nfb sensible finance magazine issue 14
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Finance MagazineTRANSCRIPT
Eastern Cape's Community...
PERSONAL FINANCE
a FREE publicationdistributed by NFB Private Wealth Mangement
p r i v a t e w e a l t h m a n a g e m e n t
issue 14March 2010
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
THE CRYSTAL BALLwhat does 2010 hold for us?
WIN A WEEKEND AWAY
TO THE THUNZI BUSH LODGE
see inside for details
DEFLATION : not alldoom and gloom
“Getting more bang
for your buck”
BE ACTIVE, BE WEALTHYthe benefits of having your portfolio
managedactively
“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.”
- Buddha
p r i v a t e w e a l t h m a n a g e m e n t
2525
East London tel no: (043) 735-2000 or e-mail: [email protected]
Port Elizabeth tel no: (041) 582-3990 or email: [email protected]
Johannesburg tel no: (011) 895-8000 or email: [email protected]
web: www.nfb.co.za
NFB is an authorised Financial Services Provider
contact one of NFB's financial advisors:
fortune favours the well-advised
2525
Providing quality retirement,
investment and risk planning
advice for years.
a sensible read
February saw Pravin Gordhan delivering his first official budget
speech, and quite an ordinary one really; which I think is
probably a sign of an economically stable country. A
particularly scary statistic was that about 900,000 people have lost
their jobs in the last year. And in a country that, in December 2008
(according to Stats SA's Labour Surveys), only had 13.8 million
employed people, that translates to 6.5% of the employed
population! So although many of us may not have noticed the
severity of the recession, it really had a major impact on our
economy. Out of interest, at the same date, we had a total
(potential) labour force of 17.7 million, of which 3.8 million were
already unemployed. However, there is good news on the horizon
with 2.3% growth expectations for South Africa for 2010, rising to 3.6%
by 2012, and interesting government subsidy plans for new
inexperienced entrants into the workplace. I just hope that this gets
coupled with improving the quality of school leavers. It's very sad to
see the standard of the vast majority of job applicants that we see,
and before inequities in the workplace can be remedied, that
needs to be a crucial focus of the government. Furthermore on the
positive front, South Africa is officially out of recession and it appears
as though the world economy has entered a recovery, rebuilding
and expansionary phase. We can all optimistically breathe a sigh of
relief and hopefully our investment portfolios can do the same!
Finally, it was brought to our attention that we have not
adequately been sourcing some of our articles and have made
errors in terms of incorrectly listing the authors for some articles. We
apologise for the oversight, misleading information and specifically
the editing from my perspective and will ensure that much more
attention is put into these details in future. We assure readers of our
commitment to providing quality and relevant information as
professionally and accurately as possible.
Best of luck to underdogs, Bafana Bafana, in the up and
coming World Cup! Get your vuvuzelas out and let's give them our
support!
Brendan Connellan - Editor and Director of NFB
editor
advertising
layout and design
address
contributors
Brendan Connellan
Duncan Wilson (NFB), Travis
McClure (NFB), Philip Bartlett (NFB),
Chris Lemmon (NVest), Shaun
Murphy (Klinkradt & Assoc.), Grant
Berndt (Abdo & Abdo), Leona
Trollip (NFB), Claire Broedelet
(Travel Experience), Natalie Dillon
(Old Mutual), Tamas Kulcsar
(Glacier by Sanlam), Robyne
Moore (NFB), Iona Minton (for
IE&T).
Robyne Moore
The views expressed in articles by
external columnists are the views
of the relevant authors and do not
necessarily reflect the views of the
editor or the NFB Private Wealth
Management.
©2010 All Rights Reserved.
No part of this publication may be
reproduced in any form or
medium without prior written
consent from the Editor.
Jacky Horn Design
NFB Private Wealth Management
East London Office
NFB House, 42 Beach Road
Nahoon, East London, 5241
Tel: (043) 735-2000
Fax: (043) 735-2001
E-mail: [email protected]
Web: www.nfb.co.za
a sensible read
sensible finance ED’SLETTER
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Email your full name to [email protected] to subscribe to
NFB's free economic electronic newsletters.
another aspect of our comprehensive service
sensible finance March10
CONTENTSSENSIBLE
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NFB TOUCHING LIVES IN OUR COMMUNITY
2010 BUDGET HIGHLIGHTS
YOU ARE SPENDING YOUR MILLIONS R1 AT A TIME
TAX RELIEF FOR HOMES HELD BY COMPANIES, CC'S ANDTRUSTS
WHO RECEIVES MY PENSION BENEFIT WHEN I DIE?
“TO IMPROVE IS TO CHANGE, TO BE PERFECT IS TOCHANGE OFTEN”
WHAT YOUR HEIRS NEED TO KNOW
HOMO ECONOMICUS OR HOMO SAPIEN?
DEFLATION: NOT ALL DOOM AND GLOOM
BE ACTIVE, BE WEALTHY
TRAVELLING IN 2010
HOW TO MAKE FINANCIAL PLANNING WORK FOR YOU
EXPECT THE UNEXPECTED
DISCOVERY HEALTH'S SPECIAL UNDERWRITINGCONCESSION
THE CRYSTAL BALL
WIN A WEEKEND GETAWAY TO THE THUNZI BUSH LODGE
You too can make a difference! The Loaves and Fishes Network and the CANSARelay for Life
A snapshot of Pravin Gordhan's budget speech.
A lesson in the time value of money.
A final opportunity to transfer your property tax free into your own name.
An equitable distribution may mean that your nominated beneficiary receivesnothing.
Are our fund members appropriately invested given their age, proximity to retirementand stage of life cycle? Unfortunately, many are not.
Making financial matters easier for those who are left behind.
For an investor seeking a comfortable retirement, the romance is not in the journey,but solely in the destination.
“Getting more bang for your buck”.
The benefits of having your portfolio actively managed.
With the Soccer World Cup upon us, it's time to plan ahead.
Advice to help you achieve the best results.
The major life events which can disrupt your retirement plans.
See the article for details of the offer
What does 2010 hold for us?
Stand in line to win a weekend away for two, compliments of the Travel Experience,East London
Q&A.You ask. We answer. Advice column answering your investment, personal finance,life and/or risk insurance questions
By Shaun Murphy, CA (SA), Partner -Klinkradt & Associates
By Joshue Kennon - About.com
By GrandtBerndt - Abdo & Abdo
By Natalie Dillon, Legal Advisor - Old Mutual
By Leona Trollip, DivisionalManager - NFB
By Iona Minton forIndependent Executor & Trust
By Duncan Wilson, Financial Advisor - NFB
By Tamas Kulcsar, InvestmentAnalyst - Glacier by Sanlam
By Claire Broedelet,Marketing Executive - Harvey World Travel
Source: FPI
By Robyne Moore - NFB
By Chris Lemmon, Director/Portfolio Manager - NVest
with Travis McClure, Financial Advisor - NFB
Written by Philip Bartlett, Independent Financial Advisor -NFB East London
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SENSIBLE RESPONSIBILITY
At NFB we are committed to uplifting and
enriching the lives of those less fortunate
than ourselves. Through our social
responsibility programme we believe we can reach
these people and make a positive impact, not only
on their everyday lives, but on our community as a
whole. By enriching others, we enrich ourselves.
nce again, in March this year, a group of
intrepid NFB’ers will take to the track at
Jan Smuts Stadium to join in East London’s
second CANSA Relay for Life event. The various
teams raise funds before and during the Relay for
CANSA services. This all night event serves “to
honour those living with cancer, to remember those
who lost the battle and to fight back to save lives”.
People from all walks of life and many businesses
take part in the Relay. One of the highlights of the
evening includes a candle-light ceremony and an
inspirational survivor walk.
Should you wish to sign a debit order form
in order to make a monthly contribution to
assist in the sustainability of this very
worthwhile organisation, kindly contact
Robyne at NFB on 043 735 2000 or
[email protected] Should you wish to purchase a “Hope” or
“Life” armband for R10 or make a small
donation for a Luminaria bag (decorated
any way you please and placed on the
field with a lit candle inside) in recognition
or support of a loved one, please contact
Robyne Moore at NFB on 043 – 735 2000 or
For further reading or information:
www.loavesandfishes.co.za
LAFN contact details:
9A Dyer Street, Arcadia, 5241
P O Box 19640, Tecoma, 5214
Tel/fax: 043 – 722 0010 Cell: 082 306 5823
E-mail: [email protected] For more information please go to
www.cansa.org.za
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Loaves & FishesNetwork
Loaves & FishesNetwork
p r i v a t e w e a l t h m a n a g e m e n t
in proud association with
sensible finance March10
Touching lives
in our
community.
You too
can make a
difference!
you toocan makea difference!
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A snapshot of Pravin Gordhan's budget speech. By Shaun
Murphy CA (SA), Partner - Klinkradt & Associates
RELIEF FOR INDIVIDUALS
OTHER TAX PROPOSALSAFFECTING INDIVIDUALS
Personal Income Tax
Increased exemption for interest and dividend
income
Medical Expenses
Retrenchment Packages
Standard income tax on individuals (SITE)
Limiting salary structuring
Voluntary Disclosure Programme
Budget 2010 provides significant tax relief to
individuals amounting to R6.5bn, which partially
compensates for the effects of inflation.
This means that individuals younger than 65 years of
age earning a total amount of–
R80 000 will pay tax at an average rate of 5.2%
on earnings and save R504;
R250 000 will pay tax at an average rate of 17.6%
on earnings and save R1 614;
R750 000 will pay tax at an average rate of 30.6%
on earnings and save R3 534.
The tax threshold for individuals younger than 65
will be R57 000, and for individuals 65 or older R88
528.
The annual exemption on interest earned for
individuals younger than 65 years is raised from
R21 000 to R22 300.
The exemption for individuals 65 years and older
increases from R30 000 to R32 000.
The threshold for the tax-free portion of interest
and dividends from foreign investment increases
from R3 500 to R3 700.
From 1 March 2010 the tax deductible portion of
monthly contributions to medical schemes is
increased for each of the first two beneficiaries
from R625 to R670, and for each additional
beneficiary from R380 to R410.
The R30 000 exemptions for termination of services
has not been adjusted in many years. It is Budget
proposed that this exemption be merged into the
retirement fund lump sum benefit system and that
the qualifying lump sums be taxed by applying the
tax table for retirement fund lump sum benefits. The
aggregation principle will apply.
SITE was introduced in the late 1980s to limit the
number of tax returns filed annually. Administrative
modernisation and the fact that the tax threshold
for taxpayers younger than 65 years is approaching
R60 000 have eliminated the need for this system.
SITE is to be abolished from 1 March 2011.
Administrative relief measures will be considered for
low-income taxpayers with multiple sources of
income.
The company car fringe benefit value is to be
increased
Deferred compensation and employer-provided
group life insurance will be taxed as fringe
benefits
In order for taxpayers to disclose their defaults (non-
compliance) and regularise their tax affairs a
voluntary disclosure programme will be
implemented.
The programme is to be effective during a
window period from 1 November 2010 until 31
October 2011
The full amount of tax remains due
Relief with regard to interest and penalties will
apply
Relief is to be granted if –
the disclosure is complete
SARS was not aware of the default
a penalty or additional tax would have been
imposed had SARS discovered the default in the
normal course of business
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2010BUDGET
HIGHLIGHTS
2010BUDGET
HIGHLIGHTS
sensible finance march10
continued on page 24...
SENSIBLE TAXPhoto BigStockPhoto.com
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YOU ARESPENDING
YOUR MILLIONSR1 AT A TIME
YOU ARE
YOUR MILLIONSSPENDING
R1 AT A TIME
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A lesson in the time
value of money.
Written by Joshua Kennon,
About.com Guide
One of the fundamental principles of
finance is the concept that R1 today is
more valuable than R1 a year from now.
FV = pmt (1+i)
The reason for this is two-fold. First, a rand will
probably buy less goods and services in the future
due to the destructive force of inflation. Second, if I
have a rand in my hand today, I can invest it and
earn a return in the form of dividends, interest or
capital gains.
The best money advice anyone can ever give
you is to firmly establish this time value of money
concept in your head. The key to financial
prosperity is realizing the potential value of every
rand that comes into your hands. In fact, I think of
cash as a seed – you can either eat it (spend it) or
invest it (sow it).
To help illustrate this point, let's assume you find
a R20 note on the side of the road. You are faced
with two potential uses: you can place the money
in an investment account or take yourself out for a
burger . “It's only twenty bucks!” you say to yourself
and opt for the burger. In reality, you are spending
far more. Using one of the time value of money
formulas, we can calculate the real economic cost
of not investing the cash.
FV = Future Value
Pmt = Payment
I = Rate of return you expect to earn
N = Number of years
To perform the calculation, we have to make a
few assumptions. First, let's assume you are 30 years
old (and hence 35 years away from retiring at 65).
That means that the R20 can compound for 35
years. We will substitute 35 for “n” in the equation.
Next, we must establish your expected rate of
return. In the current low inflation environment, an
after tax, after fees rate of return of 10% would be
acceptable.
The “pmt”, or payment, is the value of the
single amount you want to invest (in this case R20).
Now that we've figured out the variables, the
formula looks like this: FV = R20 (1+.10)
Enter 1.10 into your calculator (this is the sum of
1+.10). Raise this to the 35th power. The result is
28.1024. Multiply the 28.1024 by the pmt of R20. The
result (R562 and change) is the true cost of
spending the R20 today (if you adjusted the R562
for inflation, it would probably work out to about
R140 in today's rand. That means your real
purchasing power would increase approximately 7-
fold).
Clearly, this is enough to buy a meal at one of
our more up-market establishments. Armed with this
knowledge, you are free to make an economic
decision; namely, would you prefer to eat a R20
burger today or a R140 meal in the future. The
answer is entirely personal. Once you understand
this concept, however, it becomes painfully
obvious that the small luxury items you think nothing
of are really costing you millions and millions of rand
in future wealth.
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Contact an NFB Wealth Manager to ensure that
your financial plan is in order on email
[email protected] or phone 043 - 735 2000.
SENSIBLE LESSONSPhoto BigStockPhoto.com
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TAX RELIEF for homes heldby Companies, CloseCorporations & Trusts
SENSIBLY LEGAL
Prior to 13 December 2002 one could
purchase an interest in a Company or Close
Corporation or obtain a beneficial interest in
a trust, which entity was a residential property
holding entity, without paying Transfer Duty to the
South African Revenue Service (SARS).
This tax relief was closed by SARS making such
transactions subject to transfer duty. Tax payers
were then allowed a 12 month period to transfer
their primary residences (their homes) out of
Companies, Close Corporations and Trusts into their
personal names without paying any Tax. A primary
residence is defined as a residence in which a
natural person holds an interest and in which he /
his spouse ordinarily reside and use it mainly for
domestic purposes.
Certain property owners who owned their
homes in Companies, Close Corporations or Trusts
missed out on this initial opportunity to transfer their
property tax free into their name. They have now
been given until 31 December 2011 to do so.
To qualify for the exemption, the Company's
shareholding or the member's interest in the Close
Corporation must be held by the natural persons or
his / her spouse, acquiring ownership from 11
February 2009 to the date that registration of
transfer is effected into the name of such person. If
the property is owned by a Trust, the person who
financed the purchase of the property by the Trust
must take transfer into his / her name.
Further, the natural person must have
personally, and ordinarily, have resided in the
property and used it mainly as an ordinary
residence for domestic purposes from 11 February
2009. Thus, this relief is not in respect of holiday
homes or commercial property. Should there be
compliance with the above requirements, transfer
can be effected into the name of the natural
person concerned, without transfer duty being
paid.
The question then raised is whether Capital
Gains Tax is now payable upon registration of
transfer? The answer is, no. Capital Gains Tax will
only become payable upon the sale of the
property or death of the registered owner, bearing
in mind that the first R1 500 000.00 capital gain on a
primary residence registered in the name of a
natural person is exempt from Capital Gains Tax.
However, the date of acquisition and the
acquisition value of this property will be that at
which the Company, Close Corporation or Trust
bought the property. As Capital Gains Tax came
into existence on 1 October 2001, the value of the
property bought by any Company, Close
Corporation or Trust prior to 1 October 2001 will
need to be determined, alternatively for those
properties bought after 1 October 2001, the
purchase price will be the base cost for Capital
Gains Tax purposes.
Payment of Capital Gains Tax is delayed until
the sale or death of the natural person. If the
property is owned by a Company, the distribution is
also exempt from STC (Secondary Tax on
Companies).
Thus, whilst this exemption is expected to
benefit the majority of people who still have their
primary residences registered in the name of a
Company, Close Corporation or Trust, there may
still be the exceptions. It is, therefore, advisable to
get guidance from one's attorney and tax
consultant or accountant before making such a
decision.
TAX RELIEF for homes heldby Companies, CloseCorporations & Trusts
A final opportunity to transfer your property taxfree into your own name. By Grant Berndt -
Abdo & Abdo
7sensible finance March10
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Who receives mypension benefit
when I die?An equitable distribution may mean that your
nominated beneficiary receives nothing.GETTING TECHNICAL with Natalie Dillon, SeniorLegal Advisor - Old Mutual Broker Distribution
Who receives my
when I die?pension benefit
8
When a person takes out a retirement
annuity or joins their employer's
retirement fund, they nominate the
person(s) whom they want the trustees of their
respective fund to pay their retirement benefit to at
their death.
Despite this nomination, the Pension Funds Act
(PFA) governs who the trustees are obliged to pay
the benefit to.
Section 37C of the PFA contains a general rule
that provides that if, within 12 months of the death
of the member, the fund becomes aware of a
dependant(s) of the member, the member's
benefit must be paid to such dependant(s) in a
manner that the trustees deem equitable (Note: If
a retirement fund's rules specify a benefit that pays
to a spouse or child, such benefit is not subject to
the discretion of the trustees).
A 'dependant' is defined by the PFA and includes a
person
whom the member is legally liable to provide
maintenance for;
whom the member is not legally obliged to
provide maintenance for, but
that person is factually dependant on the
deceased member (for example, an elderly
parent who is financially supported by their
child);
who is the spouse of the member;
who is the child of the member
in respect of whom the member would have
become legally liable to maintain had the
member not died.
The trustees of the fund have a 12 month period to
find any 'dependants' of the deceased member
and have to consider them when making an
equitable distribution of the deceased's retirement
benefit – whether a beneficiary is nominated or
not.
Mr X dies while a member of his employer's
retirement fund and is survived by Mrs X, his
children, A and B, and granddaughter, C. His wife is
his nominated beneficiary.
The board has 12 months to establish whether Mr
X is survived by someone who falls within the
definition of 'dependant' (Mrs X, A and B do).
The board makes an equitable distribution
between Mrs X, A and B.
The distribution must be .
They could, for example award everything to B, if
A and Mrs X are millionaires, and B is a minor with
none of her own assets.
If the board discovers an illegitimate child of the
deceased, such child also qualifies as a
'dependant' and will also be considered when
the trustees make their distribution.
If the member has nominated a beneficiary,
the board of the fund must make an equitable
distribution to the nominated beneficiary and the
dependants. An equitable distribution may,
however, mean that the nominated beneficiary
receives nothing.
When taking care of one's financial planning, it is
important to understand the workings of Section
37C of the PFA, as the discretion that the trustees
are obliged to exercise, might mean that people
who you intended to benefit from your assets end
up receiving nothing.
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For example:
EQUITABLE (not EQUAL)
What does this mean?
Why is this important?
sensible finance march10
TECHNICALLY SENSIBLE
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SENSIBLE RETIREMENT
3
Administrators of pension and provident
funds have shifted from defined benefit
to defined contribution, dealing, along
the way, with the tricky issue of surplus
apportionments and improving upon their systems
to offer member-directed investment choice at
competitive costs. Almost 52% of pension/provident
funds surveyed in the 2009 Sanlam Employee
Benefit Benchmark offer member-directed
investment choice, although of these funds 64% of
members rely on the default choice, which for 50%
of funds are lifestage mandates.
Whilst lifestage mandates are an improvement
on the one investment fund for all, the
disadvantage of these types of investment funds is
that they assume members will retire at the normal
retirement age as stated by the employment
contract (generally age 65). However, members
may retire from employment early, from age 55, or
as late as 70 (with the employer's consent) and find
that their total asset allocation in their investment
portfolio (including their pension/provident fund) is
mismatched with their term to retirement.
Personal financial planning, therefore, is
imperative otherwise they might find themselves in
the same position as the Brazilian, Jorge Guinle,
who said
The consensus is that you
should be able to retire comfortably provided you
save 15% of your gross salary over a 35 year period
and preserve your retirement funds throughout.
According to the Survey, there has been an
improvement in the average contribution rates as
the percentage of salary in Pension Funds to actual
retirement provision has increased from 10.9% to
11.3%. However, this equates to 8 years less money
in retirement according to the Benchmark Survey.
Of concern, is that the prevalence of premature
withdrawals from retirement funds when changing
employment, is still high.
With regard to risk benefits, according to the
Survey when compared to 2008, the average
death benefits increased from a lump sum of 3.2 to
3.5 x final salary, whilst the average disability
benefit remained at 75% of salary per month.
The Survey was across the spectrum of salaried
and waged staff, free standing funds and
participating employers in umbrella funds. The
average total contribution rates to funds indicated
the employer contribution increased from 9.5% to
9.9% of salary and employee contributions rates
rose from 5.5% to 5.9% of salary (15.8% total
contribution). Below is the allocation of
contributions:
“the secret to living well is to die without a
cent in your pocket. But I miscalculated and the
money ran out too early.”
To assist employers in reviewing the provision of
Pension/Provident Funds and Group Risk Schemes,
contact Leona Trollip, Divisional Manager
Employee Benefits on 043-735200 or
sensible finance March10
“To improve is to change;
to be perfect is to change often.”
The current global financial situation calls for
pension and provident funds to challenge their
investment strategy. Questions they need to
ask are, for example:
Written
by Leona Trollip, Divisional Manager Employee
Benefits - NFB East London
are our fund members
appropriately invested given their age,
proximity to retirement and stage of life cycle?
Unfortunately, many are currently not.
1.9
1.3
1.3
11.3
Death
Disability
Admin.
Retirement Fund
“To improve is to change;
to be perfect is to change often.”
~ Winston Churchill
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WHAT YOUR HEIRS NEED TO KNOW
10 sensible finance march10
SENSIBLE PLANNING
You might know exactly where everything is
stored, and have the balances of all your
accounts and investments at your fingertips,
but those who are left behind in the event of your
death may not.
Important documents
Associate information
Family and friends
Personal information
Funeral arrangements
Assets (Location, Account Number, Types)
Liabilities (Account, Balance, Payments)
Miscellaneous information
This can cause unnecessary delays
and heartache for your loved ones at a time of
enormous stress and confusion. Little bits of money
in dozens of separate accounts doesn't make
good financial sense at the best of times, but
especially not when your family only finds the
savings book when they get around to clearing out
your tool box a year later. I was recently told an
interesting story by a couple who bought a piece
of furniture at an auction of a deceased estate.
When they began to clean up the chest of drawers
they peeled off the contact paper and
underneath were layers of R200 notes. In all there
was R10 000 in a sticky grip. Obviously the person
who owned this died unexpectedly and was
unable to tell anyone. Don't let this happen to you.
If you don't have a home study or office, or even a
particular shelf in the linen cupboard where you
keep all your records, at least keep an Estate Diary
and let your family know where this is kept. Your
Estate Diary provides a simple roadmap to take
them to your various hiding places. Here are some
of the things your heirs will need to know to make
the financial matters easier.
These include: wills, living wills, trusts, powers of
attorney, life insurance policies, health policies, car
insurance policy, disability insurance, other
insurance policies, safe deposit boxes, deeds, titles,
income taxes from previous years, birth certificates,
marriage certificate, divorce decrees, identity
documents, passport, driver's license etc, title and
registration of vehicles, and inventory of home
furnishings.
These include the name, number, and address of
your attorney, executor, accountant, financial
advisor, broker, insurance agent, trustees, doctor,
tax advisor, and employer.
List immediate family members, distant relatives,
pets, local friends, distant friends, and associates.
Record driver's license number, organisations,
memberships, clubs, fees, secret hiding places,
address book, organ donation wishes.
State cremation or burial (casket), minister and
pallbearers, location, indoor or outdoor services,
speakers, flowers or donations to charity, name of
mortuary or cemetery, burial plot - if pre-arranged,
and obituaries.
State sources of income, cars, boats, house,
vacation or rental home, checking accounts,
savings accounts, money market accounts,
certificates of deposit (CDs), stocks, bonds, unit
trusts, valuables, antiques, or jewellery, and
precious metals.
List personal loans, bond, car loan, credit cards,
business loans, clothing accounts, store accounts,
other loans, routine bills, and debit orders.
Give security system codes, location of firearms
and ammunition, and the place where spare keys
are stored.
At Independent Executor Trust we are committed to personalized service and
individual attention. With combined experience of 65 years, we specialize in the
Drafting of Wills, Administration of Estates Testamentary Trusts.
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&
49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210
e-mail: [email protected]: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 |
Making financial matters easier for those who are left behind. ByIona Minton for Independent Executor & Trust
WHAT YOUR HEIRS NEED TO KNOW
HomoEconomicus
or HomoSapien?
For an investor seeking a comfortable
retirement, the romance is not in the
journey, but solely in the destination.
Written by Philip Bartlett, Independent
Financial Advisor - NFB East London
SENSIBLE JOURNEY
11sensible finance March10
The Efficient Market Hypothesis has been the
central proposition of finance since the
1950's. In a nutshell, the assumption is that
investors are always rational, and value
assets accordingly. It is deemed that irrational
behaviour is random and subject to elimination by
rational market arbitrageurs. It asserts that asset
prices reflect the unbiased collective beliefs of all
rational investors.
The Behavioural Finance approach on the
contrary, believes the market over the short-term to
be affected by irrational sentiment, postulating that
people are strongly steered by emotion when
assessing value. Hence pricing is imperfect; giving
rise to unsystematic biases that can move prices
away from fundamental values. Behavioural
Finance sees the investor as complex, often
irrational, unpredictable and contradictory, and
although the rational side of the investor is
recognised, it is proposed that inefficiencies in the
market can be attributed to the likes of greed, fear,
overconfidence, and investor noise. The conclusion
is that market returns, or lack thereof, are in the
short-term linked to investors' behaviour as
opposed to market performance.
Decision-making is fundamentally based on
the way the investor perceives and organises
information, the way they feel when they register
the information and the social environment in
which the decision is made. With so many
contributing factors it is no wonder the outcome is
subject to bias.
Consider the impact of the representative bias
where the investor, in a bid to cut to the chase,
focuses on a small data set, matches it up to
previous experiences, and hence either writes it off
as a bad idea or takes it on as if being fully
informed. Or in an attempt to research the position
turns to the most available information source,
Google or “Bob”, and hence falls foul of the
availability bias, failing to question the objectivity of
facts.
Advertisers play to these weaknesses, framing
facts in wording specifically catering for our
propensity to associate credibility with a product or
tweaking our inherent regret aversion button by
implying inaction leads to missed opportunities.
Then there is the way we as investors see
money: compartmentalising it into money earned
or unexpected windfalls; the fore being subject to
lock and key and the latter to the whims of
something red and fast or bright and bold. Rainy
day funds, fun funds, sentimental funds and the
likes all fall foul of mental accounting mixed with
an unwarranted faith in ones own intuitive
reasoning or judgment.
Ultimately the cold
and detached
investor will be the
most successful.
Investing legend
Warren Buffett is a prolific
advocate of common-sense
investing, being quoted
as saying “investing
is simple, but not
easy”, referring
of course to
the sea of
emotions that
one needs to
detach from.
HomoEconomicus
or HomoSapien?
For an investor seeking a comfortable
retirement, the romance is not in the
journey, but solely in the destination.
Written by Philip Bartlett, Independent
Financial Advisor - NFB East London
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Contact Philip Bartlett of NFB on 043 735 2000 for more information
DEFLATION:
12
The Economic definition
of deflation is “a decrease
in the general price level of
goods and services”. Deflation
would occur when the annual inflation
rate falls below zero percent (negative
inflation rate), resulting in an increase in the
real value of money – the ability to buy more
goods with the same amount of money, or more
appropriately phrased at your local bar, as
“having more bang for your buck!”. Much of the
commentary on deflation is negative, due primarily
to talk of a deflationary spiral; a spiral into the
abyss, some seem to think. This spiral would entail a
decrease in prices, which lead to lower
production, which in turn leads to lower wages
and demand and so the cycle continues and
compounds the problem further. Deflation has
always been associated with the Great Depression
and other significant economic downturns.
Japan's “lost decade” is cited as a shining
example. Yet what many fail to understand is that
it was a combination of bad policies, internal
rigidities and demographic trends that were
primarily to blame for the long-term structural
damage after the bursting of the 1980's bubble in
Japan. Deflation was a symptom, but certainly not
the disease. Having said this, not all historic
episodes of deflation
correspond with poor economic
growth. Deflation has always
been incorrectly tied too closely
to the word depression, so much
so, that most think they are
actually synonymous, but this is
hardly the case.
From 1865 to 1895, the US had persistent deflation.
During that period, industry boomed. While the
monetary value of assets declined, businesses
produced real output from innovation, capital
investment and human resources, without
unrealistic gains from currency depreciation. This
view was ably summed up as follows:
Advantages of Deflation
sensible finance march10
DEFLATION:
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13
SENSIBLE INVESTORSENSIBLE INVESTOR
“Rather than a problem to be dreaded and
combated, falling prices through increased
production is a wonderful long-run tendency of
capitalism. The trend of the Industrial Revolution
in the West was falling prices, which spread an
increased standard of living to every person;
falling costs, which maintained general
profitability of business; and stable monetary
wage rates—which reflected steadily increasing
real wages in terms of purchasing power. This is
a process to be hailed and welcomed rather
than to be stamped out."
Contact Duncan Wilson of NFB Port Elizabeth on
041 582 3990 for more information
Savings and investment are vital for a dynamic and
well balanced economy. They generally have
three sources namely households, businesses and
government. When households have little or no
incentive to save, investment has to come from the
other two. That is where the word “increase” and
“taxes” appear in the same sentence. There has,
however, already been a significant turnaround in
savings rates globally since the fall of Lehman's. In
fact, since late last year, we have seen the most
significant rise in aggregate savings since the
Second World War.
40 Years of inflation in the US and UK has, however,
led to damaging imbalances that we face at
present. Although central banks have been forced
to finally tame consumer price inflation, excess
money growth has once again created the
potential for asset bubbles. Inflation has quite
simply stood to encourage debt up until now.
Today's generation have become chronic
borrowers. Over the last 15 years it has only been
an environment that encourages debt. Despite this,
governments and banks still encourage
consumption and penalise savers, if only to a lesser
extent, by maintaining artificially low interest rates.
This naturally encourages people to borrow more,
and more significantly, for investors to take more
risks.
Yes, deflation would be considered bad in a
vacuum, but what are the alternatives to
deflation? Deflation means a massive slowdown in
consumer spending, which in a vacuum would be
destructive. We are, of course, in anything but a
vacuous space and global borrowing has reached
unrealistic levels. Deflation is the market's cure for
countries' low savings rates. It forces debts to be
fire-sold in the near term, and in the longer term, it
brings down formerly inflated asset prices into the
reach of more people. There is a dire need for a
significant and permanent change in generational
mindsets. It is the idea of enduring the pain now, in
order to enjoy the gain later.
We have to bear in mind that inflationist
decisions by institutional elites now, mean more
deflation later. We will prolong inevitable pain and,
if anything, add to its severity. It is one thing for the
government to intervene in financial markets to
offset an exogenous shock, such as 9/11, but there
is no rationale for the government's intervening
against an endogenous financial shock. Deflation is
a short-term consumption killer, but a long-term
cure for the savings rate – it is not all that evil.
Unfortunately, the oversized institutions of the
world, some having only grown in the last two
years, have a way of never admitting they're
wrong. If history is anything to go by, the “credit
crunches” will continue, with sporadic central bank
Band-aid patching, to temporarily calm credit
fears.
It is not surprising that until late, global savings
rates were as poor as our President's polygamous
ways. Central banks cannot expect people to save
if their response is to avert pain now and quietly
reinforce an inflationist ideology.
Vacuum, What Vacuum?
13sensible finance March10
14 sensible finance march10
Be active, be healthy
The benefits of having yourportfolio managed.actively By
Tamas Kulcsar, InvestmentAnalyst - Glacier by Sanlam
Medical practitioners often emphasise the
importance of staying active to
maintain good health. This seemingly
simple advice can be applied to the investment
world too. Odds are that investing in a passive
index fund is unlikely to get you as financially
healthy as proponents of the strategy would have
you believe. For investors to gain and maintain true
financial health (i.e. wealth), an investment
portfolio needs to be actively managed.
A passive approach – akin to sitting on the
sidelines during an exciting football game – has a
few underlying problems for investors. It's boring,
and it doesn't necessarily reduce portfolio risk as
asset allocation – the most important investment
decision – primarily drives returns (and risk). Investors
are also faced with having to decide which index
they want to use. Like active funds, index trackers
can differ widely and investors need to understand
the benefits and limitations of these products. Satrix
ETF's provide exposure to a variety of equity indices
at a reasonable cost, while funds using
fundamental indexation (or price indifferent
indexation) rely on a number of fundamental
factors to make investment decisions – not unlike
active equity managers.
The main problem with a pure index fund lies in
the benchmark itself, or more specifically, the
method used to determine the constituents of the
index used as the benchmark. Most indices in South
Africa are market-cap weighted, meaning the
weighting to securities increases as their price (and
market cap) increases. As securities get more
expensive, an index fund buys more; as they get
cheaper, an index fund sells. This could potentially
create undesired exposure to market heavyweights
like Anglo American and BHP Billiton, which
accounted for more than half the resources
weighting in the All Share Index and had the same
impact on index returns as the entire financial
sector!
Active managers, on the other hand, can
position their portfolios to stocks/sectors that either
show better long term value, or that have a lower
potential for significant capital loss (e.g.
financials/industrials in mid 2008). They are not
required to hold stocks based on a weighting in an
index and can trim holdings when their stake
becomes too high. This approach, while
dependant on the skill of the portfolio manager,
often leads to more diversified, lower risk portfolios
with higher potential returns.
In South Africa over the past ten years, all
active equity funds currently available generated
returns at lower levels of risk than the All Share Index
and, by inference, index tracker funds. And almost
half of all active managers outperformed the
market over the same period by protecting capital
better than the index during market crashes. This is
a direct result of superior portfolio construction
methods, more diversified portfolios and efficient
trading practices. This lower risk, combined with
potential index-beating returns over time, will
ensure that actively managed equity funds remain
the core of a South African investor's portfolio.
ACTIVELY SENSIBLE
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15sensible finance March10
“Sensible Finance - Questions and Answers” is an advice column
that will allow our readers the opportunity to write to a professional
and experienced financial advisor for advice regarding
investments, personal finance, life and/or risk cover.
SENSIBLE FINANCE QUESTIONS & ANSWERS
Q:
A:
With the high rate of divorce in South Africa we
get a lot of questions around how pension and
retirement funds are treated on divorce. How are
the funds paid out and what are the options for the
non-member of the pension/retirement fund and
how is the tax treated?
The Current Position
The Tax Position
Divorce orders made on or after 1 March 2009
In the last two years, there has been much
legislation dealing with the early payment of
divorce awards to a non-member spouse from
retirement funds.
The legislation has been in the form of
amendments to the Pension Funds Act and to the
Income Tax Act. Unfortunately, the Divorce Act
which also needs to be amended remains
unchanged.
1. An amendment to the Pension Funds Act
effective 13 September 2007 allows a retirement
fund, pursuant to an order of divorce, to deduct a
portion of the member's pension interest from the
member's retirement fund and pay it to the non-
member spouse or another fund on his/her behalf
immediately on divorce. The non-member spouse
no longer has to await the member's exit from the
fund.
2. The non-member spouse has to submit the order
to the fund and initiate the claim.
3. On 1 November 2008 legislation was passed to
allow the early payment mechanism to apply to
divorce orders which are binding on funds and
made before 13 September 2007.
1. An important part of the process was ensuring
that the tax legislation was able to accommodate
the early payment of such orders.
2. A policy decision was made for divorce awards
to be taxed in the hands of the non-member
spouse in respect of divorce awards which accrue
in the future. However, divorce awards in terms of
divorce agreements which were concluded in the
past and which were negotiated based on the law
as it existed in the past would continue to be taxed
in the hands of the member.
3. The tax situation which will apply with effect from
1 March 2009 is summarized as follows:
The Revenue Laws Amendment Act of 2008 which
came into effect on 8 January 2009 provides for
the non-member spouse to be the taxpayer. This is
confirmed in the Taxation Laws Amendment Bill of
2009.
If the non-member spouse elects to take the
amount in cash, he/she will pay the tax at the rates
set out in the new retirement fund lump sum
withdrawal benefit tax table.
If he/she chooses to preserve the benefit by
transferring it to another approved fund, he/she will
be able to delay the tax payable until they
withdraw or retire from that fund.
Divorce orders made between 13 September
2007 and 28 February 2009
The non-member spouse is obliged to submit
the order to the fund and to elect whether he/she
wants the benefit paid to them in cash or paid to
another fund. The taxability of this will depend on
when the divorce award accrues to the non-
member spouse.
The date the non-member spouse makes the
election is the date on which the fund must deduct
the assigned amount from the member's minimum
individual reserve. It is also the date on which the
amount accrues for tax purposes.
If the date of accrual falls in the 2008/09 tax
year (up to 28 February 2009) the member remains
the taxpayer. Even if tax has not yet been paid
over, tax is payable at the member's average rate
of tax. Two tax directives will have to be sought
because a “tax on tax” liability has to be paid too.
Unless the divorce agreement excludes it, the
member has a right to recover the tax directly from
the non-member spouse (excluding tax on tax).
However, if the election is only made after 1
March 2009, the tax accrual will fall into the
2009/10 tax year. As previously stated divorce
continued on page 24...
17sensible finance March10
SENSIBLE TRAVEL
The 2010 Soccer World Cup is going to bring a
whole host of travellers to South Africa. We
would all naturally think that because the
international airlines will increase their number of
planes and frequency flying into SA, that there
would be a whole host of empty and cheap flights
flying back to their origin. This, however, is not the
case; we must keep in mind that many of these
planes will be staying in SA to assist with the
domestic flights that will be quite full.
Many people would like to plan a getaway for
the long school holiday in June/July - my advice is
that you should look at it as soon as possible and
be quite flexible in the dates on which you would
like to travel, as well as be open to available
destinations.
If you are heading out of our borders you will
need a passport and you will need to visit Home
Affairs in order to do this. Your passport must be
valid for six months after your return back to South
Africa and have a minimum of two blank pages
inside. When you book your flights, make sure your
name is correct as per your passport. If this is not
identical you will have problems at the airport and
may not be allowed to check in and fly. The ticket
may have to be cancelled and a new one issued
which may cost you a lot more money, or worse,
you may lose your seats!
If you are driving into Africa, please give us a
call or pop in at 45 Devereux Avenue as we can
give you a list of requirements for most African
countries. When travelling to Zimbabwe or
Mozambique, by car in particular, you will need a
third party insurance which we can issue for you in
store. You may also need an International Drivers
Licence (IDP) which we can issue immediately for
you.
Remember the restrictions on Liquids, Aerosols
and Gels (LAGs) in your carry on luggage for
International flights. You may only take LAGs onto
the plane if they are in containers smaller than
100ml each. You may have a maximum of one
litre's worth of 100ml containers and they must be in
a transparent, resealable bag.
If you would like to travel and you have a
limited budget plan, look around in advance for
great deals. For airline tickets the cheaper seats
are generally sold out first so you would need to ask
your travel consultant to shop around on the
different airlines for you.
Don't forget to buy travel insurance; if you pay
for your trip by credit card your bank may offer
insurance to you. Your travel consultant will also
have comprehensive insurance options for you,
including a credit card top-up.
Most importantly, remember to relax and enjoy
your holiday!
Clair Broedelet is the Marketing and
Operations Director of Travel
Experience East London and Port
Elizabeth (previously Harvey World
Travel EL). Contact Clair on
Travelling in 2010
With the Soccer World Cup upon us, it's time to plan ahead. By ClaireBroedelet, Marketing Executive - Travel Experience
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HOW TO MAKEFINANCIAL PLANNING
WORK FOR YOU
18
You are the focus of the financial planning
process. As such, the results you get from
working with a financial planner are as much
your responsibility as they are those of the planner.
To achieve the best results from your financial
planning engagement, you will need to consider
the following advice:
Set measurable financial goals
Understand the effect of each financial decision
Re-evaluate your financial situation periodically
Start planning as soon as you can
Be realistic in your expectations
Realise that you are in charge
Set specific targets of what you want to achieve
and when you want to achieve results. For
example, instead of saying you want to be
"comfortable" when you retire or that you want
your children to attend "good" schools, you need
to quantify what "comfortable" and "good" mean
so that you'll know when you've reached your
goals.
Each financial decision you make can affect
several other areas of your life. For example, an
investment decision may have tax consequences
that are harmful to your estate plans. Or a decision
about your child's education may affect when and
how you meet your retirement goals. Remember
that all of your financial decisions are interrelated.
Financial planning is a dynamic process. Your
financial goals may change over the years due to
changes in your lifestyle or circumstances, such as
an inheritance, marriage, birth, house purchase or
change of job status. Revisit and revise your
financial plan as time goes by to reflect these
changes so that you stay on track with your
financial goals.
Don't delay your financial planning. People who
save or invest small amounts of money early, and
often, tend to do better than those who wait until
later in life. Similarly, by developing good financial
planning habits such as saving, budgeting,
investing and regularly reviewing your finances
early in life, you will be better prepared to meet life
changes and handle emergencies.
Financial planning is a common sense approach to
managing your finances to reach your life goals. It
cannot change your situation overnight; it is a
lifelong process. Remember that events beyond
your control such as inflation or changes in the
stock market or interest rates will affect your
financial planning results.
If you're working with a financial planner, be sure
you understand the financial planning process and
what the planner should be doing. Provide the
planner with all of the relevant information on your
financial situation. Ask questions about the
recommendations offered to you and play an
active role in decision-making.
Contact an NFB Wealth Manager to ensure that
your financial plan is in order on email
[email protected] or phone 043 - 735 2000.
Advice to help youachieve the best results.
Source: Financial Planning Institute –www.fpi.co.za
HOW TO MAKEFINANCIAL PLANNING
WORK FOR YOU
sensible finance march10
SENSIBLE ADVICE
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SENSIBLE INVESTORSENSIBLE SOLUTIONS
The life events which can disrupt
your retirement plans. By Robyne
Moore - NFB
Expect the unexpected
When planning your retirement, you
envision days spent in your garden,
making that long-awaited round-the-
world trip or afternoons with your book and pot of
tea. Initially, you set your goals with your specific
objectives in mind: where will you live, how much
money will you need – to live and/or to do things
you want to do? Most of your working life is spent
endeavouring to achieve these goals in order to
realise your retirement dreams. However, even the
best thought out retirement plan can be destroyed
if you have not planned for certain unexpected (or
expected) life events. Will you be ready?
Marriage
Children
Money is a very big part of a marriage and when
deciding to tie the knot, it is important that you and
your prospective spouse be on the same page
when it comes to your retirement goals. You have
decided to grow old together, but how will this be
possible when you each have completely separate
ideas of how you will spend your “golden years” (or
how you will get there)? If you are young and in
love, retirement will be far from your mind,
however, there will come a time in your relationship
when your future together will be discussed. If you
each handle money differently, now is the time to
talk: to create an understanding of expectations,
set objectives, and then draw up a financial plan.
Should either, or both, partners have life policies,
your spouse should be named as the beneficiary.
Consideration should be given to how you will
handle your finances once you are living in one
home. Will you combine your salaries or each keep
separate accounts?
You have now been married for a few years and
the thought of tiny pitter-pattering feet is a distant,
foreign idea no more. The daily cost alone of
having children will take a sizeable chunk out of
your monthly disposable income and the financial
decisions you make now may hugely impact on
your original retirement goals. Every parent wants
the best for their child, and will in all probability
plan for them to study further after school.
A good education is precious and starting to
save early towards this goal is vital, so as not to
negatively influence your retirement savings. There
is no need to neglect your life-long goals while
saving for your children's university education. As
your children get older, encourage them to share
their own career and study goals with you. Discuss
what you and your spouse want for yourselves and
SENSIBLE EXPECTATIONS
20
The life events which can disrupt
your retirement plans. By Robyne
Moore - NFB
sensible finance march10
Expect the unexpected
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for your children. As a family you can prioritize and
formulate a financial roadmap in order that you
may each reach your goals. If you feel that your
children may have to help pay for their own studies
or wedding, tell them, so that they in turn can
make their own plans.
You could lose your income due to a number of
reasons: loss of your job, an accident or illness. Even
though this may only be for a short period of time,
loss of income can wreak havoc on your retirement
savings unless you have another source of income.
To prevent digging into your retirement savings,
it is best to have some sort of emergency savings to
tide you over this period. As a rule of thumb, it is
suggested that you have six months worth of your
salary stashed away, to be used should he need
arise. An important decision at this time, which may
impact greatly on your eventual retirement lifestyle,
will be whether to take a lump sum from your
provident fund to help cover expenses (beware of
tax implications), or to reinvest the full amount.
When first getting married, divorce is certainly not
something which is contemplated. However,
divorces unfortunately do happen, and the
financial ramifications can be devastating. Your
entire financial plan may have to be restructured,
but by educating yourself and with proper
planning the financial implications of a divorce can
somewhat be minimised.
When divorcing, a spouse could be entitled to
half of the other's retirement fund with immediate
effect, due to new legislation and the introduction
of the “clean break principle”. It would be a good
idea to consult an impartial financial advisor who is
focused on your best interests and can advise you
with regards all the legalities and tax implications
on the splitting of your assets when considering
divorce.
Nobody wants to think of death, and especially not
losing a loved one. However, as the death of a
spouse can have a major impact on your
retirement plan and current living standards, it is
wise at some stage to look at the scenario should
either you or your spouse pass away. Make sure
that when setting up your retirement plan, the
surviving spouse has access to certain funds should
the other spouse pass away, as it may take some
time before the entire Estate is wound up.
Coping with the loss of a loved one can be
emotional and painful, and adding the burden of
dealing with financial matters can make a difficult
time even more stressful. At this time, you would not
want to add the worry of loss of income and
additional expenses, and you would certainly not
want to resort to dipping into your retirement fund.
Losing a family member can happen at any
stage of your life and although you never know
when this may occur, there are ways of making the
difficult time a bit easier for the surviving spouse. It is
always a good idea to be prepared by having a
valid will in place, drawing up an estate plan and
also having all your other vital papers in order in the
event of a death.
The above events are the major ones which
could affect your retirement plan, although there
are a number of other unexpected occurrences
which may veer you off course a bit from your
ultimate financial retirement goal. Be sure to cover
all your bases so that in the eventuality that
something untoward should happen, it will not
destroy your goals.
No matter what your life stage should be, or
what your financial needs are, a financial plan and
a budget are vital to helping you keep on track
and focused. However, the unexpected and
unpleasant do happen and you also need to be
flexible as these will change as your life
circumstances change. With a bit of planning and
some forethought you can protect yourself, your
loved ones and those retirement plans you made
when you were just starting out.
Loss of income
Divorce
Death of a spouseContact an NFB Wealth Manager to ensure that
your financial plan is in order on email
[email protected] or phone 043 - 735 2000.
21sensible finance March10
22
The Offer
WILL NOT
Members applying to Discovery Health before
the 30th April and who are able to answer YES to
the following 4 questions:
1. I am on a registered South African medical
scheme at the moment
2. I have been on the scheme for the past 24
months, with no breaks in cover during this
period (must provide proof of previous cover in
form of a membership certificate)
3. I am younger than 49 years
4. I have not been diagnosed with, or do not
suffer, from CANCER or ANY CHRONIC
CONDITIONS listed on Discovery Health's list of
chronic conditions.
receive any Late Joiner Penalties, Exclusions or
Waiting Periods.
Financial security - AA+ rating and over R6 Billion
in reserves
A wide spectrum of plan options
Flexible, comprehensive cover for chronic
conditions
The Medical Savings Account gives members
control of their day-to-day medical spending
No overall limits for hospital cover and important
critical care such as oncology treatment
Early detection through the screening benefit
Vitality - a science based programme with a
personal approach to wellness
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For more information, contact NFB Healthcare
Consultant - Leonie Schoeman
Switchboard Telephone Number: 043 - 735 2000
Direct Telephone Number: 043 - 705 6740
Cellphone Number: 082 820 8930
e-mail: [email protected] choosing a medical scheme it is important to
ensure that the scheme is reliable, affordable and
financially stable and Discovery Health certainly fits
the profile.
DISCOVERY HEALTHSPECIAL UNDERWRITING CONCESSION
The Eastern Cape's first
NVest Securities (Pty) Ltd:
www.nvestsecurities.co.za
NFB House 42 Beach Road,
Nahoon, East London 5241
P O Box 8041 Nahoon 5210
Tel: (043) 735-1270
Fax: (043) 735-1337
Email: [email protected]
home-grown stock brokerage…..
sensible finance march10
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THE CRYSTAL BALLWhat does 2010 hold for us?
By Chris Lemmon,
Director/Portfolio Manager -
NVest
Given recent market movements since
late 2007 one could be forgiven for
dusting off the old crystal ball to help
make sense of it all. After the
exuberance of falling risk premiums, ever rising
asset prices and an increasingly strong appetite for
commodities, came the constrictor-like squeeze on
credit, crimping demand and forcing global
households and businesses alike to deleverage
aggressively. From the heady heights of 33000
came the depths of 17000 on the JSE, a difficult pill
for investors to swallow. As governments co-
ordinated a global response to the credit crisis and
impending depression, we have seen a return to
risk assets as investors have taken comfort from the
trillions of dollars that have flooded the global
financial system. What has followed has been an
impressive rebound in global equities, with the JSE
enjoying a 58% bounce on the back of close to R80
billion in foreign investor inflows in 2009.
So given that back drop, what does 2010 hold
for us? I think this may well be a year of counting
the cost. There is always a price to be paid; I've yet
to see the elusive free lunch. The massive
expansion of global money supply cannot
continue unabated for too long. Just like each of
us, governments have to balance their budgets in
the end. Tough choices need to be made in the
coming years, with the PIGS (a rather derogatory
acronym for Portugal, Italy, Greece and Spain) a
key case in point. These EU countries find
themselves in a difficult position. Typically, in
instances where a country's spending outstrips its
income over several years, you see pressure in two
areas of importance (among others): the currency
devalues and government bond yields move
higher – sometimes sharply so. In Greece's instance,
the sharp yield move on government backed debt
has started to gain momentum. This yield move is
facilitated by a rapid fall in prices, creating capital
pressure. Who wants to be a holder of guarantees
from a government who doesn't have the finances
to pay? What we've seen in the past is that these
distressed assets have a habit of finding themselves
on balance sheets all over the world. It will be
interesting to see who'll be left holding the old
maid. And what of the currency? Being a
member of the European Union and part of the
common monetary area puts Greece (and the rest
of the EU members) in a difficult position as the
currency cannot accommodate a move weaker.
How will the voting population of the remaining
members of the EU (the likes of Germany, France
etc) feel about a rescue package for Greece
when they themselves are still in the midst of the
largest credit crisis ever experienced? As I
mentioned, tough choices have to be made.
With markets no longer at the bargain
basement prices of March 2009, investors need to
be a little more circumspect in where they place
their money. Sovereign debt risk is the key area of
concern in the market at the moment, but after
such a strong recovery last year questions will
continue to be asked of the sustainability of current
valuations. While caution is the watchword for
now, the structural outlook for equities over the
next 10 years remains good with a compelling
investment case for the long term investor. With a
bit of patience the astute investor with money on
hand may well be presented with an opportunity to
pick up attractively priced assets that will allow
them to participate in a global recovery in the
years to come.
Contact Chris Lemmon on 043 735 1270 for more
information
SENSIBLE MEANINGS
23sensible finance March10
THE CRYSTAL BALLWhat does 2010 hold for us?
By Chris Lemmon,
Director/Portfolio Manager -
NVest Securities
Ph
oto
Big
Sto
ckP
ho
to.c
om
2010
24
SENSIBLE FINANCE
awards which accrue after 1 March 2009 will be
taxed in the hands of the non-member spouse
under the new withdrawal tax table.
So in respect of divorce orders made after 13
September 2009, the taxpayer will change
depending on when the deduction from the
member's minimum individual reserve takes place,
which in turn depends on when the non-member
spouse makes his/her election.
As mentioned, the non-member spouse can
delay the payment of tax if they elect to transfer to
another approved fund.
A policy decision was made for the member to
remain the taxpayer on the payment of divorce
awards which were made prior to 13 September
2007. Divorce agreements were made in
contemplation of the law as it existed then and
parties to the divorce are entitled to have new
laws applied prospectively and not retrospectively.
The GEPF does not fall under the Pension Funds Act.
Non-member spouses still have to wait until the
member exits the fund prior to receiving payment.
Paragraph 2B still taxes those awards.
Both the member and the non-member are in
need of advice in this process. The non-member
needs to be encouraged to preserve and grow the
lump sum. The member needs to supplement and
compensate for the depleted retirement capital.Divorce orders made pre 13 September 2007
GEPF
Seek advice
Source – Old Mutual Legal.
Please address all Questions to: Travis McClure,
NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210
or email: [email protected]
sensible finance march10
Effect on Businesses
Headquarter companies
Fuel levies increased
Excise duties focusing on the Environment
No change is proposed to corporate tax rates
Sophisticated tax avoidance schemes
It is proposed that legislative amendments be
introduced to address a number of aggressive tax
schemes, for example–
Interest cost allocation for financial institutions
Offshore protected cell companies
Schemes channelling deductible amounts to
residents in the form of tax free foreign dividends
restricting the interest exemption for non-residents
investing in financial instruments other than South
African bonds, unit trusts or publicly available
interest bearing instruments.
Relief from exchange control and taxation will be
considered for various types of headquarter
companies located in South Africa.
Adjustments to Excise Duties
Excise duties are increased
Malt beer - increased by 6 cents to 85 cents per
340ml can
Unfortified and fortified wine - increased to R2.14
per litre and R4.03 per litre, respectively
Spirits - increased to R27.27 per 750ml
Cigarettes - increased by R1.24 to R8.94 per
packet of 20
On 7 April 2010–
the general fuel levy on petrol and diesel
increases by 10 cents per litre as well as an
additional 7.5 cent per litre for the funding of the
new petroleum pipeline between Durban and
Gauteng
The Road Accident Fund levy on petrol and
diesel increases by 8 cents per litre to 72 cents
per litre
A flat rate carbon emissions tax is to be introduced
on new passenger vehicles from 1 September 2010.
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Should you have any queries please feel free to
e-mail me on [email protected]
continued from page 15...
2010 BUDGET HIGHLIGHTS continued from page 4...
Anthony Godwin
Gavin Ramsay
Andrew Kent
Walter Lowrie
Robert Masters
Bryan Lones
Travis McClure
Marc Schroeder
Phillip Bartlett
Duncan Wilson
Stuart Coates
Leona Trollip
Leonie Schoeman
(RFP, MIFM) - ManagingDirector and financial advisor, 22 yearsexperience;
(BCom, MIFM) - ExecutiveDirector and financial advisor, 16 yearsexperience;
(MIFM) - Executive Director andShare Portfolio Manager, 17 years experience;
- Financial Advisor, 24 yearsexperience;
(AFP, MIFM) - Financial Advisor,23 years experience;
(AFP, MIFM) - Financial Advisor, 19years experience;
(BCom, CFP) - Financial Advisor,12 years experience;
(BCom Hons(Ecos), CFP) -Financial Advisor, 6 years experience;
(BA LLB, - Financial Advisor, 9years experience;
(BCom Hons, CFP), 5 years experience;
(BCom, ) – Financial Advisor, 1year experience ;
(RFP) - Employee Benefits DivisionalManager and Advisor, 33 years experience;
- Healthcare DivisionalManager and Advisor, 12 years experience;
NFB has a separate specialist Short TermInsurance Division, as well as now offeringspecialist group companies in the fields of stockbroking, wills and the administration ofdeceased estates.
CFP)
– FinancialAdvisor
CFP
NFB have a
with a between them:
STRONG, REPUTABLE TEAM OF ADVISORSWEALTH OF EXPERIENCE
25
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Send your first name, surname, email addressa n d c o n t a c t t e l e p h o n e n u m b e r t [email protected] with “NFB Sensible FinanceWeekend Giveaway” as the subject line.
Please specify in the email if you would like anNFB financial advisor to contact you for a freeinvestment portfolio evaluation or financialadvice.
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sensible finance March10
fortune favours the well advised
You’ve worked hardfor your money...
“It requires a great deal of
boldness and a great deal of
caution to make a great
fortune...but when you have got
it, it requires 10 times as much wit
to keep it”
Nathan Rothschild, 1834
contact one of NFB’s financial advisors
East London
Port Elizabeth
Johannesburg
• tel no: (043) 735-2000 or e-mail: [email protected]
• tel no: (011) 895-8000 or e-mail: [email protected]
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