A beneficiary in terms of a will can be a natural person, trust, legal person or institution. The same applies to donations. We will focus mainly on bequests to inter vivos trusts and discuss a few aspects regarding bequests to existing testamentary trusts.
Bequests to an inter vivos trust
Bequests to an inter vivos (family) trust means the bequests are made to a trust already registered at the time a will is drawn up. The trust is named as beneficiary. In the absence of such a trust at the death of the testator, the bequest will lapse or devolve upon another nominated substitute beneficiary.
Bequests may also be made to a family trust to be created after the death of the testator. In this case the beneficiaries and trustees must be named in the will, and the will must also stipulate that if the trust is not registered within a certain period of time (usually two to three months after the appointment of the executor, otherwise the winding up of the estate could be delayed), the bequest will lapse.
Bequests to children, for example, may be made subject to the proviso, or voluntary choice by them, that they create a trust within a specified period of time after the death of the testator and that the trust to be created will become the beneficiary in their stead.
The testator or donor cannot be prescriptive and impose changes on an inter vivos deed of trust and must accept the provisions thereof. The trustees must be able to receive the bequest.
However, as the creator of an inter vivos trust the testator may nominate a trustee in his place or trust beneficiaries in his will, on condition that such powers are bestowed in the deed of trust.
Unconditional bequests are transferred and handed to the trustees by the executor and are administered in accordance with the provisions of the deed of trust. If the bequests are subject to, for example, the payment of a bequest price, the trustees will be given possession of the bequests once that price has been paid.
If, for example, the bequest is subject to a usufruct by the testator’s surviving spouse, the wording of the will is very important. Examples of two types of wording and the implications of the respective bequests are briefly discussed below.
1. “I bequeath my estate to the trustees of the ABC FAMILY TRUST (no. T123/2009) subject to the life usufruct by my said spouse, who will be exempt from furnishing any surety.”
As there is no stipulation that the inheritance must be placed under the control of the trustees, the fixed property (with registered or recorded usufruct) will, as in the case of an “ordinary” usufruct, be transferred in the name of the trust, and other assets such as shares and investments will be transferred in the name of the usufructuary and cash will be paid out to her.
She may occupy the property or let it and all income is payable to her direct. She is responsible for the payment of expenses such as rates and taxes, utility accounts and ordinary maintenance, but not for larger expenses in respect of damage not caused by her or for wear and tear. The latter costs are be payable by the trust as the bare owner. The trust is also responsible for the payment of short-term insurance premiums if not taken out voluntarily and maintained by the usufructuary.
The trustees therefore has control over only the fixed property, as well as any other trust assets not passed by inheritance, and will only gain full control of the rest of the usufruct assets once the usufruct has ended.
Should the trust be terminated before the usufruct ends, the capital beneficiaries will be replaced as bare owners.
2. “I bequeath my estate to the trustees of the ABC FAMILY TRUST (no. T123/2009) who are to administer it to the benefit of the beneficiaries in terms of the deed of trust, subject to the life usufruct by my said spouse, who will be exempt from furnishing any surety. I stipulate explicitly that this inheritance will vest in the trustees and be administered by them.”
This provision makes it very clear that the trustees will be in full control of all usufruct assets, including other trust assets. In this case not only the fixed property but also all other estate assets will be transferred in the name of the trust and cash will be paid to the trust. The trustees will be responsible for the letting of the fixed property, expenses, insurance and maintenance of assets and investments.
The usufructuary will still be able to occupy the dwelling and enjoy the right of use of movable property such as furniture and vehicles. The trustees will have to administer the assets inherited from the estate separately from the other trust assets, for various reasons. One of these is that only the spouse as usufructuary is to receive all net income from the usufruct assets, and other income beneficiaries of the trust cannot share in this.
Income cannot be paid to her at the discretion of the trustees and she is not entitled to part of the capital as stipulated in the deed of trust. However, she may also be an income beneficiary in respect of the other trust assets. Therefore there must also be a separate income and expenditure account.
It is also important that when the usufruct ends, the usufruct assets can be identified easily for the calculation of estate duty and capital gains tax. After that they can become mixed up with the other trusts assets and only one income and expenditure account will be required.
If the trust is terminated before the usufruct ends, the capital beneficiaries will also be replaced as bare owners.
Bequests to an existing testamentary trust
This is when testator A bequeaths some or all of his estate assets to the testamentary trust of the late B, who is already deceased when A’s will is drawn up.
The testamentary trust of the late B must therefore already be active and in operation when testator A dies, otherwise no vesting can occur at the death of testator A. The bequest will then lapse or devolve upon another substitute (nominated) beneficiary.
Testator A (or a donor) can also not be prescriptive and impose changes on an existing and active testamentary trust of the late B and must accept the provisions thereof. It is also important that the trustees have the right to accept and receive the bequest.
Unconditional bequests are transferred and handed to the trustees of testator B’s testamentary trust by the executor of testator A and are administered in accordance with the provisions of the will of that trust. If the bequests are subject to, for example, the payment of a bequest price, the trustees will be given possession of the bequests once that price has been paid.
There may be more than one active trust in terms of the same will of the late B, with different provisions and beneficiaries. Testator A must therefore stipulate very clearly to which existing active trust of the late B such bequest is to be made.
The same principles as in 1 and 2 above can be applied to a bequest to an existing testamentary trust of the late B subject to a limited right, such as a usufruct in favour of the surviving spouse of testator A. If the trust of the late B is terminated prior to the termination of the usufruct, the capital beneficiaries will also be replaced as the bare owners.
General comments
As far as bequests to existing testamentary trusts (“the late B”) are concerned, it is recommended that the testator (“A”) should rather have the bequest held in trust and administered by the trust created in his own will.
A trust may not be misused to temporarily keep other assets and funds in it for other purposes, with own fixed rules.
Source: Sanlam Trust, No 3/2009- Nov 2009
Monday, December 13, 2010
Thursday, November 25, 2010
Financial Mistakes People Make- Not reading loan agreements carefully
Although the NCA protects you to some extent from exploitation, many conditions that are camouflaged in the fine print of a loan agreement could come back to haunt you.
In terms of the Act, you must be informed in clear language of all the issues that affect your debt. This puts the onus on you to read all the documents before you sign anything. And you must understand the implications of what you are signing.
Nowadays, most businesses that sell goods on credit are more akin to financial services companies than traditional retailers. The financial products that are sold around the product are where the profits lie for the retailer. And the consequence is that you could pay 10 times more for an item than you would have paid if you had used cash. The retailer will:
· Either earn interest on the loan itself or in effect receive a kickback or commission from the financial institution that provides the credit.
· Earn commission on the life assurance it will insist you take out to cover the debt. But remember that you cannot be forced to purchase assurance from the retailer or from a company of the retailer’s choice. Credit life assurance is the biggest money-spinner in the life assurance industry. Life assurance bought directly from a life assurer is likely to be far cheaper. Here are a few rules to avoid needless payments:
* Never take out credit life assurance for a period longer than the period over which you must repay the debt.
* Never take out credit life assurance for an amount greater than the debt.
* Preferably take out credit life assurance where the value of the benefit declines in tandem with the outstanding debt.
* Always insist on getting quotes via a financial adviser who is independent of the retailer.
* Remember that the commission paid on credit life assurance is calculated by multiplying the premium and the term of the assurance by a certain factor. So the bigger the premium and the longer you pay, the greater the commission.
* Always pay the premiums on the life assurance separately from the principal debt on the product. Most times the premium is added to the principal debt, and you pay interest on the larger debt.
· Earn a commission of up to 22.5 percent on short-term insurance. You will be required to take out short-term insurance, but again you can choose the product provider. And again, beware of premiums being added to the principal debt, which will result in your interest bill climbing.
· Make a profit by selling you extended guarantees and service plans. In many cases, you do not need an extended guarantee.
· Apply other charges, such as administration and penalty charges – even if you pay back the debt early.
Source: Sanlam
In terms of the Act, you must be informed in clear language of all the issues that affect your debt. This puts the onus on you to read all the documents before you sign anything. And you must understand the implications of what you are signing.
Nowadays, most businesses that sell goods on credit are more akin to financial services companies than traditional retailers. The financial products that are sold around the product are where the profits lie for the retailer. And the consequence is that you could pay 10 times more for an item than you would have paid if you had used cash. The retailer will:
· Either earn interest on the loan itself or in effect receive a kickback or commission from the financial institution that provides the credit.
· Earn commission on the life assurance it will insist you take out to cover the debt. But remember that you cannot be forced to purchase assurance from the retailer or from a company of the retailer’s choice. Credit life assurance is the biggest money-spinner in the life assurance industry. Life assurance bought directly from a life assurer is likely to be far cheaper. Here are a few rules to avoid needless payments:
* Never take out credit life assurance for a period longer than the period over which you must repay the debt.
* Never take out credit life assurance for an amount greater than the debt.
* Preferably take out credit life assurance where the value of the benefit declines in tandem with the outstanding debt.
* Always insist on getting quotes via a financial adviser who is independent of the retailer.
* Remember that the commission paid on credit life assurance is calculated by multiplying the premium and the term of the assurance by a certain factor. So the bigger the premium and the longer you pay, the greater the commission.
* Always pay the premiums on the life assurance separately from the principal debt on the product. Most times the premium is added to the principal debt, and you pay interest on the larger debt.
· Earn a commission of up to 22.5 percent on short-term insurance. You will be required to take out short-term insurance, but again you can choose the product provider. And again, beware of premiums being added to the principal debt, which will result in your interest bill climbing.
· Make a profit by selling you extended guarantees and service plans. In many cases, you do not need an extended guarantee.
· Apply other charges, such as administration and penalty charges – even if you pay back the debt early.
Source: Sanlam
Thursday, November 18, 2010
Financial mistakes people make
Most South Africans simply do not save. According to the Reserve Bank’s December 2009 quarterly report, gross savings by households as a percentage of gross domestic product increased marginally from 1.4 percent in the second quarter of last year to a still pathetically low 1.5 percent in the last quarter.
The Reserve Bank says the increase was not because people suddenly discovered the need to save but was a consequence of “tight economic conditions and stricter lending criteria on the part of banks”. And if it were not for compulsory savings, such as contributions to occupational retirement funds, the figure would probably be negative.
It is important to have savings to meet your:
· Short-term needs, such as to pay school fees or to replace a stove that has packed up. You should also aim to build up an emergency fund equal to about three times your monthly disposable (after-tax) income so that you have a financial cushion in a crisis, such as writing off your car or losing your job.
· Medium-term needs, such as a new vehicle or to put down a deposit on a home. You should aim to save a specific amount of money within a fixed period. Use any windfall, such as bonuses or tax refunds, to top up your savings.
· Long-term needs, which essentially mean retirement – without a doubt your biggest single savings requirement. As with risk life assurance, as a rough rule of thumb you should aim to have saved between 15 and 20 times your annual salary at retirement, depending on your age and number of dependants. For most people, this means you will have to save for at least 40 years, from your first pay cheque.
It is a long-term slog to achieve financial security in retirement and not many people attain it, because they do not stick to the basic rules.
The question arises why most people reach retirement with a net replacement ratio of only 28 percent. The main reasons are that people:
· Are not forced to save for retirement. Many employers do not have occupational retirement funds, and many contract workers, part-time workers, domestic workers, seasonal workers and self-employed people do not save for retirement through formal retirement-funding vehicles.
One of the aims of the government’s retirement reforms is to force every person in formal employment to save enough to provide a net replacement ratio of at least 40 percent.
· Save too little. Alexander Forbes says 17 percent of members of occupational retirement funds have contributions (employee and employer) of less than 10 percent of their pensionable income, while 40 percent have contributions lower than the 12 percent sought by the government in its reform proposals.
· Start saving too late, losing the advantages of compounded investment growth. Research by Alexander Forbes shows that most fund members retire with as few as five to 10 years of pensionable service; 12 percent retire with between 10 and 15 years; 14 percent with between 15 and 20 years; and only seven percent with between 35 and 40 years of pensionable service. On average, pensionable service of the last fund prior to retirement is 19.5 years for men and 15.8 years for woman.
If you leave a job and opt to take the savings you have accumulated in your employer’s occupational retirement scheme, you need to reinvest your savings to ensure you will be financially secure in retirement.
Source: Sanlam
The Reserve Bank says the increase was not because people suddenly discovered the need to save but was a consequence of “tight economic conditions and stricter lending criteria on the part of banks”. And if it were not for compulsory savings, such as contributions to occupational retirement funds, the figure would probably be negative.
It is important to have savings to meet your:
· Short-term needs, such as to pay school fees or to replace a stove that has packed up. You should also aim to build up an emergency fund equal to about three times your monthly disposable (after-tax) income so that you have a financial cushion in a crisis, such as writing off your car or losing your job.
· Medium-term needs, such as a new vehicle or to put down a deposit on a home. You should aim to save a specific amount of money within a fixed period. Use any windfall, such as bonuses or tax refunds, to top up your savings.
· Long-term needs, which essentially mean retirement – without a doubt your biggest single savings requirement. As with risk life assurance, as a rough rule of thumb you should aim to have saved between 15 and 20 times your annual salary at retirement, depending on your age and number of dependants. For most people, this means you will have to save for at least 40 years, from your first pay cheque.
It is a long-term slog to achieve financial security in retirement and not many people attain it, because they do not stick to the basic rules.
The question arises why most people reach retirement with a net replacement ratio of only 28 percent. The main reasons are that people:
· Are not forced to save for retirement. Many employers do not have occupational retirement funds, and many contract workers, part-time workers, domestic workers, seasonal workers and self-employed people do not save for retirement through formal retirement-funding vehicles.
One of the aims of the government’s retirement reforms is to force every person in formal employment to save enough to provide a net replacement ratio of at least 40 percent.
· Save too little. Alexander Forbes says 17 percent of members of occupational retirement funds have contributions (employee and employer) of less than 10 percent of their pensionable income, while 40 percent have contributions lower than the 12 percent sought by the government in its reform proposals.
· Start saving too late, losing the advantages of compounded investment growth. Research by Alexander Forbes shows that most fund members retire with as few as five to 10 years of pensionable service; 12 percent retire with between 10 and 15 years; 14 percent with between 15 and 20 years; and only seven percent with between 35 and 40 years of pensionable service. On average, pensionable service of the last fund prior to retirement is 19.5 years for men and 15.8 years for woman.
If you leave a job and opt to take the savings you have accumulated in your employer’s occupational retirement scheme, you need to reinvest your savings to ensure you will be financially secure in retirement.
Source: Sanlam
Thursday, October 21, 2010
10 Questions to ask your financial advisor
Good financial advisors will encourage their clients to ask questions. An advisor would rather have a satisfied client who understands his or her financial needs than an unhappy client who is disillusioned about the service they received.
Can I see your lisence?
Financial advisors in South Africa must be lisenced to with the Financial Services Board (FSB)
Are you qualified?
Many advisors are certified financial planners (CFP), but experience can also be a form of qualification. Any advisor representing Liberty, for instance, will meet the requirements set out by the Financial Advisory and Intermediary Services Act (FAIS).
Do you have references?
A referral from a satisfied client is one way to select a good advisor. However, find out first why the client is satisfied. Is it because the advisor doubled their money in a month or because they have a long term financial strategy that they are happy with? Short- term gains can be reversed, but a long- term financial plan creates long- term wealth.
Do you follow the six- step process?
Most leading financial planners follow the internationally recognised Financial Planner Institutes sis- step process for identifying a client's current financial knowledge and experience, and current financial situation. The gap between the current situation and desired outcome helps to create the financial plan.
How often will I meet you?
Financial reviews are critical to any successful plan and one should meet with an adviser at least once a year. At this time changes to personal circumstances can be discussed as well as taking stock of whether or not you are on track with your plan.
Do you have someone who can step into your shoes?
It is preferable to deal with a financial adviser that is part of a company so if something does happen to the adviser there is someone else who can take over the relationship.
Which companies do you deal with?
Make sure your adviser has contracts with reputable service and product providers.
What do you charge and what will you provide for this fee?
It is important to understand how the adviser earns an income. Some are paid commission by the product providers they represent and others an advisory fee from their clients. You need to understand what services this include and whether you feel that you are getting value for money. Clients can stop their ongoing advisory fee on investment products if they feel their advisor is not providing a service. Changes to legislation also allow clients to now redirect and ongoing commission on their investments products to a new advisor if they change advisers.
What are the costs of this product and what is your commission?
Costs matter, especially on investment products where they can affect total returns.A good advisor will offer you various choices where you can decide on the relative costs and benefits of the products on offer.
Why is the product right for me?
The product must meet your needs, not that of the adviser, so make sure that you understand the product benefits, terms and any restrictions on claims or withdrawals.
(Article by Liberty)
Can I see your lisence?
Financial advisors in South Africa must be lisenced to with the Financial Services Board (FSB)
Are you qualified?
Many advisors are certified financial planners (CFP), but experience can also be a form of qualification. Any advisor representing Liberty, for instance, will meet the requirements set out by the Financial Advisory and Intermediary Services Act (FAIS).
Do you have references?
A referral from a satisfied client is one way to select a good advisor. However, find out first why the client is satisfied. Is it because the advisor doubled their money in a month or because they have a long term financial strategy that they are happy with? Short- term gains can be reversed, but a long- term financial plan creates long- term wealth.
Do you follow the six- step process?
Most leading financial planners follow the internationally recognised Financial Planner Institutes sis- step process for identifying a client's current financial knowledge and experience, and current financial situation. The gap between the current situation and desired outcome helps to create the financial plan.
How often will I meet you?
Financial reviews are critical to any successful plan and one should meet with an adviser at least once a year. At this time changes to personal circumstances can be discussed as well as taking stock of whether or not you are on track with your plan.
Do you have someone who can step into your shoes?
It is preferable to deal with a financial adviser that is part of a company so if something does happen to the adviser there is someone else who can take over the relationship.
Which companies do you deal with?
Make sure your adviser has contracts with reputable service and product providers.
What do you charge and what will you provide for this fee?
It is important to understand how the adviser earns an income. Some are paid commission by the product providers they represent and others an advisory fee from their clients. You need to understand what services this include and whether you feel that you are getting value for money. Clients can stop their ongoing advisory fee on investment products if they feel their advisor is not providing a service. Changes to legislation also allow clients to now redirect and ongoing commission on their investments products to a new advisor if they change advisers.
What are the costs of this product and what is your commission?
Costs matter, especially on investment products where they can affect total returns.A good advisor will offer you various choices where you can decide on the relative costs and benefits of the products on offer.
Why is the product right for me?
The product must meet your needs, not that of the adviser, so make sure that you understand the product benefits, terms and any restrictions on claims or withdrawals.
(Article by Liberty)
Wednesday, October 20, 2010
The value of advice
How a financial advisor can help you achieve your goals.
A financial advisor is your financial coach. He or she is there to guide and to encourage you, but ultimately your financial fitness will depend on how much you buy into that partnership and how committed you are to your financial goals.
We all know we should exercise regurlarly and that it will keep our weight down and make us healthier- so why don't we?
It is usually because we lack discipline- it is easier to sit on a couch and just relax after a tough day in the office.
Now if we had a personal trainer arrive on our soorstep every day, we would probably find it that much easier to stick to an exercise programme.
A trainer would also be able to develop a personalised programme that suited our goals; to build muscle, we would have a more intensive weight- bearing programme; to lose weight, we would need morecardiovascular training. If we had weak areas, the trainer would recommend some exercises and avoid others so that we did not develop injuries.
A personal trainer for your financial well- being
A financial advisor is effectively a personal trainer for your financial well- being. We know we need to have a financial plan that includes paying off our debt, saving, investing and risk cover, but when are we ever going to get around to creating and implementing the plan?
A financial advisor can help set up a financial to meet your goals without taking risks that you can't afford, or maybe by taking more risks (training a bit harder) to reach those goals.
If you are tempted to dip into your savings to buy a new car, your financial advisor is there to remind you of the impact of impulsive purchases on your long- term goals. And when the markets move up or down, your financial advisor will remind you of why you made your investment decisions, so that you stay focussed on your long- term plan rather getting caught up in the emotions of newspaper headlines.
The real cost of DIY financial planning
Nowadays there are many options for DIY finances, and it can often cut fees, but at what cost?
For example, if you experienced a trauma and needed to claim on your disability cover, would you really want to try and claim through a website from your hospital bed? Or if you die, do you want your family to be worrying about getting your finances in order?
A good financial advisor will step in and deal with the paperwork- this os what they are trained to do.
Call your financial advisor today and get financially fit!!!!
A financial advisor is your financial coach. He or she is there to guide and to encourage you, but ultimately your financial fitness will depend on how much you buy into that partnership and how committed you are to your financial goals.
We all know we should exercise regurlarly and that it will keep our weight down and make us healthier- so why don't we?
It is usually because we lack discipline- it is easier to sit on a couch and just relax after a tough day in the office.
Now if we had a personal trainer arrive on our soorstep every day, we would probably find it that much easier to stick to an exercise programme.
A trainer would also be able to develop a personalised programme that suited our goals; to build muscle, we would have a more intensive weight- bearing programme; to lose weight, we would need morecardiovascular training. If we had weak areas, the trainer would recommend some exercises and avoid others so that we did not develop injuries.
A personal trainer for your financial well- being
A financial advisor is effectively a personal trainer for your financial well- being. We know we need to have a financial plan that includes paying off our debt, saving, investing and risk cover, but when are we ever going to get around to creating and implementing the plan?
A financial advisor can help set up a financial to meet your goals without taking risks that you can't afford, or maybe by taking more risks (training a bit harder) to reach those goals.
If you are tempted to dip into your savings to buy a new car, your financial advisor is there to remind you of the impact of impulsive purchases on your long- term goals. And when the markets move up or down, your financial advisor will remind you of why you made your investment decisions, so that you stay focussed on your long- term plan rather getting caught up in the emotions of newspaper headlines.
The real cost of DIY financial planning
Nowadays there are many options for DIY finances, and it can often cut fees, but at what cost?
For example, if you experienced a trauma and needed to claim on your disability cover, would you really want to try and claim through a website from your hospital bed? Or if you die, do you want your family to be worrying about getting your finances in order?
A good financial advisor will step in and deal with the paperwork- this os what they are trained to do.
Call your financial advisor today and get financially fit!!!!
Tuesday, October 19, 2010
Fisa calls for strict measures
Good day all,
This article will give you another good reason why you do not want to die without a last will! And yet so clients do not have one.
2010-10-11 19:36
Pretoria - The Fiduciary Institute of SA (Fisa) on Monday called for the Guardian's Fund, which has lost an estimated R80m to fraud and theft, to be placed under the management of a regulated financial institution.
In a statement Fisa chairperson John Gibson said such an institution, be it a bank or a trust, should have the necessary controls in place to administer the fund.
Fisa's call followed the announcement on Sunday by Justice Minister Jeff Radebe that since February 2010 there had been an investigation into allegations that corrupt officials in collusion with syndicates had defrauded the Guardian's Fund of about R80m.
The investigation involved the Hawks, the Special Investigating Unit and the National Prosecuting Authority.
The Guardian's Fund falls under the administration of the Master of the High Court and was created to hold and administer funds paid to the Master on behalf of various people such as minors, people who are incapable of managing their own affairs, unborn heirs and missing or absent people.
Radebe said corrupt officials gave out particulars of the legitimate beneficiaries and that syndicates then made use of fraudulently obtained identity documents to open up bank accounts and claim benefits in collusion with corrupt officials.
One syndicate member had claimed 15 times for the same beneficiary.
Gibson said an institution tasked with managing the fund should have a "national footprint" because the "scattered" administration and the "decrepit administration controls" of the fund left it open to abuse.
It was estimated that in 2007 the Guardian's Fund had about R2bn that was invested with the Public Investment Commission and audited annually.
- SAPA
This article will give you another good reason why you do not want to die without a last will! And yet so clients do not have one.
2010-10-11 19:36
Pretoria - The Fiduciary Institute of SA (Fisa) on Monday called for the Guardian's Fund, which has lost an estimated R80m to fraud and theft, to be placed under the management of a regulated financial institution.
In a statement Fisa chairperson John Gibson said such an institution, be it a bank or a trust, should have the necessary controls in place to administer the fund.
Fisa's call followed the announcement on Sunday by Justice Minister Jeff Radebe that since February 2010 there had been an investigation into allegations that corrupt officials in collusion with syndicates had defrauded the Guardian's Fund of about R80m.
The investigation involved the Hawks, the Special Investigating Unit and the National Prosecuting Authority.
The Guardian's Fund falls under the administration of the Master of the High Court and was created to hold and administer funds paid to the Master on behalf of various people such as minors, people who are incapable of managing their own affairs, unborn heirs and missing or absent people.
Radebe said corrupt officials gave out particulars of the legitimate beneficiaries and that syndicates then made use of fraudulently obtained identity documents to open up bank accounts and claim benefits in collusion with corrupt officials.
One syndicate member had claimed 15 times for the same beneficiary.
Gibson said an institution tasked with managing the fund should have a "national footprint" because the "scattered" administration and the "decrepit administration controls" of the fund left it open to abuse.
It was estimated that in 2007 the Guardian's Fund had about R2bn that was invested with the Public Investment Commission and audited annually.
- SAPA
Thursday, October 7, 2010
Clarity on PMB's
Carte Blanche on MNET had a slot last Sunday on Prescribed Minimum Benefits which might have caused some confusion.
Just to get more clarity on the PMBs as introduced into the Medical Schemes Act
· PMB’s was introduced into the Medical Schemes Act to ensure that members of medical schemes would not run out of benefits for certain conditions and find themselves forced to go to state hospitals for treatment.
· These PMBs cover a wide range of close to 300 conditions, such as meningitis, various cancers, menopausal management, cardiac treatment and many others including medical emergencies.
· Terminology
In order to understand the impact of the legislation changes, a clear understanding of the terminology is required:
Designated service provider (DSP)
This refers to health care provider/s that have been "selected by the scheme to provide its members diagnosis, treatment and care in respect of one or more of the PMB conditions".
Emergency medical condition
This is a medical condition which is of sudden and unexpected onset that requires immediate medical or surgical treatment. Failure to provide this treatment would result in impairment of bodily functions, serious dysfunction of a bodily organ or part, or would place the person's life in serious jeopardy.
Prescribed Minimum Benefits (PMB's)
PMB's are minimum benefits which by law must be provided to all medical scheme members and include the provision of diagnosis, treatment and care costs for:
· any emergency medical condition
· a range of conditions as specified in Annexure A of the Regulations to the Medical Schemes Act (No 131 of 1998), subject to limitations specified in Annexure A. Included in this list of conditions is the list of chronic conditions
So this means that a long list of conditions identified as Prescribed Minimum Benefits was issued. The list is in the form of Diagnosis and Treatment Pairs (DTPs). A DTP links a specific diagnosis to a treatment and therefore broadly indicates how each of the approximately 270 PMB conditions should be treated. The treatment and care of PMB conditions should be based on healthcare that has proven to work best, taking affordability into consideration. Should there be a disagreement about the treatment of a specific case, the standards (also called practice and protocols) in force in the public sector will be applied.
The treatment and care of some of the conditions included in the DTP may include chronic medicine, e.g. HIV-infection and menopausal management. In these cases, the public sector protocols will also apply to the chronic medication.
Just to get more clarity on the PMBs as introduced into the Medical Schemes Act
· PMB’s was introduced into the Medical Schemes Act to ensure that members of medical schemes would not run out of benefits for certain conditions and find themselves forced to go to state hospitals for treatment.
· These PMBs cover a wide range of close to 300 conditions, such as meningitis, various cancers, menopausal management, cardiac treatment and many others including medical emergencies.
· Terminology
In order to understand the impact of the legislation changes, a clear understanding of the terminology is required:
Designated service provider (DSP)
This refers to health care provider/s that have been "selected by the scheme to provide its members diagnosis, treatment and care in respect of one or more of the PMB conditions".
Emergency medical condition
This is a medical condition which is of sudden and unexpected onset that requires immediate medical or surgical treatment. Failure to provide this treatment would result in impairment of bodily functions, serious dysfunction of a bodily organ or part, or would place the person's life in serious jeopardy.
Prescribed Minimum Benefits (PMB's)
PMB's are minimum benefits which by law must be provided to all medical scheme members and include the provision of diagnosis, treatment and care costs for:
· any emergency medical condition
· a range of conditions as specified in Annexure A of the Regulations to the Medical Schemes Act (No 131 of 1998), subject to limitations specified in Annexure A. Included in this list of conditions is the list of chronic conditions
So this means that a long list of conditions identified as Prescribed Minimum Benefits was issued. The list is in the form of Diagnosis and Treatment Pairs (DTPs). A DTP links a specific diagnosis to a treatment and therefore broadly indicates how each of the approximately 270 PMB conditions should be treated. The treatment and care of PMB conditions should be based on healthcare that has proven to work best, taking affordability into consideration. Should there be a disagreement about the treatment of a specific case, the standards (also called practice and protocols) in force in the public sector will be applied.
The treatment and care of some of the conditions included in the DTP may include chronic medicine, e.g. HIV-infection and menopausal management. In these cases, the public sector protocols will also apply to the chronic medication.
Tuesday, September 28, 2010
PMB's And DSP's go hand in hand
When trying to obtain treatment for a prescribed minimum benefit (PMB) condition, you may come across terms like "designated service provider" and "co- payment". This monthwe concentrate on what these mean for you.
What is a designated service provider?
A designated service provoder or DSP is a healthcare provider (doctor, pharmacist, hospital, etc) who is appointed by your medical scheme to treat or care for prescribed benefit (PMB) conditions of their members.
State healthcare facilities can be DSP's too but before they can be listed as such in the rules of your medical scheme, your scheme must make sure that you and it's other beneficiaries can reach these facilities with reasonable ease and that the required treatment, medication, and care are both available and accessible.
What is a co- payment?
A co- payment is the amount of money or portion of the account that your scheme may request you to fund your own pocket. This could be either a percentage of the fee or the difference between the tariff of your scheme's chosen DSP and the amount charged by the provider (non- DSP) you went to. The co- payment amount must be specified in the scheme rules.
When can the scheme charge a co- payment?
You can use a non- DSP if you want to (voluntarily) but there may be times when you will have no choice but to use a non- DSP. If you choose to voluntarily use a non- DSP for your PMB condition, you may have to pay a protion of the bill as a co- payment.
What is involuntary use of a non- DSP?
If circumstances force you to obtain a service from a non- DSP (i.e. involuntarily) and it's a PMB condition, your scheme must pay for the costs of the treatment, diagnosis, and care in full. These are the reasons why you may need to obtain treatment from a DSP- involuntarily
Perscribed Mininum Benefits (PMB's) are a set of defined benefits to ensure that all medical schemes have access to certain minimum health services, regardless of the benefit option they have selected. Medical Schemes have to cover the costs related to the diagnosis, treatment and care of:
How does treatment at DSP's work?
Your scheme can insist that you go to a DSP, this is not entirely correct as the DSP should be used for the diagnosis as well as soon as your PMB condition is diagnosed, in which case they cover the costs from the start. When your condition is identified as a PMB after diagnosis, your scheme must pay for the tests and treatment in full retrospectively. Treatment for a PMB condition at a DSP is covered in full by the medical scheme.
What is a designated service provider?
A designated service provoder or DSP is a healthcare provider (doctor, pharmacist, hospital, etc) who is appointed by your medical scheme to treat or care for prescribed benefit (PMB) conditions of their members.
State healthcare facilities can be DSP's too but before they can be listed as such in the rules of your medical scheme, your scheme must make sure that you and it's other beneficiaries can reach these facilities with reasonable ease and that the required treatment, medication, and care are both available and accessible.
What is a co- payment?
A co- payment is the amount of money or portion of the account that your scheme may request you to fund your own pocket. This could be either a percentage of the fee or the difference between the tariff of your scheme's chosen DSP and the amount charged by the provider (non- DSP) you went to. The co- payment amount must be specified in the scheme rules.
When can the scheme charge a co- payment?
You can use a non- DSP if you want to (voluntarily) but there may be times when you will have no choice but to use a non- DSP. If you choose to voluntarily use a non- DSP for your PMB condition, you may have to pay a protion of the bill as a co- payment.
What is involuntary use of a non- DSP?
If circumstances force you to obtain a service from a non- DSP (i.e. involuntarily) and it's a PMB condition, your scheme must pay for the costs of the treatment, diagnosis, and care in full. These are the reasons why you may need to obtain treatment from a DSP- involuntarily
- the required service or treatment is not really available from your scheme's DSP or it will be provided with unreasonable delay;
- an emergency occurs under circumstances or at a location that prevents you from obtaining PMB treatment from a DSP; or
- there is no DSP within a reasonable proximity to your ordinary place of business or personal residence
Perscribed Mininum Benefits (PMB's) are a set of defined benefits to ensure that all medical schemes have access to certain minimum health services, regardless of the benefit option they have selected. Medical Schemes have to cover the costs related to the diagnosis, treatment and care of:
- Any emergency condition (http://www.medicalschemes.com/medical_schemes_pmb/emergency_medical_conditions.com)
- A limited set of 270 medical conditions (http://www.medicalschemes.com/medical_schemes_pmb/conditions_covered.htm);
- and 25 chronic conditions
- (http://www.medicalschemes.com/medical_schemes_pmb/chronic_disease_list.htm)
How does treatment at DSP's work?
Your scheme can insist that you go to a DSP, this is not entirely correct as the DSP should be used for the diagnosis as well as soon as your PMB condition is diagnosed, in which case they cover the costs from the start. When your condition is identified as a PMB after diagnosis, your scheme must pay for the tests and treatment in full retrospectively. Treatment for a PMB condition at a DSP is covered in full by the medical scheme.
Monday, September 6, 2010
Health Warning
Be very cautious before cancelling an existing risk policy or allowing a policy to lapse by stopping your premiums. You may not be offered the same terms you had on you had on your original policy, particularly if your risk status has changed – for example, after a deterioration in health.
If your risk status has changed dramatically – for example, if you have contracted a terminal disease – you may be refused cover altogether.
Risk assurance has become very competitive, with the result that it has also become more complex as life assurance companies try to differentiate on product design.
The increased competition has also seen some life assurance companies luring top sales staff from other companies with perverse incentives, which could see these advisors acting in their own interest and that of their new employers rather than yours.
You need to be cautious when a financial advisor suggests that you switch insurance companies – the move may or may not be in your best interest.
Be particularly wary of products that have lower premiums now but allow for significant or vague increases in the future. You may find the future premium increases become prohibitive but you may not be able to change to another company because of the deterioration of your health.
If your risk status has changed dramatically – for example, if you have contracted a terminal disease – you may be refused cover altogether.
Risk assurance has become very competitive, with the result that it has also become more complex as life assurance companies try to differentiate on product design.
The increased competition has also seen some life assurance companies luring top sales staff from other companies with perverse incentives, which could see these advisors acting in their own interest and that of their new employers rather than yours.
You need to be cautious when a financial advisor suggests that you switch insurance companies – the move may or may not be in your best interest.
Be particularly wary of products that have lower premiums now but allow for significant or vague increases in the future. You may find the future premium increases become prohibitive but you may not be able to change to another company because of the deterioration of your health.
Thursday, August 19, 2010
Financial Planning for the Modern Woman- Part 2
Liberty Legal Focus
There is an increasing worldwide trend for partners in a relationship not to get married, but to simply live together or "co- habit" has its own consequences as far as taxes and financial implications are concerned.
Tax implications of a "common law union"
In South African law there is no such thing as "common law spouses" even though the term is brandished aroud so often that factually it may seem to exist. In terms of our tax legislation, and specifically the Taxation Laws Amendment Act 5 of 2001, the definition of spouse was extended to include , among others, "persons who are in a same- sex or heterosexual union with which the Commissioner is satisfied is intended to be permanent". The impact of this legislation is that people who fall within this definition are for purposes of estate duty, capital gains tax and donations tax treated as spouses- the section 4(q) estate duty deduction, CGT roll over's and tax free donations will be allowed between these parties. This is obviously very useful when it comes to personal financial planning and in particular estate planning. While the legislation does state that this kind of union, unless there is proof to the contrary, will be treated as excluding community of property, it does not go very far in terms of spelling ot the parties' rights and obligations in terms of their proprietary interests.
What risks should parties who co- habit instead of marrying be aware of?
A couple of pertinent questions may answer this:
What happens to the assets of one of the parties on death in the absence of a valid will bequeathing those assets to the survivor? The Intestate Succession Act 81 of 1987 specifically deals only with parties married in terms of the Matrimonial Property Act 88 of 1984 and as such precludes co- habiting life partners. The constitutional court has recently made several rulings to the effect that same sex partners and partners married in terms of Muslim or Hindu tenets should also be protected in terms of the Intestate Succession Act, but no rulings has been made regarding heterosexual life partners. Therefore, the survivor would have no legal claim against the estate of the deceased.
It is thus critical that life partners make certain that they have current and up to date wills in place reflecting their intentions and wishes.
Maintenance of Surviving Spouses Act
Likewise, the Maintenance of Surviving Spouses Act, 27 of 1990 only caters for "spouses" who are married in terms of the Matrimonial Property Act. The life partner who may have been co - habiting with the deceased before his/ her death and been completely dependant on this person for maintenance would have no claim whatsoever against his/ her estate. (Note that, in terms of the Pension Funds Act 24 of 1956, the person would qualify as a factual dependant and would be able to lodge a claim against those benefits, if any).
A financial needs analysis must be conducted in order to ascertain what the financial implications of the death of one of the life partners would be on the survivor and if there is a need, this need must be catered for.
What happens if the life partners decide to go their seperate ways and split up?
In 2008 the Domestic Partnership Bill was published which sought to provide some clarity and direction on these matters. Basically it distinguished between registered domestic partnerships and unregistered domestic partnerships. In terms of the Bill, parties to a registered domestic partnership would automatically be entitled to a claim in terms of both the Intestate Succession Act and the Maintenance of Surviving Spouses Act, while those in an unregistered domestic partnership would need to go to court for the relief sought. This Bill also clearly stipulated that such relationships would operate as if they were out of community of property, and so would automatically include the accrual system. On termination of the relationship for whatever reason, the parties would get to share in the growth of each other's estates from inception of the partnership. This Bill has not been taken any further and as such cannot be relied upon by parties cohabiting to protect their rights or interests.
How then do life partners protect themselves and regulate their affairs, other than by having a valid will? What happens practically when the relationship ends?
Universal partnership
One of the parties could allege that what is called a universal partnership exists between them. Basically, what is being said is that in terms of the law of contract, an agreement has been entered into between the parties in which they are to share their assets equally. All the terms necessary to prove a valid contract of partnership would need to be proved:
It is not necessarily easy to prove that a universal partnership exists, for example you will need to show under the "benefit for both parties" that both parties were actually better off together, than they were seperately. Invariably the parties will have to consult attorneys and may even have to go to court. This costs a lot of money, and those people who lack the financial resources to be able to afford legal fees may end up with nothing at all.
The Alternative: A Domestic Partnership Agreement
All parties co- habiting should take the same view as people in a business partnership with each other. They should enter into a legal agreement to regulate their proprietary affairs so that should the partnership terminate, there will be binding guidelines in place to determine how the property will be split up.
The best time to enter into this agreement is when both parties are on good terms with each other and have a long term view on the relationship. It is too late if you wait until one of the parties whishes to go his or her own way. A domestic partnership agreement deals with life partnerships and is similar to entering into an antenuptial contract. It will detail each party's rights and obligations, for example:
Careful thought and consideration needs to be given when doing financial planning for life partners, especially when it comes to protecting their wealth in the event of death or termination of that partnership.
There is an increasing worldwide trend for partners in a relationship not to get married, but to simply live together or "co- habit" has its own consequences as far as taxes and financial implications are concerned.
Tax implications of a "common law union"
In South African law there is no such thing as "common law spouses" even though the term is brandished aroud so often that factually it may seem to exist. In terms of our tax legislation, and specifically the Taxation Laws Amendment Act 5 of 2001, the definition of spouse was extended to include , among others, "persons who are in a same- sex or heterosexual union with which the Commissioner is satisfied is intended to be permanent". The impact of this legislation is that people who fall within this definition are for purposes of estate duty, capital gains tax and donations tax treated as spouses- the section 4(q) estate duty deduction, CGT roll over's and tax free donations will be allowed between these parties. This is obviously very useful when it comes to personal financial planning and in particular estate planning. While the legislation does state that this kind of union, unless there is proof to the contrary, will be treated as excluding community of property, it does not go very far in terms of spelling ot the parties' rights and obligations in terms of their proprietary interests.
What risks should parties who co- habit instead of marrying be aware of?
A couple of pertinent questions may answer this:
- If the relationship should end because the parties fall out, what will happen to the property acquired during the course of the relationship?
- Does provision for retirement include both partners or will both be reliant on one partners pension/ retirement fund?
- Will either parties need or be entitled to maintenance should the relationship terminate?
- What is the intention of the parties if either dies, in terms of the other inheriting?
- Is there sufficient provision for the surviving partner and dependants?
What happens to the assets of one of the parties on death in the absence of a valid will bequeathing those assets to the survivor? The Intestate Succession Act 81 of 1987 specifically deals only with parties married in terms of the Matrimonial Property Act 88 of 1984 and as such precludes co- habiting life partners. The constitutional court has recently made several rulings to the effect that same sex partners and partners married in terms of Muslim or Hindu tenets should also be protected in terms of the Intestate Succession Act, but no rulings has been made regarding heterosexual life partners. Therefore, the survivor would have no legal claim against the estate of the deceased.
It is thus critical that life partners make certain that they have current and up to date wills in place reflecting their intentions and wishes.
Maintenance of Surviving Spouses Act
Likewise, the Maintenance of Surviving Spouses Act, 27 of 1990 only caters for "spouses" who are married in terms of the Matrimonial Property Act. The life partner who may have been co - habiting with the deceased before his/ her death and been completely dependant on this person for maintenance would have no claim whatsoever against his/ her estate. (Note that, in terms of the Pension Funds Act 24 of 1956, the person would qualify as a factual dependant and would be able to lodge a claim against those benefits, if any).
A financial needs analysis must be conducted in order to ascertain what the financial implications of the death of one of the life partners would be on the survivor and if there is a need, this need must be catered for.
What happens if the life partners decide to go their seperate ways and split up?
In 2008 the Domestic Partnership Bill was published which sought to provide some clarity and direction on these matters. Basically it distinguished between registered domestic partnerships and unregistered domestic partnerships. In terms of the Bill, parties to a registered domestic partnership would automatically be entitled to a claim in terms of both the Intestate Succession Act and the Maintenance of Surviving Spouses Act, while those in an unregistered domestic partnership would need to go to court for the relief sought. This Bill also clearly stipulated that such relationships would operate as if they were out of community of property, and so would automatically include the accrual system. On termination of the relationship for whatever reason, the parties would get to share in the growth of each other's estates from inception of the partnership. This Bill has not been taken any further and as such cannot be relied upon by parties cohabiting to protect their rights or interests.
How then do life partners protect themselves and regulate their affairs, other than by having a valid will? What happens practically when the relationship ends?
Universal partnership
One of the parties could allege that what is called a universal partnership exists between them. Basically, what is being said is that in terms of the law of contract, an agreement has been entered into between the parties in which they are to share their assets equally. All the terms necessary to prove a valid contract of partnership would need to be proved:
- That the partnership was entered into for the benefit of both parties;
- That the purpose of the partnership was to generate a profit;
- That both parties made a contribution to the partnership- financial or otherwise, and
- That the contract is legitimate.
It is not necessarily easy to prove that a universal partnership exists, for example you will need to show under the "benefit for both parties" that both parties were actually better off together, than they were seperately. Invariably the parties will have to consult attorneys and may even have to go to court. This costs a lot of money, and those people who lack the financial resources to be able to afford legal fees may end up with nothing at all.
The Alternative: A Domestic Partnership Agreement
All parties co- habiting should take the same view as people in a business partnership with each other. They should enter into a legal agreement to regulate their proprietary affairs so that should the partnership terminate, there will be binding guidelines in place to determine how the property will be split up.
The best time to enter into this agreement is when both parties are on good terms with each other and have a long term view on the relationship. It is too late if you wait until one of the parties whishes to go his or her own way. A domestic partnership agreement deals with life partnerships and is similar to entering into an antenuptial contract. It will detail each party's rights and obligations, for example:
- Their respective financial obligations to the joint home;
- Their rights and obligations towards each other;
- Rights and obligations regarding jointly owned property, including the division of jointly owned property.
Careful thought and consideration needs to be given when doing financial planning for life partners, especially when it comes to protecting their wealth in the event of death or termination of that partnership.
Monday, August 16, 2010
Financial Planning for the Modern Woman
Michelle Human, Legal Marketing Specialist
Can the modern woman really have it all? Today, women have more oppertunities, choices and challenges than ever before. Women need to take control of their financial planning to make sure that they own their lives, especially in the event of a life- changing situation. Here are some things to consider when it comes to taking charge of your financial freedom.
Look after yourself first
A woman needs to have a financial plan that caters for her own needs.
If she has children or is thinking about starting a family, her retirement plan must take into account a possible break in employment, even if only for a short time, while she is on maternity leave.
If it takes a dual income to run a family now, then a dual income will also be required at retirement to maintain the standard of living.
Financial protection in times of crisis
According to the CANSA Association, 1 in 29 women is diagnosed with breast cancer, every year. The effects of such a diagnosis can be devastating, both emotionally and financially.
Making sure that you have cover in place that will pay out in an event of such a diagnosis will at least give you the peace of mind that your financial wellbeing is taken care of. Comprehensive critical illness cover will make sure that funds are available to protect your family and their lifestyle. Consider the impact that this type of disease could have on your lifestyle:
The last thing any blushing bride wants to consider is the fact that her marriage may come to an abrupt end, either as a result of divorce or death. Making sure that you understand the law relating to your marriage could save you heartache in years to come.
The three marital regimes provided for in terms of the Matrimonial Property Act:
When a woman starts a family she may choose to leave formal employment to be a full- time mom or work reduced hours with a flexible schedule. Here are some things to consider when you have children:
Generally, women live approximately seven years longer than men. A women of 65 will need approximately 15% more than a man of the same age to provide the same pesnsion for the rest of her life, so women really need to put careful thought into their retirement plans.
Leaving a legacy
All too often women underestimate the need for a valid will as part of a comprehensive financial plan. It is not as simple as leaving all your assets to your spouse or significant other.
A will gives you the oppertunity to provide a guardian for your child in the event of both parents passing away. You may wish to provide for your children using a testamentary trust. This allows you to choose the trustees who will manage the funds for your children and give certain instructions regarding distribution of income and capital. Consider that your surviving spouse may remarry or have more children. Without a will, there are no guarentees that your children will receive the legacy you intended for them.
Going through the process of drafting your will also allows you to consider the impact of the estate duties, income tax and expenses that can easily erode the inheritance you thought you were leaving.
Life cover is an affordable way of ensuring that cash is readily available when your dependants need it most.
Can the modern woman really have it all? Today, women have more oppertunities, choices and challenges than ever before. Women need to take control of their financial planning to make sure that they own their lives, especially in the event of a life- changing situation. Here are some things to consider when it comes to taking charge of your financial freedom.
Look after yourself first
A woman needs to have a financial plan that caters for her own needs.
If she has children or is thinking about starting a family, her retirement plan must take into account a possible break in employment, even if only for a short time, while she is on maternity leave.
If it takes a dual income to run a family now, then a dual income will also be required at retirement to maintain the standard of living.
Financial protection in times of crisis
According to the CANSA Association, 1 in 29 women is diagnosed with breast cancer, every year. The effects of such a diagnosis can be devastating, both emotionally and financially.
Making sure that you have cover in place that will pay out in an event of such a diagnosis will at least give you the peace of mind that your financial wellbeing is taken care of. Comprehensive critical illness cover will make sure that funds are available to protect your family and their lifestyle. Consider the impact that this type of disease could have on your lifestyle:
- Who would take care of your children? Whould you need an au pair to fetch them from school and other activities, supervise homework and dinnertime?
- Would you need someone to take care of household chores or drive you to treatments and doctor's appointments?
- Make sure that you can illiminate all other worries and focus on getting the best treatment possible.
The last thing any blushing bride wants to consider is the fact that her marriage may come to an abrupt end, either as a result of divorce or death. Making sure that you understand the law relating to your marriage could save you heartache in years to come.
The three marital regimes provided for in terms of the Matrimonial Property Act:
- Community of Property- the parties to the marriage share all profits and losses and are seen to have one undivided estate. Thus everything is shared equally.
- Ante- nuptial- contract (ANC)- this automatically includes the accrual system and is a community of profit, but not a community of loss, which comes into effect when the marriage ends. This is probably the most popular marriage regime of modern times. Assets required before the marriage may be exluded, but any growth in assets acquired during the marriage is shared equally when the marriage comes to an end.
- Ante- nuptial contract excuding accrual- the accrual system is expressly excluded and the parties have completely seperate estates. This is a marital regime often used where parties have already acquired significant wealth prior to their marriage.
When a woman starts a family she may choose to leave formal employment to be a full- time mom or work reduced hours with a flexible schedule. Here are some things to consider when you have children:
- Are your existing retirement benefits transferred into a Preservation Fund or Retirement Annuity to create a nest egg for the future?
- Are you accessing this amount now to reduce your costs and make your decision to stay at home more viable?
- Does the reduced income in the household allow you to continue with some form of retirement savings?
Generally, women live approximately seven years longer than men. A women of 65 will need approximately 15% more than a man of the same age to provide the same pesnsion for the rest of her life, so women really need to put careful thought into their retirement plans.
Leaving a legacy
All too often women underestimate the need for a valid will as part of a comprehensive financial plan. It is not as simple as leaving all your assets to your spouse or significant other.
A will gives you the oppertunity to provide a guardian for your child in the event of both parents passing away. You may wish to provide for your children using a testamentary trust. This allows you to choose the trustees who will manage the funds for your children and give certain instructions regarding distribution of income and capital. Consider that your surviving spouse may remarry or have more children. Without a will, there are no guarentees that your children will receive the legacy you intended for them.
Going through the process of drafting your will also allows you to consider the impact of the estate duties, income tax and expenses that can easily erode the inheritance you thought you were leaving.
Life cover is an affordable way of ensuring that cash is readily available when your dependants need it most.
Monday, July 12, 2010
So where do you start saving?
The golden rule of saving is to "start with a plan".
To draw up a plan, you need to know what your end goal is and what you need in money terms to get you there. The following steps can help you to draw up your plan and stick to it!
To draw up a plan, you need to know what your end goal is and what you need in money terms to get you there. The following steps can help you to draw up your plan and stick to it!
- What are your savings goal? Everyone needs a reason/s to save, e.g. to achieve retirement savings of R1 million, to be debt- free (no home or car loans) by age 40, etc.
- How much money do you need to reach a goal?This will help you determine what you shoul be saving or investing every month.
- Draw up a realistic monthly budget. This is one of the most effective tools to see where your money is going and what disposable income is available at the end of the month. A budget is simply adding up all your monthly expenses (rent, bond, and car repayments, insurnace, retirement fund contributions- including AVC's- electricity, etc) and subtracting it from your nett monthly income. Any money that is left over is called disposable income.
- What can I do with my spare cash? Your disposable income should not be used to generate more expenses, but to pay off any debts or, if you are debt- free, to invest towards meeting your goals. To be financially stable, you need to prioritise your needs and wants at each stage of your life. Pay off accounts or credit cards with the highest interest rate first. Returns on your investments are unlikely to be higher than the interest rates on these cards. Then pay off your debts, e.g. home loan, car etc. as quickly as possible. A debt management plan can help you to get rid of your debt.
- When do I start investing? The golden rule of investing is not to invest if you have debt. With some emergency cash stashed away, a debt- reduction plan in place and a secure insurance safety- net, you are ready to consider investing.
- Getting help. Please speak to a financial advisor.
- Monitor your bidget, needs and savings to ensure that you are on track with your financial plan, that your needs have not changed and to see how your savings are growing.
Tuesday, June 22, 2010
Keep your medical scheme for tax reasons says Resolution
14 May 2010
Resolution Health Medical Scheme
Medical aid costs and general medical expenses are fairly extensively tax deductible and hard pressed consumers should not act too hastily when it comes to cancelling or downgrading their medical aid cover, warns Resolution Health Medical Scheme.
Principal Officer Mark Arnold argues strongly that medical aid cover is not merely a nice to have and that, while cancelling or reducing that cover may bring temporary relief to household budget, it's in fact "false economy" that exposes you to potentially huge medical expense risk.
"Our basic message is retain your medical aid cover if it's at all financially feasible to do so," he says.
"While this obviously affects cash flow in the short term, a large proportion of medical expenses are deductible in a given tax year and it's obviously far preferable to remain covered for medical costs until those deductions begin to filter through."
"The tax benefit for medical aid contributions and medical expenditure are straightforward and can easily be explained " he points out.
The tax free allowance granted by the Receiver toward medical aid contributions during a given tax year, now amounts to R670 per month for the member and the first dependant and R410 per month for every other dependant.
"This works out at a substantial R2160 deduction pm (R25 920 pa) for a family of four, applicable after Minister Pravin Gordhan announced some welcome relief on the tax front for medical contributions in his budget speech."
In addition to that, the Receiver allows deducted against tax, your contribution that exceeds this total, together with the unclaimed portion of your general expenses (the amount not paid by your medical aid) where the total of those amounts exceeds 7,5% of your taxable earnings.
Also tax payers over the age of 65 enjoy a full deduction for qualifying medical aid contributions and expenses while tax payers under 65 may claim all qualifying medical expenses where the taxpayer or the taxpayer's spouse or child is disabled. So taken as a whole, these deductions and potential deductions can be substantial.
"It should be borne in mind however that any contribution made by the employer on behalf of the employee toward his medical aid contribution, either by way of a subsidy or a salary sacrifice is regarded as income in the hands of the employee and this has to be taken into account in your tax calculations."
The exception to the rule is where a company subsidises low income staff medical cover in which case that contribution is still either 100% tax deductible for the employee, resulting in a "zero effect", tax wise for the employee. Other tax free exceptions apply where contributions are made by a company on behalf of pensioners, or dependants of deceased pensioners.
"The fundamental fact is that medical expenses for individuals are already substantially tax deductible and maintaining your medical aid membership is crucially important against the background of rising medical costs and the questionable alternative of being reliant upon the State health system."
Resolution Health Medical Scheme
Medical aid costs and general medical expenses are fairly extensively tax deductible and hard pressed consumers should not act too hastily when it comes to cancelling or downgrading their medical aid cover, warns Resolution Health Medical Scheme.
Principal Officer Mark Arnold argues strongly that medical aid cover is not merely a nice to have and that, while cancelling or reducing that cover may bring temporary relief to household budget, it's in fact "false economy" that exposes you to potentially huge medical expense risk.
"Our basic message is retain your medical aid cover if it's at all financially feasible to do so," he says.
"While this obviously affects cash flow in the short term, a large proportion of medical expenses are deductible in a given tax year and it's obviously far preferable to remain covered for medical costs until those deductions begin to filter through."
"The tax benefit for medical aid contributions and medical expenditure are straightforward and can easily be explained " he points out.
The tax free allowance granted by the Receiver toward medical aid contributions during a given tax year, now amounts to R670 per month for the member and the first dependant and R410 per month for every other dependant.
"This works out at a substantial R2160 deduction pm (R25 920 pa) for a family of four, applicable after Minister Pravin Gordhan announced some welcome relief on the tax front for medical contributions in his budget speech."
In addition to that, the Receiver allows deducted against tax, your contribution that exceeds this total, together with the unclaimed portion of your general expenses (the amount not paid by your medical aid) where the total of those amounts exceeds 7,5% of your taxable earnings.
Also tax payers over the age of 65 enjoy a full deduction for qualifying medical aid contributions and expenses while tax payers under 65 may claim all qualifying medical expenses where the taxpayer or the taxpayer's spouse or child is disabled. So taken as a whole, these deductions and potential deductions can be substantial.
"It should be borne in mind however that any contribution made by the employer on behalf of the employee toward his medical aid contribution, either by way of a subsidy or a salary sacrifice is regarded as income in the hands of the employee and this has to be taken into account in your tax calculations."
The exception to the rule is where a company subsidises low income staff medical cover in which case that contribution is still either 100% tax deductible for the employee, resulting in a "zero effect", tax wise for the employee. Other tax free exceptions apply where contributions are made by a company on behalf of pensioners, or dependants of deceased pensioners.
"The fundamental fact is that medical expenses for individuals are already substantially tax deductible and maintaining your medical aid membership is crucially important against the background of rising medical costs and the questionable alternative of being reliant upon the State health system."
Monday, June 21, 2010
RA Solution
Source: Discovery Life
This is the start of a series of articles showing how flexible RAs have become since the rule changes last year and how they should be an integral part of planning for a client.
RAs are no longer just a tool to reduce a client’s taxable income, as was the case in the past.
Background
Since 1 January 2009 all payouts from RAs on death are free of estate duty
Subsequent to all the rule changes on RAs, on death, the full cash proceeds of the policy can be paid to dependants if they so wish
In terms of the Second Schedule to the Income Tax Act, any taxpayer contributions to a RA which did not “rank for deduction against the taxpayer’s income in terms of section 11 (k) or (n)of the Act” will pay out tax-free in addition to the R300 000 allowed. Section 11 (n) of the Act allows a deduction up to a maximum of 15% of non-retirement funding, taxable income. (The section has been paraphrased.)
Scenario
Client aged 84 has R3 million to invest. He does not need the money, but wants to invest it for his family. He has an estate duty problem.
Solution
The client invests the R3 million in a single premium RA. With this simple investment, the client has achieved five benefits:
The R3 million has been removed from the client’s estate, and will be free of estate duty when it pays out. This equates to a saving of R600 000, without taking growth of the investment into account
The investment will be in the untaxed portfolio in the insurers hands
When the client dies, his dependents can draw the full proceeds of the policy in cash if they so choose. This makes it a fully liquid investment for them
The policy proceeds will pay directly to the dependants on death and not be subject to executor’s fees in the deceased estate. Assuming no growth, and the normal executor’s fee at 3,99%, this equates to a saving of R119 700
Finally, the R3 million paid into the RA would have been well in excess of the allowable deductible amount (see above). It would be safe to assume that it would not have been tax deductible going into the RA. This would mean that it would come out tax-free on top of the R300 000 allowed. If a small part of it was deductible, that bit would not come out tax-free, but then the taxpayer could still use the R300 000 tax-free allowance (assuming that has not been used before).
Benefits
The client has been given an investment in an untaxed portfolio, which is fully liquid for the family, free of executor’s fees and estate duty, and in most cases, tax-free when it pays out. No other investment product can match this.
Conclusion
RAs are an integral part of a client’s estate planning since the regulatory changes last year. All elderly clients should be using them as an estate duty shelter.
This is the start of a series of articles showing how flexible RAs have become since the rule changes last year and how they should be an integral part of planning for a client.
RAs are no longer just a tool to reduce a client’s taxable income, as was the case in the past.
Background
Since 1 January 2009 all payouts from RAs on death are free of estate duty
Subsequent to all the rule changes on RAs, on death, the full cash proceeds of the policy can be paid to dependants if they so wish
In terms of the Second Schedule to the Income Tax Act, any taxpayer contributions to a RA which did not “rank for deduction against the taxpayer’s income in terms of section 11 (k) or (n)of the Act” will pay out tax-free in addition to the R300 000 allowed. Section 11 (n) of the Act allows a deduction up to a maximum of 15% of non-retirement funding, taxable income. (The section has been paraphrased.)
Scenario
Client aged 84 has R3 million to invest. He does not need the money, but wants to invest it for his family. He has an estate duty problem.
Solution
The client invests the R3 million in a single premium RA. With this simple investment, the client has achieved five benefits:
The R3 million has been removed from the client’s estate, and will be free of estate duty when it pays out. This equates to a saving of R600 000, without taking growth of the investment into account
The investment will be in the untaxed portfolio in the insurers hands
When the client dies, his dependents can draw the full proceeds of the policy in cash if they so choose. This makes it a fully liquid investment for them
The policy proceeds will pay directly to the dependants on death and not be subject to executor’s fees in the deceased estate. Assuming no growth, and the normal executor’s fee at 3,99%, this equates to a saving of R119 700
Finally, the R3 million paid into the RA would have been well in excess of the allowable deductible amount (see above). It would be safe to assume that it would not have been tax deductible going into the RA. This would mean that it would come out tax-free on top of the R300 000 allowed. If a small part of it was deductible, that bit would not come out tax-free, but then the taxpayer could still use the R300 000 tax-free allowance (assuming that has not been used before).
Benefits
The client has been given an investment in an untaxed portfolio, which is fully liquid for the family, free of executor’s fees and estate duty, and in most cases, tax-free when it pays out. No other investment product can match this.
Conclusion
RAs are an integral part of a client’s estate planning since the regulatory changes last year. All elderly clients should be using them as an estate duty shelter.
Monday, June 14, 2010
Review your circumstances: Things to think about when your life changes
When you experience a life-changing event, speak to your financial advisor and update your financial plan.
I have started working
Start a savings plan and make sure you have enough risk cover (insurance) to protect your future income. Understand the details of your company's pension scheme if there is one.
I have changed jobs or have been promoted
Rather than spending your extra cash, increase your monthly savings by the same percentage as your salary.
I have lost my job
Understand what your options are and whether you need to draw from your pension, and what that means for your retirement. Find out if any of your policies include retrenchment cover which will cover your insurance or investment premiums.
I have just got married
Review your life cover and your will. This is also a good time to sit down with your spouse and discuss your financial priorities and what you both hope to achieve over the next five, ten and twenty years.
I have just had a child
Reassess your life and make sure that you will have a will that includes a testamentary trust. You also need to start a savings plan for your child's education.
One of the breadwinners has stopped working to raise children
Reassess your family budget. Also make sure the stay- at- home parent has retirement provisions and risk cover.
I have just got divorced
Assess the impact the divorce has had on your income and your assets and adjust your spending accordingly. If you receive a lump sum from your ex- spouse's retirement fund, make sure you use a preservation fund to keep your retirement benefits. Update your will.
There has been death in the family
Understand the financial impact on the family. If you received death benefits, speak to your financial advisor about the best possible way to invest these. Review your risk cover and your will.
I am about to retire
Understand your financial situation and the changes you may need to make your investments and risk cover.
Source: Liberty Life
I have started working
Start a savings plan and make sure you have enough risk cover (insurance) to protect your future income. Understand the details of your company's pension scheme if there is one.
I have changed jobs or have been promoted
Rather than spending your extra cash, increase your monthly savings by the same percentage as your salary.
I have lost my job
Understand what your options are and whether you need to draw from your pension, and what that means for your retirement. Find out if any of your policies include retrenchment cover which will cover your insurance or investment premiums.
I have just got married
Review your life cover and your will. This is also a good time to sit down with your spouse and discuss your financial priorities and what you both hope to achieve over the next five, ten and twenty years.
I have just had a child
Reassess your life and make sure that you will have a will that includes a testamentary trust. You also need to start a savings plan for your child's education.
One of the breadwinners has stopped working to raise children
Reassess your family budget. Also make sure the stay- at- home parent has retirement provisions and risk cover.
I have just got divorced
Assess the impact the divorce has had on your income and your assets and adjust your spending accordingly. If you receive a lump sum from your ex- spouse's retirement fund, make sure you use a preservation fund to keep your retirement benefits. Update your will.
There has been death in the family
Understand the financial impact on the family. If you received death benefits, speak to your financial advisor about the best possible way to invest these. Review your risk cover and your will.
I am about to retire
Understand your financial situation and the changes you may need to make your investments and risk cover.
Source: Liberty Life
Monday, May 17, 2010
The price of Motherhood
Make sure you have a financial plan when you take off time to raise your family
Women live longer and therefore need more money on retirement than men. Yet statistics show us that women have significantly less savings on retirement than men.
Time off from work affects retirement savings
The role of motherhood, which is so vitally important to the fabric of our society, is the reason many women find themselves more financially vulnerable in their later years.
Mothers tend to stop working in order to raise their children and even if it is just for a short period of time, it has an enormous impact on one’s savings. Even when a mother returns to the workplace, she may choose a less demanding position in order to have a balance between family and work, further reducing her ability to provide for her retirement.
Let’s look at the numbers:
If you contribute 15% of your salary towards your retirement for 35 years, from the age of 25, you should achieve an adequate pension.
If you take off 5 years from age 30, you will get a pension of 80% of this amount, or would need to contribute 3.5% more (18.5%) while working.
If you take off 5 years from age 34, you will get a pension of 85% of the first example, or you would need to 3% more while working. The reason why you will be able to save slightly less than the previous example is because you have a greater lump sum saved by the age of 34, benefiting from compounding growth
If you take off 10 years from age 30, you will get a pension of 65% of the first example, or would need to contribute 8% (23%) while working
Living longer you will need more money to retire
To make matters worse, because women live longer they actually need a larger lump sum on retirement than men. With a guaranteed inflation- linked annuity (a regular income that keeps pace with inflation) a women would not need to save 10% more than her male counterpart to receive the same monthly income. This means that women cannot afford to save just 15% for 35 years, but would need to save 16.5%.
Shared retirement savings on divorce
The pension fund laws were recently changed so that a non- member spouse can now immediately receive a portion of their ex- spouse’s pension fund in the case of a divorce. This is deferred as the “clean break principle”.
While this is aimed at protecting the spouse who has taken time out to raise the children, one should not rely solely on one’s partner to provide for retirement.
Insuring your work
Women always tend to have less insurance cover than men. Stay- at- home mothers may believe that, because they are not earning an income, they do have to insure against the loss of income.
The reality is that as a mother you are providing a very important function for your family. If you were unable to care for your children, your family would have to hire help to fill all those roles in that you normally carry out. Your partner may also want to change to a less stressful position as he would now be the sole caregiver to your children. If you are disabled or become critically ill, your family will have increased medical costs to carry. Also remember that if you are not earning today, you may have plans to re- enter the work force one day and if you are unable to, that will affect your future earnings.
The good news is that, due to better longevity, the cost of life insurance is cheaper for women.
Be your own person
Just because you do not bring in an income or you are not the breadwinner does not mean that you should not have your own financial plan. Put yourself first and speak to a financial advisor to ensure that you are taking care of your own financial needs so that you will never be financially vulnerable.
Article by: Liberty
Women live longer and therefore need more money on retirement than men. Yet statistics show us that women have significantly less savings on retirement than men.
Time off from work affects retirement savings
The role of motherhood, which is so vitally important to the fabric of our society, is the reason many women find themselves more financially vulnerable in their later years.
Mothers tend to stop working in order to raise their children and even if it is just for a short period of time, it has an enormous impact on one’s savings. Even when a mother returns to the workplace, she may choose a less demanding position in order to have a balance between family and work, further reducing her ability to provide for her retirement.
Let’s look at the numbers:
If you contribute 15% of your salary towards your retirement for 35 years, from the age of 25, you should achieve an adequate pension.
If you take off 5 years from age 30, you will get a pension of 80% of this amount, or would need to contribute 3.5% more (18.5%) while working.
If you take off 5 years from age 34, you will get a pension of 85% of the first example, or you would need to 3% more while working. The reason why you will be able to save slightly less than the previous example is because you have a greater lump sum saved by the age of 34, benefiting from compounding growth
If you take off 10 years from age 30, you will get a pension of 65% of the first example, or would need to contribute 8% (23%) while working
Living longer you will need more money to retire
To make matters worse, because women live longer they actually need a larger lump sum on retirement than men. With a guaranteed inflation- linked annuity (a regular income that keeps pace with inflation) a women would not need to save 10% more than her male counterpart to receive the same monthly income. This means that women cannot afford to save just 15% for 35 years, but would need to save 16.5%.
Shared retirement savings on divorce
The pension fund laws were recently changed so that a non- member spouse can now immediately receive a portion of their ex- spouse’s pension fund in the case of a divorce. This is deferred as the “clean break principle”.
While this is aimed at protecting the spouse who has taken time out to raise the children, one should not rely solely on one’s partner to provide for retirement.
Insuring your work
Women always tend to have less insurance cover than men. Stay- at- home mothers may believe that, because they are not earning an income, they do have to insure against the loss of income.
The reality is that as a mother you are providing a very important function for your family. If you were unable to care for your children, your family would have to hire help to fill all those roles in that you normally carry out. Your partner may also want to change to a less stressful position as he would now be the sole caregiver to your children. If you are disabled or become critically ill, your family will have increased medical costs to carry. Also remember that if you are not earning today, you may have plans to re- enter the work force one day and if you are unable to, that will affect your future earnings.
The good news is that, due to better longevity, the cost of life insurance is cheaper for women.
Be your own person
Just because you do not bring in an income or you are not the breadwinner does not mean that you should not have your own financial plan. Put yourself first and speak to a financial advisor to ensure that you are taking care of your own financial needs so that you will never be financially vulnerable.
Article by: Liberty
Protect your children through your Will
Michelle Human: Liberty advisory Services
A testamentary trust is a necessity if you have young dependants
All parents want to protect their children. Unfortunately the time may come when you are no longer here and cannot protect them yourself. Making preparations for such an event does not mean that it will happen, only that if it does, that your children will be taken care of.
Make sure you have a valid will
One of the best ways to protect your children is to make sure that you have a will in place. A will is a simple document, but to make sure that your intentions are carried out it is crucial that you will is drafted correctly so that the executor of your estate knows who will inherit which of your assets.
Use a testamentary trust to provide for minor children
A testamentary trust is one of the most efficient ways to provide for minor children in the event of your death. This trust will only come in effect once you die, as stated in your will.
The trust controls how your funds are spent after your death, according to your wishes. For example, you could dictate that only income is used for daily maintenance and education, but the capital can be distributed once the children reach a certain age.
Choose a right guardian and trustees
A testamentary trust allows you to appoint a guardian who will take care of your children’s daily needs. You also choose the trustees who will manage the funds on behalf of your children.
You need to think carefully about who will make the best trustees. Your children’s guardian may not be the best person to manage their financial affairs. Ideally you want to appoint a trustee that has sound financial knowledge and can manage the estate’s finances to provide for the long- term welfare of your children.
Give instructions for life and retirement policies
In the ordinary course of events, the trustees of a testamentary trust are authorized to take control of the assets in the estate for the benefit of the minor children. But remember: proceeds from life insurance policies that pay directly to minor children, as nominated beneficiaries, and retirement fund benefits are not estate assets.
Unless you authorize the trustees to take control of your life insurance policies and retirement benefits, the trustees will not be able to take control of these monies and administer them in terms of the testamentary trust, even if the guardian agrees to them doing this.
The guardian will then have to open a bank account in the name of the child and the proceeds will be paid into this account, which means that the guardian will have full control over the bank account and how the money is spent.
Life insurance proceeds and retirement fund benefits can form a significant portion of your estate so make sure that your will is correctly worded.
A testamentary trust is a necessity if you have young dependants
All parents want to protect their children. Unfortunately the time may come when you are no longer here and cannot protect them yourself. Making preparations for such an event does not mean that it will happen, only that if it does, that your children will be taken care of.
Make sure you have a valid will
One of the best ways to protect your children is to make sure that you have a will in place. A will is a simple document, but to make sure that your intentions are carried out it is crucial that you will is drafted correctly so that the executor of your estate knows who will inherit which of your assets.
Use a testamentary trust to provide for minor children
A testamentary trust is one of the most efficient ways to provide for minor children in the event of your death. This trust will only come in effect once you die, as stated in your will.
The trust controls how your funds are spent after your death, according to your wishes. For example, you could dictate that only income is used for daily maintenance and education, but the capital can be distributed once the children reach a certain age.
Choose a right guardian and trustees
A testamentary trust allows you to appoint a guardian who will take care of your children’s daily needs. You also choose the trustees who will manage the funds on behalf of your children.
You need to think carefully about who will make the best trustees. Your children’s guardian may not be the best person to manage their financial affairs. Ideally you want to appoint a trustee that has sound financial knowledge and can manage the estate’s finances to provide for the long- term welfare of your children.
Give instructions for life and retirement policies
In the ordinary course of events, the trustees of a testamentary trust are authorized to take control of the assets in the estate for the benefit of the minor children. But remember: proceeds from life insurance policies that pay directly to minor children, as nominated beneficiaries, and retirement fund benefits are not estate assets.
Unless you authorize the trustees to take control of your life insurance policies and retirement benefits, the trustees will not be able to take control of these monies and administer them in terms of the testamentary trust, even if the guardian agrees to them doing this.
The guardian will then have to open a bank account in the name of the child and the proceeds will be paid into this account, which means that the guardian will have full control over the bank account and how the money is spent.
Life insurance proceeds and retirement fund benefits can form a significant portion of your estate so make sure that your will is correctly worded.
Monday, April 26, 2010
10 Reasons to have a good Medical Scheme.
by SAPA
Think about a medical worst-case scenario. You’re trapped under a truck, your head is bleeding and you are sure your leg is broken in at least one place. There are sirens, ambulances, the fire brigade, and the last thing you remember before waking up in the ICU is being put on stretchers.
This type of accident scenario is what most people think of when they think of reasons why a medical scheme is necessary. And let’s face it, under these circumstances, good medical care could save your life.
And yes, medical schemes and hospital plans are expensive, but it might be even more expensive not having one.
But being well cared for after accidents is not the only reason why having a medical scheme is important. Here are some others.
The end-of-the month flu bout. It’s three days to payday and you’re down to your last R20. You’re going to be living on potatoes and the smell of an oil rag for the next 72 hours. And then you get ill. Very ill. Your chest is rattling, your head is so sore it feels like it wants to part company with your body, and you have forgotten what it is like to breathe through your nose. And your doctor works on a cash-basis only. Except if the account is sent directly to your medical scheme. Need I say more?
Sudden expensive medication. For the same flu bout, you need medication from the chemist – and it doesn’t come cheap. In fact, even with opting for the generics, the total bill for this comes to R237,11. And right now, you just don’t have it. But fortunately your chemist sends the bill to your medical scheme and you end up having to pay a levy of a few rand. Now that you can do.
Serious diseases. Cancer, emphysema, diabetes complications, ongoing heart problems – these are things no one ever thinks will happen to them. But when they do, and the onset could be sudden, the cost of things like scans, X-rays, pathology tests, ultrasounds could run into thousands. Not to speak of lengthy hospitalisation and expensive operations. And few people have that kind of money lying around. Most medical schemes and hospital plans will cover these things in full.
The young and the old. Few people use their medical schemes much when they are in their twenties, or even thirties. But their contributions make a big difference to funding the medical costs of the older members. And young people get older, and one day their costs will be funded by new and incoming younger members. And no, it is not a solution to join when you retire, as your premiums will be much higher than those of someone who has been a member for twenty years. This is understandable. And a medical scheme is essential for retired people – this is probably going to be when you need it most.
Eye problems. Welcome to your forties. Here is your complimentary pair of reading glasses. Not really, but you get the picture. Few people get past middle age without some vision problems. These can range from minor to serious – and prescription lenses (even with cheaper frames) don’t come cheap. And you might need new ones every two years.
Not state-of-the-art hospitals. While there are some state hospitals that are fine, in fact, downright fantastic, there are major funding and staffing problems in many of them. In several of the hospitals the actual operations performed are excellent, but the problems come in with post-operative care of patients. While not all private hospitals are completely fantastic, the level of care you receive and the facilities available to you are likely to be better. And so it should be, because most of them are jolly expensive. If your life is hanging by a thread, the last thing you feel like dealing with are no sheets on the bed or dirty toilets. Or waiting endlessly in a queue while you are bleeding. So pay your medical scheme contribution with a smile.
Peace of mind. We spend an inordinate amount of our time worrying about money. If you have a family, and are a wage earner, unless you have won the lottery, you would not be able to foot the bill if your family of five were in the same car accident and all landed in hospital. Whereas medical schemes do have limits, most hospital costs are at least paid for. So now you can sleep at night.
Ambulances. If you’ve had a heart attack and are lying on the floor of a restaurant, you want the ambulance to get there without delay. Sometimes state ambulances are very swift, but there are also horror stories about badly injured or ill people waiting hours for an ambulance. Being a member of a medical scheme usually entitles you to use a private ambulance.
Maternity costs. Having a baby is expensive - even if there are no complications. Medical schemes will not cover you for your pregnancy if you only join once you are pregnant, so if you are planning to have a family, and you’re not a member yet, make a plan as soon as possible.
Check-ups. You know you should go to the dentist, the oral hygienist, the GP or the homeopath for regular check-ups. But you don’t, because it is expensive. You wait until something goes wrong, and then you go. And it ends up costing you three times as much. Prevention is indeed better than cure. And within specific limits, your medical scheme will pay for these check-ups.
Think about a medical worst-case scenario. You’re trapped under a truck, your head is bleeding and you are sure your leg is broken in at least one place. There are sirens, ambulances, the fire brigade, and the last thing you remember before waking up in the ICU is being put on stretchers.
This type of accident scenario is what most people think of when they think of reasons why a medical scheme is necessary. And let’s face it, under these circumstances, good medical care could save your life.
And yes, medical schemes and hospital plans are expensive, but it might be even more expensive not having one.
But being well cared for after accidents is not the only reason why having a medical scheme is important. Here are some others.
The end-of-the month flu bout. It’s three days to payday and you’re down to your last R20. You’re going to be living on potatoes and the smell of an oil rag for the next 72 hours. And then you get ill. Very ill. Your chest is rattling, your head is so sore it feels like it wants to part company with your body, and you have forgotten what it is like to breathe through your nose. And your doctor works on a cash-basis only. Except if the account is sent directly to your medical scheme. Need I say more?
Sudden expensive medication. For the same flu bout, you need medication from the chemist – and it doesn’t come cheap. In fact, even with opting for the generics, the total bill for this comes to R237,11. And right now, you just don’t have it. But fortunately your chemist sends the bill to your medical scheme and you end up having to pay a levy of a few rand. Now that you can do.
Serious diseases. Cancer, emphysema, diabetes complications, ongoing heart problems – these are things no one ever thinks will happen to them. But when they do, and the onset could be sudden, the cost of things like scans, X-rays, pathology tests, ultrasounds could run into thousands. Not to speak of lengthy hospitalisation and expensive operations. And few people have that kind of money lying around. Most medical schemes and hospital plans will cover these things in full.
The young and the old. Few people use their medical schemes much when they are in their twenties, or even thirties. But their contributions make a big difference to funding the medical costs of the older members. And young people get older, and one day their costs will be funded by new and incoming younger members. And no, it is not a solution to join when you retire, as your premiums will be much higher than those of someone who has been a member for twenty years. This is understandable. And a medical scheme is essential for retired people – this is probably going to be when you need it most.
Eye problems. Welcome to your forties. Here is your complimentary pair of reading glasses. Not really, but you get the picture. Few people get past middle age without some vision problems. These can range from minor to serious – and prescription lenses (even with cheaper frames) don’t come cheap. And you might need new ones every two years.
Not state-of-the-art hospitals. While there are some state hospitals that are fine, in fact, downright fantastic, there are major funding and staffing problems in many of them. In several of the hospitals the actual operations performed are excellent, but the problems come in with post-operative care of patients. While not all private hospitals are completely fantastic, the level of care you receive and the facilities available to you are likely to be better. And so it should be, because most of them are jolly expensive. If your life is hanging by a thread, the last thing you feel like dealing with are no sheets on the bed or dirty toilets. Or waiting endlessly in a queue while you are bleeding. So pay your medical scheme contribution with a smile.
Peace of mind. We spend an inordinate amount of our time worrying about money. If you have a family, and are a wage earner, unless you have won the lottery, you would not be able to foot the bill if your family of five were in the same car accident and all landed in hospital. Whereas medical schemes do have limits, most hospital costs are at least paid for. So now you can sleep at night.
Ambulances. If you’ve had a heart attack and are lying on the floor of a restaurant, you want the ambulance to get there without delay. Sometimes state ambulances are very swift, but there are also horror stories about badly injured or ill people waiting hours for an ambulance. Being a member of a medical scheme usually entitles you to use a private ambulance.
Maternity costs. Having a baby is expensive - even if there are no complications. Medical schemes will not cover you for your pregnancy if you only join once you are pregnant, so if you are planning to have a family, and you’re not a member yet, make a plan as soon as possible.
Check-ups. You know you should go to the dentist, the oral hygienist, the GP or the homeopath for regular check-ups. But you don’t, because it is expensive. You wait until something goes wrong, and then you go. And it ends up costing you three times as much. Prevention is indeed better than cure. And within specific limits, your medical scheme will pay for these check-ups.
Tuesday, April 20, 2010
What value would I add to you the consumer as a healthcare advisor?
Advise you as a member of a medical scheme on:
• Which medical scheme to select
• Your rights when changing medical schemes
• The consequences of changing schemes
• The details and procedures applicable to your new scheme
• Annual option changes
• Changes in legislation and the impact thereof
• Giving on-going feedback on the financial and administrative stability of your chosen scheme
Which medical scheme to select
There are a significant number of medical aids to choose from, and each of these has a number of benefit options which complicates the selection process for a member without the support of an informed and experienced professional.
Medical schemes and administrators cannot be expected to supply independent information on how their products compare to their competitors, and which of their options would be most suitable to the health needs of the member.
This is where the Healthcare Advisor (like myself) adds value as they have clients across a broad range of medical schemes and will be able to identify these issues and advise members accordingly.
Your rights when changing schemes
The legislation governing the medical scheme environment is complex and medical schemes often abuse the fact that most members do not understand their rights.
We can assist you to ensure that the law is applied in the manner that it was intended to be applied.
The consequences of changing medical scheme membership
There are many important issues members need to consider when they decide to change medical schemes during a calendar year and these are often overlooked with dire consequences to the medicals scheme member. Some examples:
Savings account claw backs: Members who have spent their full annual allocation will have to repay the proportion relating to the balance of the year when they leave the medical scheme
Pro-rated benefits: Joining a new medical scheme partially through the year will mean that members only have access to a pro-rated portion of the benefits offered by the new scheme.
Focusing on cost savings and not on the benefit reductions that may accompany these cost savings may leave the members at risk
Not considering changes in any specialized benefits. Members changing schemes with specific medical conditions might not properly evaluate the level of benefit on the new scheme for these specific conditions.
Member education
It is normally the Healthcare Advisor that spends time with individuals, or in group sessions educating them about the benefits, requirements and potential pitfalls of the members’ chosen medical scheme with regards to issues like hospital pre-certification, chronic medication applications, generic versus ethical medication cover etc.
Annual option changes
Most medical schemes only allow members to change options once a year and this is the only opportunity a member gets to ensure that they are on the correct health plan to suit their health and financial needs.
Healthcare Advisors add value by proactively assisting the member to evaluate the option they are on. It is also in your best interest as a member to be aware of developments within other medical schemes over this period so that you can compare your current scheme against others. The Healthcare Advisor fulfils a very real and valuable role to medical scheme members over this time.
Changes in legislation and the impact thereof
Healthcare advisors make sure members are notified of these changes as you may be personally affected by these changes.
Changes to the benefit structures and/or procedures applicable to your scheme and the impact thereof
Again Healthcare Advisors offer this service to members, where medical schemes are slow to disseminate such information.
Ongoing feedback on the financial and administrative stability of your chosen scheme
No medical scheme will admit to falling solvency ratios and financial pressures, which could translate into higher than average increases for members. Healthcare Advisors are able to keep members informed of the financial stability of schemes, and very often are able to warn members in advance of what to expect from a medical scheme that is under financial pressure.
I discussed a couple of areas where I can add value in your lives, either as an individual or as an Employer. Please do not hesitate to contact me should you have any questions.
• Which medical scheme to select
• Your rights when changing medical schemes
• The consequences of changing schemes
• The details and procedures applicable to your new scheme
• Annual option changes
• Changes in legislation and the impact thereof
• Giving on-going feedback on the financial and administrative stability of your chosen scheme
Which medical scheme to select
There are a significant number of medical aids to choose from, and each of these has a number of benefit options which complicates the selection process for a member without the support of an informed and experienced professional.
Medical schemes and administrators cannot be expected to supply independent information on how their products compare to their competitors, and which of their options would be most suitable to the health needs of the member.
This is where the Healthcare Advisor (like myself) adds value as they have clients across a broad range of medical schemes and will be able to identify these issues and advise members accordingly.
Your rights when changing schemes
The legislation governing the medical scheme environment is complex and medical schemes often abuse the fact that most members do not understand their rights.
We can assist you to ensure that the law is applied in the manner that it was intended to be applied.
The consequences of changing medical scheme membership
There are many important issues members need to consider when they decide to change medical schemes during a calendar year and these are often overlooked with dire consequences to the medicals scheme member. Some examples:
Savings account claw backs: Members who have spent their full annual allocation will have to repay the proportion relating to the balance of the year when they leave the medical scheme
Pro-rated benefits: Joining a new medical scheme partially through the year will mean that members only have access to a pro-rated portion of the benefits offered by the new scheme.
Focusing on cost savings and not on the benefit reductions that may accompany these cost savings may leave the members at risk
Not considering changes in any specialized benefits. Members changing schemes with specific medical conditions might not properly evaluate the level of benefit on the new scheme for these specific conditions.
Member education
It is normally the Healthcare Advisor that spends time with individuals, or in group sessions educating them about the benefits, requirements and potential pitfalls of the members’ chosen medical scheme with regards to issues like hospital pre-certification, chronic medication applications, generic versus ethical medication cover etc.
Annual option changes
Most medical schemes only allow members to change options once a year and this is the only opportunity a member gets to ensure that they are on the correct health plan to suit their health and financial needs.
Healthcare Advisors add value by proactively assisting the member to evaluate the option they are on. It is also in your best interest as a member to be aware of developments within other medical schemes over this period so that you can compare your current scheme against others. The Healthcare Advisor fulfils a very real and valuable role to medical scheme members over this time.
Changes in legislation and the impact thereof
Healthcare advisors make sure members are notified of these changes as you may be personally affected by these changes.
Changes to the benefit structures and/or procedures applicable to your scheme and the impact thereof
Again Healthcare Advisors offer this service to members, where medical schemes are slow to disseminate such information.
Ongoing feedback on the financial and administrative stability of your chosen scheme
No medical scheme will admit to falling solvency ratios and financial pressures, which could translate into higher than average increases for members. Healthcare Advisors are able to keep members informed of the financial stability of schemes, and very often are able to warn members in advance of what to expect from a medical scheme that is under financial pressure.
I discussed a couple of areas where I can add value in your lives, either as an individual or as an Employer. Please do not hesitate to contact me should you have any questions.
Monday, April 12, 2010
Why do you need a financial advisor?
Personal finance has become extremely complex. Legislation and the products themselves have left the world bewildered due to the fact that the financial environment changes on a daily basis. Not even the most financial literate have the time or the expertise to keep up with developments.
10 Potential mistakes in choosing a financial advisor
- Choosing the advisor due to distance. Find an advisor that applies to your needs, not someone that is necessarily close to you.
- Going with your bank advisor- There are excellent bank brokers out there, but it might be good to get a second opinion.
- Choosing the first advisor that you get a proposal from. This is one of the biggest mistakes to make. A financial advisor is a specialist in the field and therefore it is better to get more than one opinion from more than one broker.
- Sticking with you advisor even though you are unhappy with the service provided. If you have informed the advisor that you are not happy with the service provided and nothing has changed, you are more than welcome to find someone better suited.
- Staying with an advisor because he/ she makes you feel guilty- this is a domino effect caused by several of the mistakes listed here. Keep things professional.
- Choosing the cheapest advisor- Always focus on quality and not quantity.
- Choosing an advisor that wines and dines you- This is a benefit some companies do on a standard basis, but it is important to get good service and not just good food.
- A personal friend- One should rather not interfere business with you personal life.
- Going with an advisor because it is a friend of someone you trust
- Basing your decision on their vehicle
Friday, March 26, 2010
You cannot outsource your future
In today’s newsletter we take a look at the findings and trends coming out of the latest Old Mutual Retirement Funds Survey. The findings were presented yesterday in Johannesburg and they show awareness of retirement issues, but also some less than favourable realities. And while these may be concerning – at least we know what they are. Service executive at Old Mutual Corporate, Mkuseli Mbomvu gave the following quote yesterday – a problem well defined is a problem half solved. At one glance the facts and figures, perceptions and realities around retirement in South Africa look like a huge problem. Throw that glass out – and it becomes obvious that this is also an area of immense opportunity.
The Money Marketing Newsletter will be participating in the long weekend coming up and will not be appearing next week. We wish you all a very safe long weekend that is filled with happiness and relaxation.
Retiring financially independent
6% of South Africans retire financially independent. Craig Aitchison, MD of Old Mutual Actuaries and Consultants says we need to look at this as these 6% being able to retire with no change in standard of living.
A quarter receive assistance from family members
In the Old Mutual Retirement Monitor, 53% of pensioners surveyed felt a drop in their standard of living when they retired and 25% said this drop was a big one. Only 17% felt that their pension had kept up with inflation, 51% said it was a bit behind inflation and a third felt it was far behind inflation.
On average – pensioners said that their pension meets 77% of their retirement needs. 23% currently receive financial assistance from their children or other family members – and this assistance amounts to almost a quarter of their monthly income.
These are the findings of the first Old Mutual Retirement Monitor, which examines pre-retirement perceptions amongst working South Africans. The Monitor also surveyed pensioners.
(The Old Mutual Retirement Monitor and Old Mutual Retirement Survey are two different research projects. The Old Mutual Retirement Survey aims to understand changes in the retirement industry and looks at a range of issues from perceptions of the industry, governance, types of funds and investments and communication to fund members. The Monitor surveyed primarily working metropolitan households and the Survey collected data from funds, government, media and industry bodies, trustees and intermediaries.)
Where the money comes from
While the pensioners surveyed in the Monitor on average said that 77% of their pension meets their needs, those in pre-retirement and saving for retirement with a pension fund said that they expected 60% of their post retirement income to come from a pension. Other sources include retirement annuities, cash savings, endowments and other income (eg working after retirement part time). Of those who are not members of a pension/provident fund they expect 48% of their retirement income to come from cash savings.
One of the emerging trends that the Old Mutual Retirement Fund Survey found was a move to a later retirement date. In South Africa, Seelan Gobalsamy, MD of Old Mutual Corporate, says that we are starting to see people asking the question about retirement date and age. People are retiring – and then in some cases contracting back or entering the SME market. Supplementing income in retirement was also borne out in the Monitor findings – where pre-retirees expect some funds to come from other sources including working – and those who don’t belong to a pension fund are probably more likely to work for longer.
When it comes to retirement from an individual perspective – the ultimate goal is to make sure the money outlasts the individual.
So is there enough to retire on?
The Survey found that only 43% of members think they have enough to retire on. Not enough funds measure adequacy – the Survey found that only 52% of funds measure adequacy.
Preservation does not happen
Preservation remains almost non-existent – 93% of those interviewed in the Survey agree that preserving retirement savings is important – but 99% of those that exited Old Mutual Umbrella Funds last year did not preserve. And while often, cash is needed when employment ends (particularly noteworthy in South Africa where unemployment is such a problem); the survey found that there is a higher level of awareness around the cash option when leaving a fund rather than preservation, and a lack of understanding of the consequences of not preserving. Intermediaries who responded in the Survey are one of the keenest proponents of preserving.
Communication and understanding of the retirement issues
One of the most notable points to come out of the findings was the low level of member engagement on funds and awareness of the issues.
While communication with members was highlighted as an ongoing trend – it seems that this is an area where we still have a long way to go. The Survey found that communication to members was still largely printed material and that despite the continued emphasis on communication; there were still low levels of understanding. Hugh Hacking, Umbrella Fund product manager at Old Mutual Corporate says that an increasing number of funds have recognised the shortcomings of relying on written material and in line with member preference – personal communication (like workshops) is more popular.
This was also evident in the Monitor findings.
The Monitor found that pre-retirees are largely unaware of the trustees of the fund, the investment managers and types of assets the fund invests in.
Only 20% know the trustees by name, 30% know which company the trustees are from. Only 15% voted in the most recent trustee election. 45% know who manages the investment but only 24% claim good knowledge of where the assets of their retirement fund are invested. (18% are vague and 58% don’t know where the assets are invested.)
Despite this low level of engagement there is a high level of trust and confidence in trustees. On a scale of 1 – 10 where 10 is completely confident – both trust and confidence score 7.3. (the trustees are making decisions in the interests of the members and that members are confident in the abilities and knowledge of the trustees). Aitchison says this is more a confidence in the office of trustee – so members view a trustee, by virtue of being a trustee, as acting in their best interests.
The levels of knowledge become more disturbing - 65% of those surveyed in the Monitor don’t know what percentage of their salary they contribute to their retirement fund. (67% contribute less than 10% of their salary to a retirement fund each month.)
Member communication and knowledge is clearly an area where there is massive opportunity. From the findings it would be logical to deduce that current member communication is having very little impact. If only 15% of members are voting for trustees and various findings show that knowledge around retirement funds are limited at best, the need for clear, new, innovative and professional financial education at all levels is evident. We need to ask questions that go right back to basics. Financial education has never been so important.
Questions to ask:
Do you belong to a retirement fund, what is this fund, where is it invested, who are the trustees, how are investment decisions made, who makes these decisions, what do they base their decisions on, how do they know what your needs are? And if you are not in a fund ask the same questions – of your current financial plan (or get a plan). If you are invited to a workshop or presentation on the pension fund – go. When you need to vote for trustees ask them who and what they are and how they will manage the fund.
It is good that we are saving for retirement. It is not good that we don’t know enough about it.
Start out from a basis of knowledge and responsibility
Retirement is a long term liability. As important as it is to minimise short term debt, it is even more important to provide for long term debt. It is not easy providing for retirement, we have to save a lot (even with the latest rate cut), and it will involve sacrifices. It is a responsible action and it is an individual responsibility.
The retirement landscape has changed enormously in a short space of time. Defined benefit has given way to defined contribution, (and it seems from the surveys that knowledge on this is also sketchy) and we have dramatically increased our life expectancy (often with a higher associated cost). We also have to deal with the spectre of inflation.
Rightly or wrongly funding for retirement has become the individual’s responsibility.
The Monitor findings show that there is still a perception that someone else (eg state) will provide. This is unlikely (and is even more unlikely to be sufficient). We have to provide. We cannot outsource our future to someone we think will do a good job – we have to ask the questions and find the information to make sure that the best as is possible is done.
The responsibility shift to the individual has not meant that the industry has become more understandable to the individual. There is an awareness of the need to and the importance of saving for retirement – but the intricacies and details have not reached the individual. This is a responsibility we all need to take. As members and savers we need to speak up.
Become a difficult member and consumer
Ask every question you need to until you get an answer you understand and are satisfied with.
Be aware of investment returns – and that investment returns while an important part of your goal are not your goal. The goal is to retire financially independent.
Make sure that at least five years to retirement you have as comprehensive a review as possible and start looking at your objectives and options on retirement from funds and other investments – what kind of an annuity are you looking to buy, how much should you derisk and into what investments, can you keep investing if there is supplementary income, what are the inflation expectations and how will they affect in the long and short term.
While retirement may not be a certain future for all of us - it is a certain and long future for a lot of us. Just as avoiding tax is a very unwise thing to do – so too is avoiding the retirement issues.
The opinion and comment in this newsletter is opinion and comment only and does not constitute financial advice in any way – please consult a professional adviser for all retirement and investment needs.
Source: Money Market Newsletter (no: 250310)
The Money Marketing Newsletter will be participating in the long weekend coming up and will not be appearing next week. We wish you all a very safe long weekend that is filled with happiness and relaxation.
Retiring financially independent
6% of South Africans retire financially independent. Craig Aitchison, MD of Old Mutual Actuaries and Consultants says we need to look at this as these 6% being able to retire with no change in standard of living.
A quarter receive assistance from family members
In the Old Mutual Retirement Monitor, 53% of pensioners surveyed felt a drop in their standard of living when they retired and 25% said this drop was a big one. Only 17% felt that their pension had kept up with inflation, 51% said it was a bit behind inflation and a third felt it was far behind inflation.
On average – pensioners said that their pension meets 77% of their retirement needs. 23% currently receive financial assistance from their children or other family members – and this assistance amounts to almost a quarter of their monthly income.
These are the findings of the first Old Mutual Retirement Monitor, which examines pre-retirement perceptions amongst working South Africans. The Monitor also surveyed pensioners.
(The Old Mutual Retirement Monitor and Old Mutual Retirement Survey are two different research projects. The Old Mutual Retirement Survey aims to understand changes in the retirement industry and looks at a range of issues from perceptions of the industry, governance, types of funds and investments and communication to fund members. The Monitor surveyed primarily working metropolitan households and the Survey collected data from funds, government, media and industry bodies, trustees and intermediaries.)
Where the money comes from
While the pensioners surveyed in the Monitor on average said that 77% of their pension meets their needs, those in pre-retirement and saving for retirement with a pension fund said that they expected 60% of their post retirement income to come from a pension. Other sources include retirement annuities, cash savings, endowments and other income (eg working after retirement part time). Of those who are not members of a pension/provident fund they expect 48% of their retirement income to come from cash savings.
One of the emerging trends that the Old Mutual Retirement Fund Survey found was a move to a later retirement date. In South Africa, Seelan Gobalsamy, MD of Old Mutual Corporate, says that we are starting to see people asking the question about retirement date and age. People are retiring – and then in some cases contracting back or entering the SME market. Supplementing income in retirement was also borne out in the Monitor findings – where pre-retirees expect some funds to come from other sources including working – and those who don’t belong to a pension fund are probably more likely to work for longer.
When it comes to retirement from an individual perspective – the ultimate goal is to make sure the money outlasts the individual.
So is there enough to retire on?
The Survey found that only 43% of members think they have enough to retire on. Not enough funds measure adequacy – the Survey found that only 52% of funds measure adequacy.
Preservation does not happen
Preservation remains almost non-existent – 93% of those interviewed in the Survey agree that preserving retirement savings is important – but 99% of those that exited Old Mutual Umbrella Funds last year did not preserve. And while often, cash is needed when employment ends (particularly noteworthy in South Africa where unemployment is such a problem); the survey found that there is a higher level of awareness around the cash option when leaving a fund rather than preservation, and a lack of understanding of the consequences of not preserving. Intermediaries who responded in the Survey are one of the keenest proponents of preserving.
Communication and understanding of the retirement issues
One of the most notable points to come out of the findings was the low level of member engagement on funds and awareness of the issues.
While communication with members was highlighted as an ongoing trend – it seems that this is an area where we still have a long way to go. The Survey found that communication to members was still largely printed material and that despite the continued emphasis on communication; there were still low levels of understanding. Hugh Hacking, Umbrella Fund product manager at Old Mutual Corporate says that an increasing number of funds have recognised the shortcomings of relying on written material and in line with member preference – personal communication (like workshops) is more popular.
This was also evident in the Monitor findings.
The Monitor found that pre-retirees are largely unaware of the trustees of the fund, the investment managers and types of assets the fund invests in.
Only 20% know the trustees by name, 30% know which company the trustees are from. Only 15% voted in the most recent trustee election. 45% know who manages the investment but only 24% claim good knowledge of where the assets of their retirement fund are invested. (18% are vague and 58% don’t know where the assets are invested.)
Despite this low level of engagement there is a high level of trust and confidence in trustees. On a scale of 1 – 10 where 10 is completely confident – both trust and confidence score 7.3. (the trustees are making decisions in the interests of the members and that members are confident in the abilities and knowledge of the trustees). Aitchison says this is more a confidence in the office of trustee – so members view a trustee, by virtue of being a trustee, as acting in their best interests.
The levels of knowledge become more disturbing - 65% of those surveyed in the Monitor don’t know what percentage of their salary they contribute to their retirement fund. (67% contribute less than 10% of their salary to a retirement fund each month.)
Member communication and knowledge is clearly an area where there is massive opportunity. From the findings it would be logical to deduce that current member communication is having very little impact. If only 15% of members are voting for trustees and various findings show that knowledge around retirement funds are limited at best, the need for clear, new, innovative and professional financial education at all levels is evident. We need to ask questions that go right back to basics. Financial education has never been so important.
Questions to ask:
Do you belong to a retirement fund, what is this fund, where is it invested, who are the trustees, how are investment decisions made, who makes these decisions, what do they base their decisions on, how do they know what your needs are? And if you are not in a fund ask the same questions – of your current financial plan (or get a plan). If you are invited to a workshop or presentation on the pension fund – go. When you need to vote for trustees ask them who and what they are and how they will manage the fund.
It is good that we are saving for retirement. It is not good that we don’t know enough about it.
Start out from a basis of knowledge and responsibility
Retirement is a long term liability. As important as it is to minimise short term debt, it is even more important to provide for long term debt. It is not easy providing for retirement, we have to save a lot (even with the latest rate cut), and it will involve sacrifices. It is a responsible action and it is an individual responsibility.
The retirement landscape has changed enormously in a short space of time. Defined benefit has given way to defined contribution, (and it seems from the surveys that knowledge on this is also sketchy) and we have dramatically increased our life expectancy (often with a higher associated cost). We also have to deal with the spectre of inflation.
Rightly or wrongly funding for retirement has become the individual’s responsibility.
The Monitor findings show that there is still a perception that someone else (eg state) will provide. This is unlikely (and is even more unlikely to be sufficient). We have to provide. We cannot outsource our future to someone we think will do a good job – we have to ask the questions and find the information to make sure that the best as is possible is done.
The responsibility shift to the individual has not meant that the industry has become more understandable to the individual. There is an awareness of the need to and the importance of saving for retirement – but the intricacies and details have not reached the individual. This is a responsibility we all need to take. As members and savers we need to speak up.
Become a difficult member and consumer
Ask every question you need to until you get an answer you understand and are satisfied with.
Be aware of investment returns – and that investment returns while an important part of your goal are not your goal. The goal is to retire financially independent.
Make sure that at least five years to retirement you have as comprehensive a review as possible and start looking at your objectives and options on retirement from funds and other investments – what kind of an annuity are you looking to buy, how much should you derisk and into what investments, can you keep investing if there is supplementary income, what are the inflation expectations and how will they affect in the long and short term.
While retirement may not be a certain future for all of us - it is a certain and long future for a lot of us. Just as avoiding tax is a very unwise thing to do – so too is avoiding the retirement issues.
The opinion and comment in this newsletter is opinion and comment only and does not constitute financial advice in any way – please consult a professional adviser for all retirement and investment needs.
Source: Money Market Newsletter (no: 250310)
Thursday, March 25, 2010
8 Good Reasons why you should have a Retirement Annuity
1. Contributions tax deductible up to
a. 15% of non-retirement funding taxable income, or
b. R3500 minus allowable pension fund contributions, or
c. R1750
2. During the investment term savings within retirement funds is not taxed.
3. Tax treatment of one third cash lump sum of retirement annuity proceeds.
a. Tax free portion: R300 000 plus contributions made to retirement funds which were previously disallowed as a deduction.
b. Less tax-free portions of retirement funds already utilized
4. Two thirds of retirement annuity proceeds to purchase a compulsory annuity.
a. Wide choice of annuity options
b. Can be guaranteed for a fixed term, or
c. Guaranteed income for life
d. Taxable as income
5. Protected against claims from creditors – with certain exceptions.
6. Protected in case of emigration – the remittal of retirement annuities must always take place with the approval of the exchange control annuities.
7. Investors have the option to increase contributions to combat the effect of inflation.
8. A retirement annuity allows disciplined savings for retirement and is also ideal for self-employed persons or small businesses.
Life Cover... How much should I have?
There’s no point in taking out life cover if the amount does not cover the following:
• Pay off the bond on your property and any other debt that you may have ie car, credit cards, clothing accounts etc
The amount of cover that each person requires is calculated on an individual basis and need to take the following factors into consideration:
• Age
• Marital status
• Do you have kids, how many and their ages
• Outstanding debt
• Current income as your income provided for your family’s needs
• Funeral costs
• Money you may owe SARS
• Estate Duty
• Capital Gains Tax
• Inflation – R1 million may be enough for now but will it be enough in 10 years?
All the above obviously needs to take into consideration affordability from your side, ie the monthly premiums. Your premiums will depend on your age, whether you’re a smoker or not, current health, genetic diseases looking at your family history.
You may contact me at any time to discuss your personal needs or if you want me to review your existing Financial Plan.
• Enough money to assist with minor children education, housing, general day to day expenses ie food, clothing etc.
The amount of cover that each person requires is calculated on an individual basis and need to take the following factors into consideration:
• Age
• Marital status
• Do you have kids, how many and their ages
• Outstanding debt
• Current income as your income provided for your family’s needs
• Funeral costs
• Money you may owe SARS
• Estate Duty
• Capital Gains Tax
• Inflation – R1 million may be enough for now but will it be enough in 10 years?
All the above obviously needs to take into consideration affordability from your side, ie the monthly premiums. Your premiums will depend on your age, whether you’re a smoker or not, current health, genetic diseases looking at your family history.
You may contact me at any time to discuss your personal needs or if you want me to review your existing Financial Plan.
Friday, March 5, 2010
Medical Aid... A Necessity?
I believe that its time to chat about medical aids and what we expect of a medical aid. Medical aids are like cars, the smaller and cheaper the car, the less “gadgets” or “add-ons” are available. So when paying R300 per month for a medical aid, you cannot expect to get the same benefits as a person that pays R3000 per month for a medical aid.
In saying the above I need to also explain that there’s benefits that schemes are obliged to pay even if you are on the cheapest option available. These benefits are called “Prescribed Minimum Benefits” , the there’s currently 270 of these and they are listed on the Council for Medical Schemes website: www.medicalschemes.comShould you want me to discuss these in detail, I am quite happy to do so.
Let’s now talk about the various types of medical aids available. In general there’s Open Schemes and Closed Schemes.
Closed Schemes are schemes where membership is available to only certain members. Ie Sasolmed – only Sasol Employees can belong to Sasolmed.
Open schemes are schemes where membership is open to anyone that applies. Contributions can only take into account the option on the scheme selected, family size, income (this is not applicable on all medical schemes). One other factor that may affect your premium would be the “Late Joiner Penalty”, this only applies to people who have not been on medicals schemes for long periods of time.
I believe that it’s a necessity as care in public facilities are not what its meant to be due to shortage of skilled staff, facilities not well looked after etc. Hence the whole debate around NHI (National Health Insurance)
When selecting a medical scheme there’s some important factors that need to be taken into consideration.
• Solvency level of scheme
• Claims paying ability of scheme
• Average increases over last 5 years
What if you get in a car accident? Do you want to lie in a long que waiting to be treated in a public facility? If cost an issue, join a hospital cover option to start off with, at least you’ll have full cover when hospitilised.
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