Wealth Perspective Q3 2022 | Quarterly Insight

The basics

Before providing a few key insights on South Africa’s core investment products, it is important to take note of a few basics:

If you have people that are dependent on you, risk cover is critical. This includes both death and disability cover. Disability cover should extend to a product that provides a regular income if you are not able to work due to disability.
It is also important to have a will in place. This will make your dependants’ lives significantly easier. In particular, it makes the process of winding up of your estate easier, speeding up the process to get your assets transferred to your dependants and loved ones. However, estate planning can be complex, especially when it comes to tax considerations and nominating minor children as beneficiaries. It is therefore important to consult a financial adviser to help you arrange your affairs.
Setting up a trust may be a useful way to create tax and estate efficiencies in leaving a legacy for your dependants.

The diverse South African product set – helping you to create a financial legacy

The sooner you start planning your financial future, the better. The table below highlights the key features of the core South African financial products to help you make more informed product choices.

	Key features that drive choices
Retirement annuities (RAs), preservation funds and employer retirement funds	Saving for retirement is essential in creating a financial legacy. This may be difficult to appreciate early in one’s retirement savings journey, but retirement fund products (e.g. the PSG Wealth Retirement Annuity and PSG Wealth Preservation Fund) are an essential component in helping you achieve financial freedom in the long run. The most important aspect of these products to be understood is that it is crucial to start making contributions as early as possible. Contributions to these products are tax deductible and all the investment returns on these products are also tax exempt. Access to capital in these products is limited, which makes them effective products for preserving capital. Tip: Growth assets are often the most suitable underlying investments in these products.
Tax-free savings accounts (TFSAs)	TFSAs, such as the PSG Wealth Tax Free Investment Plan (TFIP), provide additional flexibility in terms of investment options and access (compared with RAs and preservation funds). The amount you can invest in these products is subject to contribution limits of R36 000 a year and R500 000 over your lifetime. TFSAs can be used to supplement retirement savings, or provide efficient tax-free investment for other purposes, including saving for education or unforeseen events.
Endowments	Endowments facilitate tax-efficient investing for individuals who fall into a marginal tax bracket in excess of 30%. This is because the tax rate on investment returns is effectively 30% for individuals investing in endowments. Reminder: Your ability to access all your endowment savings is limited in the first five years.
Discretionary investments (unit trusts and share portfolio investments)	Discretionary investments do not carry any built-in estate or tax benefits. However, they are useful as an additional savings vehicle and offer significant flexibility in terms of access to your investments. You may want to consider opening a unit trust savings account for your children. This is especially useful if you have specific savings goals in mind for them – for example, saving for their university tuition. Share portfolios are generally better suited for larger investment amounts (in excess of R1m) in order to achieve a reasonable level of diversification within your portfolio.
Living annuities	Living annuities, such as the PSG Wealth Equity Linked Living Annuity (ELLA), are designed to provide an ongoing income in retirement. The benefits of living annuities are generally optimised by having a financial adviser to help manage fund allocations and withdrawal rates on an ongoing basis. It is very important to control annual income withdrawals from these products. Withdrawing too much can rapidly deplete capital over time. Tip: With the increase in longevity risk resulting from a longer life expectancy, it is important to consider continued investment in growth assets within your living annuity.

The choice of underlying investments to be used with the products

Apart from selecting the product type as indicated above, it will also be necessary to choose underlying investments that are suited to the goals and time horizons for your investment. For example, if you are saving for your retirement, then growth assets are likely to be more appropriate, as you have a longer investment time horizon.

Given that the South African market offers hundreds of unit trust funds, the choice can be daunting.

At PSG Wealth, we make it simple for you by offering a robust product and service offering. In particular, PSG Wealth offers investment funds that can be tailored to each product listed in the table above. Both these sets of solutions provide consistent performance while meeting your savings goals across the life-cycle savings spectrum. A brief overview of PSG Wealth’s two core sets of investment funds is shown below:

Quarterly Insight

Creating a heritage

The diversity of products and funds offered in South Africa can be used to your benefit in creating a heritage of financial prosperity. The PSG Wealth suite of products and funds aims to make the journey simple and consistently rewarding. When selecting a product, drawing up a will or getting clarity on tax implications, it is important that you speak to a financial adviser who can assist you with your unique circumstances.

05

Using the diversity of financial products to create a financial legacy