Empowering Women for Financial Security in Retirement

Empowering Women for Financial Security in Retirement

Every year on March 8th, the world unites to celebrate International Women’s Day—a moment to honour women’s accomplishments, advocate against gender discrimination, and to fervently promote gender equality. It encourages us to envision a world devoid of bias, stereotypes, and discrimination.

In the realm of financial planning, where gender disparities persist, it is crucial for Financial Advisors and companies dedicated to ensuring a comfortable retirement for all to reflect on whether women consistently receive equal opportunities to achieve this goal.

Our society grapples with challenges such as a high percentage of single mothers due to absent fathers and a significant unemployment crisis, often leading to an increase in female entrepreneurs. Additionally, the financial well-being of married women can be at risk during divorce or widowhood, as they may not always be adequately provided for within the framework of the couple’s retirement plans.

Here is some constructive advice to address these realities:

Ensure Inclusive Retirement Plans

Engage in open conversations with your spouse about your joint retirement plans. Consider the potential impact on your retirement should unforeseen circumstances, such as death or divorce, alter your marital status. It is crucial to move beyond assumptions and jointly plan for a secure retirement.

Take Proactive Measures

If you are the primary breadwinner, whether working for an employer or as a business owner, make informed decisions about pension plans and tax-saving investments. For business owners, Retirement Annuities, as discussed in our previous article – RAs, the best tonic for your tax health – we are the team to talk to.

Create Financial Independence

As a sole breadwinner or unexpectedly single individual, proactively seek financial advice. Instead of resigning yourself to the belief that a secure retirement is unattainable, work with financial advisors to explore savings and investment opportunities. With the right guidance, achieving a decent retirement is within reach for everyone.

At Hereford Group , we recognize the unique financial needs of women. For over 30 years, our exponential growth stems from the belief that everyone is different, making us uniquely qualified to understand and address diverse financial requirements. We are committed to assisting women in securing solid retirement plans, and providing excellent, creative, and empathetic financial advisors. Reach out to us today, because when it comes to your financial future, Hereford Group is the right partner for your journey. 

Talk to us today about ensuring the future you aspire to and keeping you on track. 

7 MYTHS ABOUT MAKING A WILL

“Let’s choose executors and talk of wills” (Shakespeare)

If you haven’t made your will yet, get it done now. Why is that so important and how should you go about it?

To answer that let’s debunk a few of the more pervasive myths and misconceptions around those questions –

1.“I’m too young to need a will”

Of course, the older you get, the greater your chance of dying from illness or disease. But conversely, the younger you are the higher your risk of sudden violent death. For example our road fatality stats (amongst the highest in the world) show that 80 percent of deaths are in the 19 to 34 year old age group. No matter your age and no matter your health status, you could die today. Or tomorrow. No one (least of all you) knows for sure.
And so to this related myth …

2.“I’m too busy right now, it can wait”

The more frantically busy we are (and that’s most of us in today’s world) the more tempting it is to postpone this one. It’s a hassle, you have other priorities, and besides who wants to contemplate their own mortality? But of course, “Death knocks at all doors”, often without warning. And the hassle you save yourself today is just more hassle for your grieving loved ones to have to deal with tomorrow.

3.“It’s OK to die without a will”

No it’s not. A will is the only way to ensure that your loved ones are looked after properly after you are gone. It’s the only way to control how your estate is divided and who divides it for you.

Without a will you die “intestate” and the law – not you – determines who gets what. You could be inadvertently condemning your spouse to a life of trying to survive on only a “child’s share” of your estate. You have no say in who will be appointed executor of your estate, or guardian of your children, or trustee of their trust if they are under age or unable to manage their own affairs. Your children’s’ inheritances will sit in the Guardians Fund until they turn 18. If you aren’t formally married but have a life partner, he or she may end up in a bitter dispute with your family over rights of inheritance. There are no advantages to dying intestate, only disadvantages – big ones.

4.“I’m single and have no assets, so a will is pointless”

Firstly, you will have some assets – a bank account perhaps, or a car, or monies in your employer’s pension fund, or perhaps your estate will have a claim on the Road Accident Fund. Even if you have no spouse/life partner/children to worry about, you will still leave loved ones behind – parents perhaps, or siblings. Whatever the case, someone close to you will have to be involved in winding up your estate and you should leave a will to make the process less stressful for them.

5.“My spouse already holds my Power of Attorney, that’s all he/she needs”

Powers of attorney lapse on your death and from then on only your executor, after being formally appointed by the Master of the High Court, can deal with your estate. Any powers you may have given your heirs – for example to draw money to live on from your bank account, or to run your business, or to rent out your house – fall away when you die.

6.“It’s easy to draw a will, I can do it myself”

There is no legal requirement for a professional to draw your will, but before you buy a template will or copy someone else’s, consider these common pitfalls.

Your will must comply with legal formalities to be valid. If it doesn’t pass muster for any reason, your heirs will have to make an expensive application to the High Court to have it validated.

Unless the terms of your will are crystal clear, you could ignite a bitter family feud over what your wishes really were, and that’s the last thing your grieving loved ones need to be dealing with in their time of distress. Our law reports are filled with cases caused by imprecision, ambiguity and vagueness, and sometimes there is just no substitute for the legal terminology and the “Latin bits” – unless you fully understand them, don’t go there alone.

Your marital status, marital regime and ante-nuptial contract (if you have one) need to be taken into account when drawing your will, and there are grey areas here which are best left to a professional.

If you have foreign assets, you may need a foreign will as well as a local one, but there’s “no one-size fits all” answer – specialised advice is essential.

The structure of your will, and upfront estate/tax planning, will reduce unnecessary cost and delay – another issue beyond the average layperson.

The last point – not strictly part of the process of drawing the will but still vitally important – is to leave your heirs with ready access to funds whilst the estate is wound up. All your bank accounts and the like are automatically frozen on death so ensure your heirs have their own bank accounts, nominate them as beneficiaries of life policies etc.

7.“I made a will years ago, that’ll do the job”

Bad idea. Life events (marriage, divorce, birth, death etc) and a whole host of other factors (like new laws and changes in your financial and business structures) all require review. So diarise to revisit your will regularly, at least once a year.

In closing, don’t confuse this sort of “will”, which only applies after you die, with a “Living Will” (or its close cousin an “Advance Directive”), both of which only apply before you die.

Queasy markets and returns

So 2018 has dawned, holidays are over and there are more negatives than positives in our bank account. We have our new year’s resolutions and goals set. So time to review the last statement of the year and oh dear what happened?… 2017 was a good year for investment and retirement funds. Yes, this might be a puzzling statement when you look at the political turmoil that was being experienced all over the world. But, overall up until the end of November most statements had good returns, especially after the dismal events we have been through and the impacts of our different finance ministers.

However, at the beginning of December the news broke of the Steinhoff saga and our markets experienced a significant loss over a few short days. The Steinhoff share tumbled over 91% in a matter of days. The impact of this event effected everyone who was in the market, those who actually owned the share as well as those who did not. Many of us stayed glued to the news tickers trying to understand how a company that seemed so invincible and had to be in every Investment house’s portfolio or else they lost out on returns, had suddenly been rocked by such a scandal.

Next came the ANC elective conference and the markets went into an ever more extreme rollercoaster of up’s and down’s with everyone trying desperately to predict who would be the next president of the ANC. What would this do to our country and would we still have a market once the votes were counted? Suddenly, it was Ramaphosa, which calmed everyone and made the most anxious person look forward to a great summer holiday. The Rand strengthened and all seemed bright and shiny. So again you ask, then why are the statements we have received not reflecting this positivity? The answer is that before the December events most funds had offshore allocations to try and hedge against our political uncertainty. These allocations were driving the returns with the world economy starting to grow and providing a protection for the savings we had. However, with the sudden rapid strengthening of the Rand after the conference it has reversed all the gains these investments made in helping our funds ride through our bumpy year. Added to this is that a large portion of our listed companies have offshore subsidiaries and income streams which were positive but with the rand strengthening so significantly, the income received was far less. Add in the Steinhoff saga at the beginning of the month the December returns look horrid and very negative.

These events in such a quick succession highlight why the core of all investment approaches is to ensure all funds are diversified between different types of assets such as equities, bonds, property as well as onshore and offshore investments. Understandably the above was more like a perfect storm and no matter how you invested you were not going to avoid any impact, but staying diversified did help soften the drop.

Lastly, always remember the core principle of investing is sticking to the time period you have allocated to your investment. 1 month’s volatile return is not going to have an impact on an investment created for a 5 or 10-year period, however it will affect those who have a 1 to 2-year time horizon.

Make sure you and your advisor chose the right risk profile and asset mix to meet your needs, goals and time allocations. The markets will turn and another news cycle will impact them in another way. There is no crystal ball which can predict what will happen next or how much you will or won’t make. Investment units go up and they go down, but regular and continual investing helps to reduce the risk, spreading your investment and diversifying the underlying assets will ensure the returns you are aiming for are achievable.

Sticking to the time period and ignoring the noise and numbers that are being spoken about on a daily, weekly and monthly basis will help you meet the goals you have. Unfortunately, there are no guarantees in investing and what goes down, must come up. Speak to your advisor and stay the course. Enjoy 2018 and happy investing.

Seed Market Overview – 31 December 2017

Local Market

After two calendar years of weaker returns (5% in 2015 and 2.6% in 2016), market prices produced a respectable 21% in 2017. Despite this move up in prices, the 5 year compounded return for the JSE All Share index is only up to 11.9%. Nevertheless, this is an approximate 6.5%real rate of return on this asset class.

The JSE All Share index ended the year just shy of the 60 000 level, which it managed to reach early in 2018. Few investors would have predicted a 20% plus return on the local listed shares, given the issues that the SA investor faced over 2017,including:

  • The year started off on a firm footing, but soon became unstable when political risk was heightened with a cabinet reshuffle by President Zuma in March, with Finance Minister Pravin Gordhan ousted
  • This was followed in April by two of the major rating agencies downgrading SA local and foreign debt to sub investment grade
  • Quarter 1 saw SA slip into a technical recession, which rebounded in quarter 2.
  • Midyear, the ANC policy conference made calls to nationalise the SA Reserve Bank
  • In November, rating agencies made a further downgrade to SA debt
  • In December, Steinhoff (Top 40 share) crashed over 90% after admitting accounting irregularities and delaying publishing its annual financial statements.

Naturally, there were many positives for investors, which outweighed the negative sentiment, resulting in the following :

  • The rand appreciating versus the weaker US dollar by close to 10%
  • The All Share index gaining 21% and the Top 40 23% – 35% in USD dollars
  • The industrial metals sector gaining 90% on the back of firmer base metal prices
  • The bond market up 10.2%
  • Listed property up 17.2%
  • Money market up 7.5%

Local market prices were boosted by Naspers, which accounted for approximately half of the market gains. Late into 2017, banks rallied on the firmer rand, ending the year up 31%.

It is evident from Chart 1 (below) that returns from both listed property and shares only came through in the second half of the year. As is the nature of risk asset prices, returns are lumpier (unlike lower risk returns from money market).

Global Market

Following the global financial crisis in 2008/2009, monetary authorities, led by the US Federal Reserve (the US Fed) undertook an experiment by lowering short term interest rates to essentially zero in the hope of driving investors out of fixed income investments and back again into risk assets.

Since then, in each calendar year since 2008, US equities have posted a positive year and global equities were only negative in 2011 and 2015, with 2017 proving to be a bumper year, both for developed markets and emerging market risk assets as evidenced by the 23.9%gain from the MSCI All Country index.

In 2017, the bulk of the return from global markets came from growth in earnings; this means that valuations in general are not necessarily more stretched than a year back, despite gains of over 20% for many global shares.

The question that investors are now asking is “have we now reached the end of the easy monetary experiment, or is there still more to come from risk assets?”

While at this stage, there is no sign of a recession, these do typically occur after there has been significant monetary tightening from central banks in their enthusiasm to rein in rising inflation.

Therefore, one of the key areas to focus on in 2018 will be US inflation and further tightening of interest rates by the US Federal Reserve. The market is pricing in 3 or 4 further rate hikes, but if inflation picks up more than expected, this will be cause for concern.

For the time being our view is to maintain close to maximum exposure to global equities. But this will be tempered with an ongoing higher weight to global quality companies, with reasonable valuations and a steady reduction in allocation as prices rise (i.e. taking some profits off the table).

 

Seed Local Review

Equity December 2017 was a volatile month, with politics playing a huge part in investor sentiment. The election of Cyril Ramaphosa as head of the ANC was considered positive for SA and the rand gained ground against the USD, trading near 10% firmer for the month. This put strain on the JSE returns, which are heavily weighted to rand hedge shares. The Steinhoff decline was also a contributing factor. These factors combined resulted in the JSE Top 40 index falling by 1.3%. While earnings have come through, the price gains mean that valuations remain elevated above long term averages. Pockets of value appear in local focused shares, and stock picking, as opposed to buying an index, is going to be more important in 2018.

Property

Property Listed property shares were strong, gaining over 4% in December following the outcome of the ANC elective conference. This resulted in property shares gaining 14.5% since mid-2017 and 17.2% for the year. Over 2017, shares with a greater focus on local assets underperformed those with a more global focus. In December, gains were dominated by heavyweight shares (Growthpoint, Hyprop and Redefine). The listed property market has a one year forward income yield of around 6.5%, appearing expensive in relation to the local bond yield (trading at 8.5%). Approximately 50% of the index is now exposed to global properties, where the equivalent bond yields are much lower. A property portfolio with a one year forward yield of over 10% can still be constructed, which is attractive when compared to the prevailing bond yield.

Bonds

The December gain of 5.7% for local bonds SA bond yields was an indication of the risk premium investors, both local and foreign, were pricing in for the political situation in SA. With the ANC elective conference bringing in Ramaphosa, a large portion of this premium was removed, and yields on bonds fell from 9.4% to 8.7%, resulting in a strong gain. For the year bonds produced a 10.2% gain but proved to be a reasonable investment, outperforming money market returns (with higher volatility). Valuations are not as attractive following this price gain and given a possible further downgrade by Moody’slater in 2018.

Cash

The level of inflation has continued to remain under the upper band of 6%. The November inflation rate came down from 4.8% to 4.6%. Higher fuel prices will put pressure on inflation into the end of the year, but the much firmer rand price into December is positive for the inflation outlook. Reasonable expectations are that inflation should end the year around 5.3% as compared to 6.4% for 2016. This means that cash generating investments continue to provide a relatively high real return compared to long term history, at least before tax. For this reason cash and near cash investments remain attractive.

 

Seed Global Review

Currency

The rand surprised many investors in 2017, given the materialisation of risks. December saw a sharp turnaround, resulting in an appreciation of the rand against the USD (around 10%) and the Euro. The rand gained 10% against the USD for 2017, which was slightly weaker relative to some of the majors, gained 1.5% against the GBP, and was approximately 2.5% weaker against the Euro. Hence, one month made a big difference. The strong gain meant that on a purchasing power parity basis, the rand appears to be reasonably valued against a trade weighted currency basket. Further gains may come from a greater normalisation of the politics and ongoing firm commodity prices.

Equity

Global equity markets have had a huge 2017 with virtually all markets making gains. This has been supported by a synchronised global growth story. At a broad level the MSCI All Country index gained 1.6% in December and 24% for the full year in USD terms. Because price gains have mostly been supported by firmer earnings growth over the year, valuations have not necessarily become more stretched. At the same time investor sentiment is more positive and therefore the strong momentum is likely to continue. The risk lies with the easy monetary policy starting to turn into a tightening one and therefore a headwind. For now, though, we remain fully invested, but cognisant of the these risks.

Fixed Income

The US 10 year treasury bond yield traded relatively sideways in December closing at 2.4%. Into January, it has weakened to 2.5%. In the UK the 10 year bond trades at 1.3%. As generally expected, the US Federal Reserve increased rates again at their December meeting. The market is expecting at least 3 rate hikes in 2018 as the monetary authorities try and stay ahead of the inflation curve. Many market commentators believe that we are slowly going to unwind the 30 year bull market in bonds and that the 1.3% seen in mid 2016 was the high point, while others remain convinced that there is still value as the yield creeps up. In our view valuations in global government bond markets remain too expensive.

Alternative

Other asset classes that can sometimes be considered include private equity, direct real estate, commodities, and hedge funds and can provide investors with uncorrelated returns. In an environment where starting yields are at historical lows these traits are highly valued. These assets can perform a useful role in multi asset portfolios as they help provide more consistent returns. Generally rising yields however will be a constraint on valuations.

 

Source : Seed Investments (31/12/2017)

 

Trustees: Your Risk of Personal Liability in Property Sales

Firstly, a warning to anyone selling or buying property to/from a trust – have your lawyer check upfront that you are adequately protected by the terms of the sale agreement.

The problem is that contracting with trusts has its own specific set of rules and, as a High Court case illustrates, standard sale agreements don’t always provide adequately for them.

A seller sues an unauthorised trustee for R2m – personally

  1. A company sold a “real right of extension” (a right to build additional buildings in a sectional title development) to a trust,
  2. The agreement of sale was signed by only one of two trustees,
  3. The sale agreement was invalid because the trustee who signed had no authority to sign alone,
  4. The seller sued the trustee in an attempt to hold him personally liable for payment of the purchase price of R1,45m (almost R2m with interest),
  5. The seller relied on a clause in the sale agreement – standard in such agreements – in which the trustee “warrants and binds himself in his personal capacity” that he had authority to sign and that the trust would perform in terms of the sale,
  6. A further provision bound any unauthorised signatory as surety and as the purchaser in his/her personal capacity.  The seller’s problem here was that this provision specifically only applied to anyone signing for a company or close corporation yet to be formed.  There was nothing specifically binding an unauthorised trustee to similar personal liability,
  7. The seller tried to persuade the Court that the trustee was nevertheless liable as a surety, or that there was an implied term in the agreement holding him personally liable, but the Court was unimpressed on both counts and dismissed the seller’s claim.

The risk for trustees

As the Court pointed out, the seller could have sued the trustee personally not for the purchase price as such, but rather for damages arising from the trustee’s “breach of warranty”.
There’s a warning there for all trustees – you risk a damages claim in your personal capacity if you don’t make sure that you are fully authorised to sign, that you hold the necessary letter of appointment from the Master of the High Court, that your trust has the power to do whatever you are binding it to do, and that all the terms of the trust deed have been complied with.

And a lesson for property sellers and buyers

On the other hand the seller, to succeed in such a damages claim, would have had to prove the extent of its loss, causation of that loss, mitigation of its damages and so on. Its position would have been much clearer, safer and easier had it, before signing the sale agreement

  1. Checked for all the necessary signing authorities, compliance with the  trust deed etc (prevention being as always better than cure), and
  2. Inserted a clause giving it clear and strong personal remedies against any unauthorised trust signatory.

The same advice applies of course to anyone buying a property from a trust.
Mistakes here will be expensive – take legal advice before you sign anything!

Contact one of our Fiduciary expert attorneys for assistance info@lhtc.co.za

TRUST TO TRUST: DOES A TRUST ELIMINATE ESTATE DUTY?

Although death and taxes are certain, people are always looking for ways to minimise taxes upon death.

In certain instances, people are not even aware of the tax consequences upon death. They may have to pay in excess of 30 percent in costs and taxes – capital gains tax, estate duty and executors fees.

If no provision was made for these costs and taxes, the executor may have to liquidate assets needed by the remaining family, to make these payments from the estate.

Many people are unaware that all the costs and taxes (as if you bequeathed it to any other legatee) will firstly have to be settled from the estate, before the trust is registered, as determined in the deceased’s will. This may leave dependents, such as minor children, with much less assets to survive from.

When you set up a trust during your lifetime, it will determine the tax consequences, both during your lifetime and upon your death. Many people believe that they should only set up a trust after they have created sufficient wealth. This is too late, for two reasons.

Firstly, when you transfer paid up assets held in your personal name to the trust, the trust will not have any liquidity to pay for those assets, and they will either have to be donated to the trust, or acquired on loan account. When you donate assets to the trust, donations tax at 20 percent on the first R30million, and on amounts in excess of R30m at 25 percent will be payable upon transfer to the trust from liquidity, which very few people have.

When you sell your assets to the trust on loan account, you will now be required to either charge interest on such loan accounts at at least the official rate (repo rate plus 1 percent, currently 7.75 percent), or pay ongoing donations tax if your loan was interest-free or interest is charged below the official rate (Section 7C of the Income Tax Act).

The donations tax will be calculated on the interest income forfeited by you. This tax on interest forefeited can be equated to the annual payment of estate duty during your lifetime.

Secondly, the balance of the loan to the trust will be included in your estate upon your death. If you charge interest on the loan, to avoid the donations tax liability, discussed above, all the interest charged will inflate your estate.

Section 7C has been successfully implemented by Sars to prevent the estate duty avoidance that could result when a person transfers growth assets to a trust.

The best time, therefore, to create a trust for estate planning purposes, is before major wealth is created during a person’s life.

In this instance, the assets will be acquired and grow in the trust, such as shareholding in a company which is acquired at nominal value when it is created, and where all the growth happen in the trust, with no resulting taxes as discussed above.

If you intended to create a trust, but you have dealt with the trust assets during your life as if they were your own, then Sars can attack the trust and have it labelled as an alter ego trust; in other words, an extension of yourself.

Despite the fact that the trust does in fact exist, SA Revenue Service will disregard the trust and treat the assets as if they belong to you, and include the assets in your estate. There must be a clear separation of control from enjoyment of trust assets. All trustees – and not just one of them – should control the trust assets for the enjoyment of the beneficiaries.

The Estate Duty Act (Section 3(3)(d)) is relevant where the trust instrument contains a provision that empowers the deceased, immediately prior to his/her death, to: appropriate or dispose of property; or revoke or vary the provisions of any donation, settlement, trust, or other disposition made by him/her for his/her own, or his/her estate’s benefit.

In such cases, the trust property will be included in the estate of the deceased as deemed property, so it is important that you are mindful of inserting problematic provisions when you draft your trust deed.

If you have a trust, please review and amend your trust deed and remove any provisions which may impact your estate negatively, especially if you have not made provision for additional estate duty and capital gains tax payable upon your death, as a result. When and how you set up a trust, and how you execute it, may impact estate duty payable.

Six Step Financial Planning Process

The Personal Financial Planning Process

To allow for the protection of your wealth and the creation of financial freedom, it is crucial to follow a clearly defined financial planning process. This process is detailed as follows.

Establishing and defining a professional relationship:

  • Your first meeting should be dedicated to establishing a clear understanding of your immediate needs and/or concerns as well as getting a firm grasp of what professional services your financial planner provides including their competencies and experience. Discuss how the financial planning process will unfold if you are new to the process and clarify the roles and responsibilities of both you and your financial planner going forward.

Understanding your unique objectives and needs:

  • Once you have established and defined your relationship with your financial planner, it is essential that you allow them to gather as much data and relevant information to enable the construction of a comprehensive financial plan unique to you. This will involve sharing not only accurate factual data, dreams, goals and aspirations, but also providing an indication of your values, priorities and attitude towards your financial wellbeing and defining timeframes for outcomes.

Analysing and evaluating your financial status

  • With your financial information at hand, the financial planner is then able to analyse your current circumstances and establish where you are in relation to your goals and objectives. Various components of financial planning should be analysed during this process, including: personal financial management, risk management, retirement planning, tax and estate planning, investment management and business financial planning. Should it be determined that you are not on track, your financial planner will explain why and recommend solutions to assist you in this regard.

Developing and presenting financial planning recommendations

  • Once your financial information has been analysed, the financial planner will present their findings to you and guide you through the various financial solutions available, making recommendations accordingly. It is at this stage that other specialists from within the Hereford Business Units may be called upon to render specialist advice, such as investment management. The outcome of the plan is to ensure that you have a strategy in place to take you forward with confidence and to provide certainty regarding your financial future.

Implementing the financial planning recommendations

  • Once you have agreed to the recommendations presented, it is crucial that your plan be implemented. This process may involve some responsibility on your behalf as well as the financial planner, or the co-ordination with other specialists. It is here when your financial planner will also present the products suitable to address the shortfalls in your planning or required to help you achieve your goals. As it is common place that not all recommendations can be addressed at once, time frames will need to be agreed upon to ensure you ultimately reach your goals.

Monitoring and reviewing your financial plan

  • A financial plan must be reviewed on at least an annual basis or as your circumstances and needs change, this to both monitor progress and to confirm it is still meaningful and relevant to you. Discuss with your financial planner when this should take place and how often, but don’t hesitate to contact them prior to the review date if there has been a change in your personal or financial position.

Moving to Canada – Hereford

Moving to Canada can be exciting but also a daunting experience. We lived in Durbanville (Cape Town) with a lovely surrounding of vineyards and mountains but that does seem very distant now to the big city of Toronto. There are so many things to consider during a time of transition and your financial planning is one of them. Your financial well-being and planning in Canada does not have to be complicated if you follow a structured process.

It is important to consider some of the main points as you settle down in Canada. Here are a few things to consider along the way:

  1. What options do I have with my South African pension, preservation and retirement funds?
  2. What happens to my life cover in South Africa as I move to Canada?
  3. When should I become tax resident in Canada? How flexible is this choice and what is the impact on my South African assets?
  4. What about financial emigration? Should I do it?
  5. What about my remaining investment portfolio in South Africa? How do I move that over to Canada and what is the tax consequences?
  6. How do I commute my financial goals from a high interest rate (i.e. SA) to a low interest rate environment (i.e. Canada)?

There are many other questions but let me dive into the last point.

The prime lending rate in SA is 10% while in Canada it is 3.95%. A perpetual annuity (without expenses and profit margin etc etc) will cost you R10 in SA for every R1 of payment per annum. In Canada a $1 payment per annum will cost you $25 (or then R25 in ZAR terms for R1 per annum). This means, in simple terms and only based on low interest rates, you need 1.5x to 2.5x more assets in Canada to fund the same level of income at retirement. That excludes the fact that places like Toronto is between 50% and 75% more expensive than Cape Town

The same differential then goes for life insurance and disability cover. It is therefore unlikely that a financial goal will remain static. Let’s consider the following:

If you were targeting a R100 000 ($10 000) income per month at retirement you would need to have around R18m ($1.8m) at retirement. If you have say an investment portfolio currently of R2m ($0.2m) and expect that to be $1m at retirement then the summary is:

Targeted goal amount at retirement – $1.8m
Current value plus growth to retirement – $1m
Shortfall – $0.8m

If you now move to Canada your income requirement as per the link above should be 50% to 75% more. This means you are going to need $10 000 x 1.5 = $15 000 per month. But because of the low interest rate environment the targeted amount to fund this increased amount will also be more. Therefore, the summary of your retirement goal in Canada will be as follows:

Targeted goal amount at retirement – $3.2m
Current value plus growth to retirement – $1m
Shortfall – $2.2m

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You now sit with a potential retirement shortfall of $2.2m as opposed to $0.8m. Again, one does not have to afraid of all this. Instead, with diligent planning with risk products, investment portfolios and tax planning this is achievable.

If we achieve our financial goals then maybe we can even still enjoy those visits back to the vineyards in the Cape.

RAs, the best tonic for your tax health

RAs, the best tonic for your tax health

RAs, the best tonic for your tax health!

As we head into this final month of the tax year you may well be wondering if you could have done better in 2023 from a tax savings point of view. This article follows on from our January article on ‘How will your tax health look in 2024?’, so if you missed it you can find it here – How will your ‘tax health’ look in 2024? – Hereford Group. 

The king of tax-saving investments 

As promised, in this article we look at the king of tax-saving investments – Retirement Annuities (RAs). For the uninitiated, these are retirement investments that cannot be drawn on before the age of 55, hence the government’s desire to encourage them via providing tax-free incentives for investors. 

In essence, you can save as much as you like but up to 27.5% of your taxable income is tax-free! There is an annual limit though of R350,000. 

What are the benefits?

The benefits are obvious as you are essentially using the money you are saving on tax to fund your investment – or looking at it another way, SARS is paying a part of your retirement savings. Another big tax advantage is that the growth on your investment (which historically has been impressive in the right funds) is also tax-free!

Additionally, these savings provide income in your retirement years and especially for entrepreneurs running their own businesses who are not part of an employer’s pension / provident fund. An RA is hands-down the best way to ensure that you will have money to fund part or all your retirement income needs. You can draw up to one-third of the savings when you retire (subject to retirement tax tables), and the rest is supplied as monthly income – a kind of guaranteed pension if you like.

The 1/3 amount that you can withdraw is tax-free up to R550,000, but it’s worth noting that the tax relief on retirement lump sum benefits is allocated only once in a lifetime, so once used you can’t claim it again. For example, if a person uses only R250 000 of the R550 000 with the first lump sum, the balance left is R300 000 and once this is used up this relief is not available again. 

Finally, another benefit is that your RA savings are protected from your creditors regardless of whatever loss you may suffer. It is a provision of the retirement fund and ensures your retirement savings will be available when most needed no matter what.

Tax health is just the tip of the iceberg.

There are so many aspects to having a healthy financial portfolio. Utilising the best of the tax savings benefits available to us is just one of them and, like focussing on heart health as the only aspect of the body’s wellness, we cannot think that tax-saving is all that matters. 

There is so much more to a well-rounded portfolio and that’s where Hereford Group’s highly skilled Financial Advisors, many of whom are specialists in specific areas of wealth creation, can help you to construct a holistic, professionally structured wealth creation plan to ensure that you not only retire well but make the best of the life you are living every day.  

Contact us for a financial wellness assessment today and let’s make 2024 the year that your financial health took a decidedly upward turn!

Don’t let critical illness cripple your finances

Don’t let critical illness cripple your finances

Don’t let critical illness cripple your finances.

It is simply a fact that dread diseases, often referred to as critical illnesses, and financial wellness are inextricably linked. The stats are not known (as the instances are way too common) of how many people who suffer serious illnesses and have not financially prepared for them go on to suffer equally devastating financial losses consequently derailing their wealth creation and retirement plans. 

Critical illness is something that invariably hits us unexpectedly, but in so many cases could have been prevented, or at very least its severity dissipated with awareness and prevention – and pretty much the same applies to financial losses when such events occur.

Cancer is preventable and treatable with preparation and awareness.

This year on Feb 4th we are once again reminded of the most common and most dreaded of all the critical diseases – Cancer, and on World Cancer Day the world has been called upon to unite in its prevention and decline through the slogan ‘Close the care gap.’

In the words of the World Health Organisation, ‘’Cancer can be prevented and controlled by implementing evidence-based strategies for cancer prevention, screening and early detection, treatment, and palliative care. The most common modifiable risk factors for cancer, which are shared with many other noncommunicable diseases, are:

  • Tobacco use
  • Low fruit and vegetable intake
  • Harmful use of alcohol
  • Lack of physical activity

One-third to one-half of cancer cases could be prevented by reducing the prevalence of these known risk factors.”

Financial demise is preventable too!

As so many people found out during the COVID-19 pandemic, even having a good medical aid and gap cover is not enough to cover the long-term effects of a dread disease as this can be financially crippling. It simply stands to reason, therefore, that at such times you need to receive a substantial boost to your finances if you are not to lose all that you have worked so hard to accumulate up to this time. 

Dreaded Disease or Critical Illness cover can give you this financial security as it pays out a substantial lump sum if you are diagnosed with cancer or suffer a heart attack or stroke. It is also prudent to have ‘Income Protection’ which provides you with a regular monthly income during any time you may be unable to work whilst recovering from the illness. 

It’s a good idea to consult your Financial Advisor for the implementation of these policies as they can vary and need to be assessed according to your specific portfolio and affordability. 

Your financial wellness is our concern.

Just as you would go to see a health professional in the case of any kind of illness, your financial wellness should also be in the hands of professionals. Hereford Group’s Financial Advisors are experts who can not only assist you through some of the economic downturns and difficult financial situations that we often face but more importantly can ensure that you are fully prepared for such unexpected events. Just as preparation is key in health matters, so it is for financial wellness too. 

Talk to your Financial Advisor today to ensure that you don’t let critical illness cripple your finances and watch this space for more interesting advice pieces on how you can ensure a lifetime of financial creation and wellness, no matter what fate throws at you!