package. Check whether your parents receive a subsidy from former employers – they could lose that if you put them onto your scheme. Q. Are my parents’ medical expenses tax deductible? A. Yes, if you are supporting them entirely. But this is not the case if they are furnishing their own tax returns (in which case they will probably not qualify as dependants on your scheme anyway). To get a quotes for suitable medical aid options please contact Namhla or Tammy or in our health and wellness department email :health@daberistic.com tel no: (011) 658 - 1333 Source : Finance 24 |
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