IOL Personal Finance -​ 3rd Quarter 202​1

FEMALE INVESTORS

ARE THEY TOO CAUTIOUS?

TYING THE KNOT FINANCIALLY TAXES ON CRYPTO

ESG INVESTING GOES MAINSTREAM

COVER STORY

Why aren’t women more active investors?

Women’s penchant for lower-risk investments may put them at a higher risk of poverty in their old age. 8

FEATURES

13 Head over heart Money issues to consider when making a romantic commitment.

18 Investment analyst’s expertise put to good use at NMG

Raazia Ganie is head of investments at NMG Benefits.

20

38 Is credit life cover weighted against you?

Thousands of people don’t even know they have this cover.

41 The value of a healthcare adviser

Past winning strategies may no longer apply.

42 The F-word

The three main categories of investment fees explained.

44 The cost of focusing only on costs

While costs are important, they “should not override other factors”.

46 Is inheritance tax an answer to inequality? This may be fairer than upping income taxes, finds the OECD.

48 Izibizo: is the tradition becoming extortion?

Customary African marriage practice “is being abused”.

REGULARS

2 Upfront Men, women and risk

4 Book review Books on financial topics

6 Your letters Readers’ queries answered by experts

49 Millennial view Black Tax can be rewarding if planned for

50 Ombud case file

Insurance, advice and retirement fund disputes

52 Fund focus Aylett Balanced Prescient Fund

54 On the contrary

There is no such thing as straight-line investing

DATABANK

55 A list of the adjudicators and the ombuds who can assist you with your complaints, followed by the unit trust quarterly results, tax rates and annuity rates

MARTIN HESSE

MEN, WOMEN AND RISK

The release of this publication coincides with Women’s Month, and it contains three articles focusing on women: the cover story on women investors; one on how different arrangements between partners, within and outside of marriage, can result in different financial outcomes; and a profile of Raazia Ganie, one of the increasing number of women in senior positions in the financial sector.

It’s a well-established fact that men take more risks than women; hence they pay higher car insurance premiums. However, one area where women could try to behave a little more like their male counterparts is in long-term investing. Here it is beneficial to take on more risk, by investing in growth assets such as equities, instead of “staying safe” in cash. This is because investment risk, in the form of market volatility, while high in the short-term, diminishes over time, in the same way that the numbers of heads and tails you get on flipping a coin even out to 50-50 the more flips you do. Advantageously, this approach produces returns likely to beat inflation by a significant margin, unlike investing in cash, which one adviser recently nominated the “highest-risk” investment owing to its inability to produce a decent real (after-inflation) return.

Women needn’t act completely contrary to their nature and take irresponsible risks, such as short-term bets on crypto or forex, but they can improve their investment outcomes by acting a little less cautiously when it comes to saving for their retirement. Enjoy the feature on page 8.

Many women are still very reliant on their partners for their financial security, a fact taken up in the article “Head over heart” on page 13. But the type of financial arrangement you have with your partner is dependent on whether you are married or not, and, if you are, the type of marital regime you are married under. Unpleasant as it may seem, you need to know where you will stand in the case of the death of your partner or divorce.

Other edifying reads in this edition include a look at taxes on cryptocurrencies, prospects for sub-Saharan Africa as it struggles to emerge from the pandemic, and an update on ESG investing: for those new to the term, it means investing taking environmental, social and governance criteria into consideration.

VOLUME 88

3rd QUARTER 2021

An Independent Media (Pty) Ltd publication

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ANA Publishing CEO

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All products appearing in Personal Finance are available and all prices are correct at time of print, subject to change.

TWO MOTIVATIONAL WOMEN ON WORK AND LIFE

Future-proof Yourself – How to Win at Work and Life

Author: Nikki Bush

Publisher: Penguin Books

Recommended retail price: R210.00

Nikki Bush is a popular speaker, author and media personality, specialising in parenting and personal empowerment. She has written a number of books, including Future-proof Your Child for the 2020s and Beyond.

The theme of her latest book is disruption, and it couldn’t have come at a better time. The Covid-19 pandemic has given us all a major lesson in disruption. The ways the pandemic has changed our lives, and how best to deal with these changes, form the heart of her book.

Bush herself had to cope with severe disruption in her life back in December 2017, when Simon, her husband of 26 years and father of their two teenage boys, Ryan and Matthew, was shot and killed in an armed robbery at their home in Sandton.

We tend to think of disruption as something temporary and that, in the end, life will “go back to normal”. This is particularly so regarding our thoughts about the pandemic. But Bush says we cannot afford to think that way if we want to move forward.

“When things change dramatically, they rarely, if ever, go back to ‘normal’. Disruption demands that we let go of the past and step into a new way of being,” she says. “Coping with disruption demands flexibility, adaptability and resilience. Resisting change is fruitless and leads to distress, fear and frustration.”

The book looks at ways of dealing with disruption, both from within (harnessing your feelings and developing a positive attitude) and externally in practicalities such as working from home and dealing with children.

Disruption brings changes that we have no control over, but if we’re adaptable and retain a positive mindset, we can focus on what we do have control over to build a fulfilling future.

Mind Your Own Business

Author: Nevi Letcher

Publisher: Nevi Letcher

Recommended retail price: R299

Nevi Letcher runs a vibrant marketing and events company in Johannesburg. Her experiences as an entrepreneur after leaving the corporate world are distilled into a valuable handbook for aspiring entrepreneurs and business owners.

The journey of an entrepreneur is not an easy one. It means being a “risk-taker, visionary, leader, pitbull and superhero all rolled into one”. Business school cannot teach you what you can learn only from hard experience or from the wisdom of people who have themselves followed that road.

Letcher’s book is both practical and inspiring. She offers 12 lessons for entrepreneurs which, like Bush’s book above, cover both the internal (your inner feelings, attitudes and drives) and the external (your relationships with others). Also, like Bush, Letcher specifically deals with challenges wrought by the pandemic.

There are no short-cuts: to be a successful business owner takes hard work, resilience and a willingness to learn from your mistakes. “When starting out, many entrepreneurs will come to the realisation that they do not yet have every talent and skill to make their business a roaring success. You will get there simply by putting in the work to acquire the skills you need.”

YOUR LETTERS

EMPLOYEE BENEFITS FOR MY STAFF

I’m a small business owner with 10 employees. At what point do I need to get a plan in place for my employees? I’d like to consider offering them benefits such as medical and retirement provisions, but I am not sure where to begin.

Name withheld

John Cranke, principal at PSG Wealth Employee Benefits, Midlands, responds:

There is no legal requirement for businesses to have retirement fund or healthcare cover in place for employees. However, there are many reasons why it is a good idea to have these sooner than later. Offering benefits of this nature through the employer group immediately makes a company an “employer of choice” owing to the financial protection and peace-of-mind offered.

From a retirement fund perspective, there are significant tax benefits to be had – ranging from the contributions made, through to the tax-free investment returns and favourable tax treatment of the benefits ultimately paid to employees leaving the retirement fund. To reap the benefits of the compounding effect, contributions need to start as early as possible. In addition, group risk benefits are often significantly cheaper than buying the same cover on an individual basis. Moreover, modern day administration systems have the flexibility to allow one to offer investments and/or benefits that are attractive to different profiles of employees in the same arrangement.

My recommendation for a small start-up retirement arrangement would be for the fund to be implemented with minimal risk benefits and retirement contributions at the outset, to which annual adjustments can be made over an agreed period until the benefits and contributions reach the predefined levels.

From a healthcare cover perspective, medical schemes may not differentiate the premiums on any basis other than family size, options selected and income of the member. It might be difficult to negotiate for a group of 10, but depending on the age profile of the group, it could be possible to negotiate an underwriting waiver for the group – which means that any waiting periods and late joiner penalties for employees would be waived.

Importantly, the tax credits in respect of medical scheme contributions paid via payroll deductions often almost entirely offset the

portion paid by employees participating in options that base contributions on the income of the member/s (also on the assumption that the employer will subsidise a portion of the required contribution). If medical scheme contributions are unaffordable to lower-income employees, consideration can be given to making a primary healthcare product available, which affords policyholders the opportunity to obtain their healthcare services for day-to-day needs in a private healthcare setting.

I would strongly recommend appointing an experienced and accredited adviser to help you through the quote, selection and implementation process.

BUSINESS INSURANCE NEEDED?

I started an online business from my home. As I don’t have a business premises or intend to get one, do I need business insurance?

Name withheld

Bertus Visser, chief executive of distribution at PSG Insure, responds:

Online businesses and those with a physical address face many risks requiring insurance, especially business interruption. Cybercriminals are quick to exploit any opportunities or vulnerabilities making cyber security and insurance critical to the arsenal of any business, or individual interacting online.

Cyber safety must be constant; having virus protection doesn’t mean you should click on something risky. Like you would lock your car every day, you need to lock your data away safely too. Often a secure data back-up and online virus protection are key elements to keep insurance cover in place. A breach could impact your bottom line and stop you from operating, so insurance can be a lifeline.

Do all you can to deter criminals from targeting your business. Just because you are new and perhaps still small, doesn’t mean you aren’t a target; your clients could potentially be of interest to criminals. If you are online, you are exposed, so rather get some advice tailored to your business to properly protect it.

Note: These letters are selected from “Your Questions Answered”, a monthly letters feature in Personal Finance in the Saturday newspapers, sponsored by PSG Wealth.

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WHY AREN’T WOMEN MORE ACTIVE INVESTORS?

If they’re saving at all, women tend to gravitate towards “safer” financial products, such as savings accounts, rather than investing in the stock market. But in the long run, what seems safe may put them at risk of poverty in old age.

By Anna Rich

W“omen are less financially literate than men.” That’s the opening statement of Fearless Woman: Financial Literacy and Stock Market Participation, a research

paper released by the Global Financial Literacy Excellence Center earlier this year. The lack of financial literacy means that, to a greater extent than is the case with men, women don’t know what they need to know to make informed financial decisions.

But the researchers noticed another trend when they were assessing the data: women tended to choose the “do not know” option to questions designed to measure financial knowledge far more often than men did.

Don’t

know, or think you don’t know?

Following from that observation, the researchers wondered whether women really lacked the knowledge, or whether the issue was confidence. They decided to dig deeper, removing the “do not know” option from a subsequent round of research, which meant that the respondents were forced to answer. The result of this experiment? When the “do not know” option was unavailable, women often chose correctly. The researchers determined that a third of the financial literacy gender gap could be explained by “women’s lower confidence levels”. The “fearless woman” of the title of the paper is what the authors hope for, rather than a reality.

Why it matters

Knowing the precise reason for lower levels of financial literacy can help tailor the approach taken to improve the situation: the researchers recommend financial educational programmes that are designed to boost women’s confidence, because a one-size-fits-all approach is not effective enough.

The outcome of women’s lower financial literacy levels, though, is that they don’t invest their money to the same extent as men do. Research has established that financial knowledge and confidence are both important prerequisites for getting involved in the stock market.

Participation in the stock market is important, say the study authors, because it results in a large difference in wealth in the long term, compared to saving in riskfree assets.

“The reason we invest is because we want higher returns than we would get in a money market fund, or a bank deposit, where we’d be getting a set interest rate,” explains Anthea Gardner, founder and managing partner at Cartesian Capital asset management, and author of Make Your Money Work For You: Think Big, Start Small.

An investment pot accumulated over time provides us with an income when we no longer earn a salary. “We need returns that are above inflation to retire comfortably,” says Gardner.

Bringing it home

As is the case elsewhere in the world, South African women lag in terms of stock market participation. “Men are twice as likely as women to invest in shares, ETFs, cryptocurrencies and offshore – and 50% more likely to have unit trusts,” says Brandon de Kock, director of storytelling for BrandMapp. This was one of the findings in the annual BrandMapp survey, a large, independent study of economically active South African adults.

These results are mirrored in other surveys, such as the 2020 10X Retirement Reality Report: 44% of women don’t save or invest, and 53% say they don’t have a retirement savings plan. Only 13% of women said they invested their money for growth, compared with 22% of men.

The following commentary from the 10X report paints a bleak picture for all, irrespective of gender: “A frightening number of people have not formally planned how they will fund their

retirement. Of those who have, most don’t know whether or not they are on track to meet their goal to be able to support themselves in retirement, never mind in any comfort.” But as the report also points out, women tend to live longer than men do, which exacerbates the inadequacy of their retirement funding.

EasyEquities online investment platform keeps track of the gender split across their investment products. The pattern of lower levels of investment by women is reflected in their metrics too: of their almost 450 000 investors, 40.18% are female, and 59.82% are male.

The fear factor

Further metrics in the 10X report showed that women are a little more likely than men to be cash savers: 32% of female respondents said they saved money, compared with 28% of male respondents. BrandMapp also saw greater uptake of savings products among women. While this might sound positive, savings do not generate the necessary inflation-beating returns mentioned by Gardner.

On self-perceived attitudes to risk, the survey showed that women are far more risk averse when it comes to finances.

Behavioural research echoes this. “In our research, we found that females were more likely to be part of the ‘avoider’ archetype, which means that they invest in relatively safe assets and show far less engagement with their portfolios,” says Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments. “This was in stark contrast to the ‘assertive’ archetype, which is predominantly younger and male.”

But the tide is turning. “Women are taking up investing and we have moved the needle on this a lot over recent years,” says EasyEquities chief executive Charles Savage.

Gardner has also noticed increased participation in the stock market among women. A high proportion of her clients are female, and she says they are not afraid of taking risk. “My clients want to earn the returns, and to earn the returns, they understand that they need to take

risk. But I suspect that they are among the minority of women who have taken control of their finances.”

As for the rest, Gardner does not mince words: “It’s an absolute must for women to take their heads out of the sand. They need to take control of their own financial situation.”

Understanding risk

Returning to the idea of risk, she adds that understanding it is crucial. Risk is a personal issue in that markets go through cycles, and there is the risk that you may need to disinvest your money at a time when the market is down, Gardner explains. “Over the long term, equities have outperformed any other asset class. But if you had a sum of money invested at the beginning of March 2020, then needed to withdraw it on 24 March 2020, you would have crystallised a 30% loss. If you had waited a few months, you would have made back the sharp drop in the

local stock market in those few weeks, and if you’d waited a year from the beginning of March, you would have made a positive return on your investment.”

Age is another facet of risk. Pension funds take age into consideration, says Gardner. “The closer you get to retirement, the less risky assets they put you in, and when they say less risky, they mean less volatile, which often equates to lower returns. When you’re younger, if there is a crisis and the market falls, you can comfortably sit out the volatility, but if you are close to retirement and do not have sufficient funds, you may have to consider staying in the more volatile asset classes to make up for the lack of initial funding of your investment – a decision based on personal risk and return expectations, which requires everyone to educate themselves.”

But there’s another key point: the need to diversify. “Diversification is a risk mitigation strategy; you’re making

sure you don’t have all your eggs in one basket,” says Gardner. “Never have all your money in one asset class or geography.”

Incomes that don’t stretch to investments?

The gender pay gap – the average difference in pay between men and women in the workforce – is welldocumented globally. StatsSA’s Inequality Trends report, released in 2020, stated that “Female workers earn approximately 30% less, on average, than male workers.” There are many reasons for this pay gap, including the differences in the types of jobs chosen, hours worked, levels of education, and experience, but the gap often persists even when men and women do work of equal value.

For Gardner, lower earnings cannot be held up as an excuse for not investing.

“I get that we earn 30% less than men, and I know that for households on the breadline it’s hard to put away R100, but the risk of not doing it is too great.

“EasyEquities are game changers here. By designing a product that allows people to invest small amounts, they are making investing accessible,” she points out. In fact, you can invest as little as R10 or less – there are no minimums.

The option of outsourcing financial health

“You must see a financial adviser,” says Gardner. “Go onto the Financial Planning Institute (FPI) website to find a Certified Financial Planner (CFP).” But she adds this rider: “...if you can find one who will talk to you”.

Financial advisers use various remuneration models: some charge a set fee, either for their time at an hourly rate, or for a particular activity; some charge a monthly or annual retainer that covers all tasks done, regardless of the time they take; some work on an assetbased consulting fee, where on-going advice and maintenance is provided on a percentage of a client’s assets; and some work on commission.

“If you can find one who will talk to you”? By this, Gardner is referring to

the assets under advice remuneration model. “Some financial advisers charge a percentage of the client’s investments,” she explains. “If you invest R100 and your adviser charges 1%, they’re getting R1 for their services. It’s a simple commercial calculation: they are more likely to work with the person who is going to invest a million rand because 1% of a million rand generates R10 000 in income for the adviser, whereas with the person who invests R100 000 it is only R1 000.”

Bitter experience

Gardner raises the issue of jargon. “People want to invest their money with the smartest person they can find. And how do asset managers prove to you, the retail investor, that they’re the smartest asset manager in town? They speak a language that is above and beyond most people’s comprehension, using terms like ‘price-earnings ratios’, ‘internal rates of return’ and ‘EV to EBITDA valuations’. That just scares half the people away, which is a shame (and partly the reason I wrote a book – to make people more comfortable with the world of investing).”

There’s jargon, and then there’s being patronised. “Women who responded to a US survey said that financial services providers talk down to them, and are full of jargon,” says Nixon, citing a publication by Meir Statman, a professor of finance in the US, for the CFA Institute Research Foundation. “Financial advisers are predominantly male and look to the male in the relationship to make the decision, which leads to disengagement in women,” he adds.

Local anecdotal experience bears this out. “I’ve been told by several women who have gone with their husbands to male financial advisers that the adviser talks mostly to the man and talks down to her, as if she doesn’t know what’s going on,” says Gardner. “When that happens to independent, strong-minded women, they won’t deal with that financial adviser.”

For Janet Hugo, a CFP and director at Sterling Private Clients, the issue of being “talked down to” has personal

resonance. “This is the very reason I chose to complete the postgraduate and advanced postgraduate qualifications in financial planning; my husband’s financial planner couldn’t explain things to me and I felt like my concerns were being dismissed.”

Solving the problem

Hugo stresses the importance of finding the right financial adviser for you. “It’s the adviser’s job to interpret the complexity of investments and tax so that you can understand it,” she says. “Interview financial advisers until you find one you connect with, as that person is going to be the financial director in your life. They’re not going to be the CEO – you are – because you make the final decisions, but you need to be fully informed by them.”

Being fully informed comes at a price, Hugo notes. An hourly rate might be the most cost effective, but not everyone can afford this out-of-pocket expense. She charges an hourly rate, but finds that few people are happy with this payment structure – besides professionals such as lawyers and doctors who work on hourly rates themselves.

Though Hugo has never sold products for commission, she says this could be an option if you can’t afford fees, as you still benefit from financial advice this way. “Don’t use fees as an excuse for not making an effort to get a retirement plan,” she adds.

“Rather than measuring the gender divide in investing, the focus should be on the numbers of female versus male financial advisers,” Gardner suggests. “Male domination of the industry is one of the barriers to entry for female investors. I can only hope that there will be more female role models so that women can go, ‘Oh, hang on, the stock market isn’t just for men,’ because that’s the way it looks at the moment.”

As greater numbers of women become involved in financial planning and occupy more leadership roles across the financial services industry, this will make a big difference, says Nixon.

The proportion of female financial advisers registered with the Financial Planning Institute is currently 34%.

But even though the zeitgeist is changing, South Africa is still a very patriarchal society, says Nixon. Having more women in financial planning won’t help if women themselves believe that finances are the domain of males, he notes. Gardner concurs: “There is an ingrained societal norm that men will provide, and until that changes, financial behaviour won’t change either.”

Hugo urges women in relationships to be involved in financial decision-making, rather than risking a hard wake up call down the line.

Other options

Gardner says EasyEquities has intermediated the financial services and asset management industry by enabling people to invest directly. The platform provides information about

investing, with the option of opening a demo account to build confidence. Easy Equities pegs their costs at 64 cents per R100 invested.

Another financial institution that provides an accessible solution is Momentum, through its Velocity Club: six-month subscriptions at R99 a month to “Get financially healthy” or at R199 a month to “Get wealthy”. These include interactions with a personal relationship consultant. How often, though? “At the start, the client and relationship consultant agree on the frequency and medium for their check-ins,” explains Andiswa Gqwaru, client success lead at Momentum. “The frequency depends on the client’s money challenges and goals. The minimum is once a month, and the client is able to contact the consultant at any time if they have a specific need.”

The consultants and financial planners are salaried employees and do not earn commission, says Gqwaru. The financial

plans do not necessarily include product recommendations, but if they do, and the client takes up any of them, Velocity Club earns commission.

First steps

“Just start,” Savage urges. “And the sooner the better, because time is the investor’s greatest asset, not which shares you buy. The later you leave it, the harder it becomes to win capital back from consumption. The best investors develop investing habits first and what’s left over after investing is for consumption ‘fixes’.”

“Don’t let your fear of making a mistake stop you from taking the first step in the journey,” says Hugo. “Yes, you can optimise by looking tax efficiency, but even if you start with a ‘vanilla’ balanced fund with a long investment horizon, it’s better than doing nothing. The first step is saving something. So is it going to be the new shoes or the savings plan?”

HEAD OVER HEART

Choosing to share your life with someone could be the most important financial decision of your life – especially if you are a woman. Whether you marry or not, don’t embark on a committed relationship without considering the long-term implications of merging love and money.

By Roz Wrottesley

Whatever cocktail of emotions drives a couple to make a lifelong commitment to each other, optimism is an essential ingredient, not least when it comes to money.

Yet, for all the benefits of togetherness, from shared costs to tax breaks, it is indisputable that women tend to be the losers when plans and expectations derail, and are more likely to face a financial crisis after the departure or death of a life partner – whether they are married or not. If there’s anything we have learnt from 18 months of the global pandemic, it is that life can change very suddenly in ways that are inconceivable in the good

times. Women’s Month 2021 has the important theme of gender equality, but it might be even more relevant in this moment to focus on preparing for the unexpected.

Even in the normal scheme of things, there is more at stake financially for women than men in lifelong relationships. For men, the priority is to work and earn well for as long as it takes. The focus is on maximising skills and opportunities and providing options for the family. As long as they succeed financially by the prevailing standards, it’s job done for men.

For women it is rarely that simple. Inequality is still baked into the world of work (see “The gender pay gap”,

well aware from the start that work might be interrupted, limited, or cut short by child-bearing and/or other family responsibilities. We are the compromisers and that can leave us dependent on our partners and on chance in an uncertain world.

So don’t take money for granted in the security of a committed relationship. There are many things to think about, starting with the status of the relationship: marriage or cohabitation?

If marriage, which regime should you go for?

MARITAL REGIMES

Lianne Lutz, a registered financial planner and founder of Women’s Wealth in Johannesburg (womenswealth.co.za ), outlines the main features of the three options that are open to you:

1. In community of property

• There is no contract; it is the default mode.

• You share all assets and liabilities. This includes debt, so if your spouse-to-be has a lot of debt when you marry, or accumulates debt later, you are equally responsible for it.

• Similarly, the insolvency of one means the insolvency of both. Neither party has protection against the misfortunes of

their spouses.

• On the plus side, it provides equality. The parties are entitled to an equal share of the joint estate throughout the marriage, as well as in the event of divorce, and they have the same powers over the administration of the estate.

2. Out of community of property without accrual

You sign an antenuptial contract (antenuptial contract) before you marry, to ensure that your estates remain entirely separate. It’s a case of each to his/her own, both in marriage and in the event of divorce.

• You declare your assets before marriage and whatever you acquire after that is your own, whatever the source: earnings, investment returns, inheritance, gifts, and so on. There is no obligation on either party to share their assets, or to take responsibility for the debt or insolvency of the other.

• Since the accumulation of wealth by one partner does not affect the estate of the other, the process of getting divorced may be quicker and less costly.

• On the negative side, an antenuptial contract may be used to protect the assets of one spouse from the other from the start. A woman without financial means of her own might sign up because she supports financial independence, without realising that it leaves her without protection if her ability to work and earn is compromised

by circumstances in future.

• Spouses whose contribution to the prosperity of the partnership is unpaid (usually, but not always, women) need to ensure that they are remunerated appropriately during the marriage.

3. Out of community of property with accrual

This regime retains the separation of estates at the time of marriage, but recognises couples as equal partners during the course of the marriage by splitting any growth in assets equally. It is widely accepted as the fairest form of marriage and applies automatically if an antenuptial contract does not specifically exclude accrual.

• The estates of the marriage partners are valued before marriage and again in the event of divorce. Each partner retains his/her original estate, but the assets acquired during the marriage are divided equally. A few assets may be excluded from the accrual calculation: anything inherited, any assets that are specifically excluded in the terms of the antenuptial contract, and any gifts or donations exchanged between the partners.

• It’s important to note that the accrual system does not apply to debt. This protects the parties as intended by the antenuptial contract, but it does mean that it may be more difficult for the spouse with less financial power to obtain credit during the marriage.

Spousal support

Whatever the marital regime, being legally married in South Africa creates what is known as a “reciprocal duty of support”. This means that each spouse has a duty to provide for the other when it comes to accommodation, clothing, food, healthcare and other necessities.

The no-marriage option

If marriage is not part of your plans, you need to understand fully the long-term implications of living together, more formally known as cohabitation. Sue Torr, a lawyer and managing director of the financial planning firm Crue Invest in Cape Town, says many couples refer to themselves as “common-law spouses”, but this is misleading. “The fact is that no legal status is conferred on couples who choose to live together without getting married,” she says.

One important consequence of this is that unmarried couples have no duty of spousal support, so a partner who becomes unemployed, disabled, ill, or unable to generate an income for any reason, is in a precarious position. In the absence of the most fundamental duty/ right that marriage bestows on couples, it is vital to know where you stand in relation to the following critical financial matters:

SHARED FINANCES Healthcare

The Medical Schemes Act recognises the person you live with as a dependant and you are permitted to add them to your medical aid and gap cover policies as an adult dependant. Similarly, regardless of your marital status, your minor children (from the existing relationship or a previous one) can be added as child dependants on your policies.

Retirement funds

It is important to understand your rights fully in this highly regulated area.

• Beneficiaries. Like any married couple, you and your partner are entitled to

nominate each other as beneficiaries of your respective retirement funds, but don’t expect your nominations to be binding on the funds’ trustees. The Pension Fund Act requires trustees to take into account everyone who is financially dependent in any way on the deceased member and distribute the benefits accordingly. Financial dependants can include minor children, a child from a previous relationship, elderly parents … even a sibling who has received support from the deceased before. Dependants always take precedence over non-dependent beneficiaries.

• Claims on pension fund interest on divorce. In respect of pension, provident and preservation funds, the “pension interest” refers to the total benefit the member would have been entitled to if he or she had resigned their membership on the date of the divorce. In respect of retirement annuities, the pension interest is the total amount of the member’s contributions up to the date of divorce plus simple interest at the prescribed rate. The right to claim a share of a member spouse’s pension interest when a relationship comes to an end is strictly limited to couples who are legally married, leaving unmarried partners high and dry. This is particularly unfair if the non-member partner has been a stay-at-home parent, while the working partner has been in a position to invest in his/her employer’s retirement fund.

Tax

From a tax perspective, cohabiting couples enjoy the same status as married couples. In terms of the Income Tax Act, a spouse

includes a same-sex or heterosexual union which the South African Revenue Service (SARS) is satisfied is intended to be permanent. In the absence of any proof to the contrary, couples living together in a long-term partnership are deemed to be in a union without community of property. Consequently, the following important tax breaks apply:

• Donations tax: The broader definition of “spouse” in terms of the Income Tax Act means that donations between cohabitants are not subject to donations tax.

• Transfer duty: Anyone who inherits immoveable property is exempt from paying transfer duty on that property, and this includes cohabiting couples. In other words, if your long-term partner bequeaths property to you, you will not need to pay transfer duty and the conveyancing fees will be paid from the deceased estate.

• Estate duty: The estate duty abatement of R3.5 million applies to cohabiting couples who fall within the definition of “spouse” in terms of the Estate Duty Act. This includes people in customary unions and samegender or heterosexual unions that SARS recognises as permanent.

Insurance

As a cohabiting couple, you are free to nominate each other as beneficiaries on your respective life policies. If you have been nominated on your partner’s policy

and he or she dies, the proceeds of the policy will be paid directly to you. If you fall within the definition of “spouse” for tax purposes, the proceeds of the policy will not be regarded as property in the deceased estate and will not be subject to estate duty.

Child support

When it comes to providing maintenance for children, our law does not take into consideration the marital status of the child’s parents. All parents – whether married or not – are responsible in terms of the Children’s Act for the maintenance of their children.

Maintenance

Bear in mind that a cohabiting partner has no legal claim for maintenance from the other partner, should the relationship end. While married couples can rely on the provisions of the Divorce Act when claiming maintenance following a divorce, no such remedy is available to life partners who decide to part ways. If you are a stay-at-home parent in a cohabiting relationship, this could leave you in a financially vulnerable position should your relationship come to an end.

Property

The ownership of property can

be particularly tricky in unmarried partnerships, since everything that is acquired belongs to the partner who acquired it. If you split up and your home is registered in your partner’s name, he or she has the right to evict you from the property. It is not uncommon for partners with no legal claim on a property to contribute to bond payments and the upkeep for years, and then struggle to prove it when the relationship breaks up.

Inheritance

Something that all cohabiting couples need to take into account is that they enjoy no right of inheritance should their life

The gender pay gap lives

In 2021, women are still more likely to earn less than men for the same work, according to several surveys undertaken in the last three years. Most recently, an article published in the University of Stellenbosch Business School’s Management Review, based on recent research, described South Africa as having “a stagnant median gender pay gap of between 23% and 35%”, compared to a global average of 20%. Women in the middle and upper wage bands are affected most, according to the research.

Two studies published in 2019 echo these numbers. Stats SA's November 2019 Inequality Trends in SA survey found that salaried women were earning 30% less than their male counterparts – a statistic that is all the more alarming when you consider that salaries account for at least 70% of all household income in this country.

Exactly two years ago, to mark Women’s Month, the online job portal Giraffe, which places medium-skilled workers in various service industries, analysed its database of nearly one million job candidates to make its own contribution to the pay inequality debate. It concluded that women earn, on average, 25% less than men in the same jobs and that the gap is widest between the ages of 36 and 44. It did not cover senior executive and highly skilled jobs, but it found that female managers earned 21% less than males.

The USB research identifies lack of transparency (euphemistically known as privacy) around the exploitation of women as the main obstacle to change, and it’s not too far-fetched to conclude that the same secrecy and silence trickles down to all levels of money management in society, including in the home.

partner die intestate (without a will). At the very least, ensure that you and your partner get professional help to draft and sign a cohabitation agreement addressing the risks that come with cohabitation. But above all, eliminate intestate succession by having valid wills.

LESSONS FROM THE FRONT LINE

Even financial advisers can be unprepared for life’s financial setbacks. Lutz was a pharmacist before her exposure to women’s financial struggles in the healthcare sector prompted her to retrain as a financial planner and start Women’s Wealth. A few years later, after 11 years of marriage, her 48-year-old husband died suddenly of an aneurism while they were on holiday.

“Even though I was so involved with women and their finances, there was so much that was not in place for me at that moment. It made the shock so much worse. I had no idea where to find important documents such as our marriage certificate, title deeds for our home, our birth certificates...

“It’s important to have your own bank account and savings, because bank accounts are frozen when someone dies – even joint accounts. Even if he had been incapacitated, I couldn’t have accessed his accounts because I didn’t have the passwords.

“Fortunately, he had a life policy, which paid out within a couple of weeks. That meant I didn’t have to wait for the estate to be wound up to get access to money. And luckily, his accountant had a copy of his will.

“It could have been even worse, but it made me so much more conscious of the need for independence in financial

matters. For a start, every woman should have a file containing the antenuptial contract (if applicable) and her partner’s legal documents, bank details, policy documents, will (certified copy), credit card details, ID (certified copy) and contact details for any accountant, lawyer and/or financial adviser she doesn’t know personally.”

Oprah Winfrey said: “A man is not a financial plan.” In those few words, she expressed what we all know: that women are too ready to delegate financial management to their partners. In her experience, says Lutz, women who don’t work, or work for relatively little money, often feel they have no right to a say in financial matters.

The truth is that spending and saving needs to reconcile the priorities of both parties. “Establish an open dialogue from the start, and acknowledge your strengths and weaknesses,” says Lutz. “It can be daunting to break through the privacy barrier, but it gets easier.”

Make sure you are included in some – if not all – meetings with financial planners, accountants and tax consultants. A financial planner once told me that it was not uncommon to have a male client for decades, through thick and thin, without meeting the spouse or partner. That meeting would take place at the worst possible time, when the relationship had ended in divorce or death.

“A genuinely caring partner might not want to burden you with money matters, but don’t allow yourself to opt out,” says Lutz. “Insist on knowing the incomings and outgoings on which your household depends.

“They are your finances, like it or not, and there is every chance that you will have to get involved one day.”

INVESTMENT ANALYST ' S EXPERTISE PUT TO GOOD USE AT NMG

aazia Ganie is head of investments at NMG Benefits, a specialist employee benefits firm. NMG Benefits, along with NMG Capital and NMG Consulting, are subsidiaries of the global NMG financial services group.

NMG Benefits provides a full set of solutions to meet the needs of employers, medical schemes, retirement funds, employees and retirees.

Can you provide some background on how you became interested in this area of finance, your qualifications and work experience?

To be honest, I fell into this career accidentally. I completed my BCom at UCT with the intent of becoming a Chartered Accountant. During one of the holidays, I did some vacation work and realised that the CA route was not for me. I started my first job at Old Mutual in what was then known as the Investment Business Unit. This was a dream job for someone fresh out of university. The work structures for graduates were not yet fully in place but a graduate intake was deemed necessary. The programme offered a very gradual introduction to the world of being gainfully employed. I learnt a lot from that first stint at a big corporate – politics, discrimination, and friendships among others. I later joined Fifth Quadrant (now Willis Towers Watson), which effectively launched my career in asset consulting. At the onset, I was very nervous, mainly because I had no idea what an actuarial consulting company does. Asset consulting is not a job you can google and get a firm definition of – information is limited (as was the use of Google back then). I seemed to have found my calling though.

After a few years, I decided to merge my career and social life by travelling abroad to broaden my experience. I was fortunate enough to work at a number of reputable consultancies in London and obtained the Chartered Financial Analyst (CFA) qualification under my belt as well. Eight years later I moved back to South Africa, spending the following 10 years at Alexander Forbes as a principal consultant. After familiarising myself with the local market, the exciting role at NMG became available. And the rest, as they say, is history...

Can you detail your role as head of investments at NMG, explaining the services your team provides within NMG Benefits?

NMG Benefits’ service lines include healthcare consulting, retirement fund consulting, retirement fund administration, actuarial services and retail. I am responsible for investments at NMG Benefits. My team works with pension, provident, and medical aid funds to design portfolios which will produce strong long-term returns with the lowest possible fees. Our clients are medium to large-sized employers and funds across South Africa and Namibia. We also offer the NMG Umbrella Fund for employers who want to outsource some of the governance functions of retirement benefits for their employees. The NMG Umbrella Fund is one of the top-performing umbrella funds over the long term.

Our day-to-day work includes research, portfolio modelling, assessing regulatory change, developing investment strategies, and working with clients to monitor progress. We cover markets to infrastructure and everything in-between. In monitoring global trends, we collaborate with our sister company, NMG Consulting, leveraging off their comprehensive research and insights into many of the world’s largest pension

funds. We come across both exciting opportunities for our clients to invest in, and traps which we help them avoid. It’s an exciting job, which is different every day.

We are a proudly South African and truly independent employee benefits consulting firm, offering our clients unbiased, strategic advice that delivers superior investment performance. This is aligned with our mission to give the best advice to every member.

Can you give readers some insights into leadership: how you motivate your team to outperform?

I joined a very driven team of talented youngsters and not-so-young-stars. I want to lead with integrity and by example. My aim for my team is to work with them to meet not only the company’s goals but also to bring out the best in each one of them. As they say, if we are all doing what we love, we won’t need to work a day in

our lives. My purpose is to create a structured environment that’s also conducive to growth and creativity. I aim to ensure that we are adequately resourced so that the team can have a well-adjusted work/life balance – but also to factor in time to be innovative and just be able to apply our minds well. I have an open door/teams policy and strongly encourage the team to discuss any concerns they have with me. NMG Benefits is highly supportive of employees in terms of personal growth, career development, support for related studies and providing leadership programmes for up and coming talent. Covid-19 has not been kind to team dynamics, but I am pleased to acknowledge that we have managed to maintain a good team spirit despite the difficulties.

Where do you see your company in the next five years, in terms of its provision of financial services and

its geographical footprint in Africa? NMG Benefits has the potential to be a disruptor within our industry and I am expecting that to come to fruition over the next 5 years. The Board are determined to see this coming true and have invested heavily in its success. The NMG Group is already global, but we aim to become a household name within the SADC region, having already made huge in-roads in Botswana

Do you have some advice for women who have an interest in a career in financial services?

Financial services has become a lot more diverse since the start of my career. I remember clearly attending in-person conferences and it was obvious when it was a finance related event because unlike most other large scale events, the gentlemen’s toilets always had a longer queue than the ladies. These days, companies have recognised that diversity adds to the depth and richness of a team, and women are welcomed and strongly encouraged to join the industry. We often also bring a different skillset and way of thinking – which is desirable within investments to add to the diversity in decision making and some may say in bringing a more risk-cognisant style. Companies have started rethinking their policies to accommodate mums and mums-to-be to have successful careers without having to be concerned about the adverse impacts of things like maternity leave. While these changes may be slow in some places, I am confident that they will happen. If you are drawn towards investments or finance, do not be swayed by the fact that the current individuals representing the industry may not look or think like you. Your alternative way of looking at the world may well be exactly what is needed. –Feature sponsored by NMG Benefits.

MIGAL VANAS PHOTOGRAPHY

COVID-19 PANDEMIC: SUB-SAHARAN AFRICA IS HEADING FOR DISASTER

healthcare and mortality statistics for countries north of South Africa

Tof the coronavirus around the world and low rates of vaccination have darkened the outlook for the world economy. Africa stands out as a sore thumb with a population of more than 1.4 billion people, of which about 1.1 billion live in Sub-Saharan Africa. Of these people about 800 million live in highly indebted poor countries (HIPCs). Most countries in Sub-Saharan Africa are in a desperate need to vaccinate their populations to stave off humanitarian and

At the time of writing, in July 2021, more than 23% of South Africa’s population of about 59 million had been tested, of which about 16% tested positive while more than 63 000 or 3% of those tested had succumbed to the virus. The South African Medical Research Council (SAMRC) estimate of the number of excess natural deaths since May last year was more than 182 000, thereby indicating that, given the known infection and death rates, up to 70% or more of

infected. The situation in the rest of SubSaharan Africa is dire, to say the least.

The total population of Sub-Saharan Africa, excluding South Africa, is about 1.08 billion while the population of countries for which detailed coronavirus statistics are available is about 977 million. As of July, a mere 2.4% of the 977 million had been tested since May last year. Of those, about 7.8% had tested positive and 2% of positive cases had succumbed to the virus.

Low testing rates

A grave concern is that countries with the largest populations in this part of the world have some of the lowest testing rates. Nigeria with a population of 206 million has a testing rate of 1.1%, Ethiopia (115 million people) 2.5%, Democratic Republic of Congo (90 million people) 0.1%, and Sudan (44 million people) 0.4%.

The low levels of testing in Sub-Saharan countries ex-South Africa can be ascribed to the individual countries’ medical facilities, as there is a distinct relationship between the number of hospital beds per thousand people and the testing rates: 57% of the all countries and two-thirds of the HIPCs have a bed capacity of less than one per thousand and a testing rate below 5% of the population. The populationweighted average bed capacity for the region is about 0.7 per thousand.

The infection rate in Sub-Saharan Africa ex-South Africa is therefore a lot higher than what the official numbers suggest. But how much worse, you may ask. A rise in mortality rates of people older than one year over a given period is probably an acceptable indication of excess deaths in a country. There are other causes or diseases apart from the coronavirus that contribute to a rise in mortality rates, but it could provide a clue to the actual coronavirus infection numbers.

The latest mortality rates of some of the selected largest countries compared with the rates in 2019 are quite revealing. If the growth in mortality rates is attributed to the coronavirus alone and compared to the official deaths as a result of the coronavirus since the outbreak of the pandemic last year, Nigeria’s death toll as a result of the coronavirus could be 14 times higher than normal and that of the Democratic Republic of Congo (DRC) 11 times higher. In Ethiopia and Uganda, it could be three times higher. In numbers, it means that

in these four countries alone the actual deaths due to the coronavirus could have been more than 60 000 compared to the reported 9 000.

In South Africa’s case, the excess deaths of 46 000 closely matched the official deaths of 64 000 caused by the coronavirus. If the current total deaths to confirmed case ratios are used it appears that the total infections in Sub-Saharan Africa excluding South Africa could be as high as more than 6 million confirmed cases.

In stark contrast to where South Africa managed to flatten the curve of total cases for several months after the first two waves of resurgence, the Sub-Saharan Africa’s curve ex-South Africa has been rising in a straight line. The curve can be attributed to the individual countries experiencing different stages in waves. Some are in a declining trend while others find themselves climbing new waves.

The DRC’s infection rate tends to lead South Africa’s rate while the trend in Nigeria’s rate coincided with South Africa’s trend in the first two waves. Ethiopia’s trend was countercyclical to South Africa’s.

Delta variant

World Health Organisation regional director for Africa, Dr Matshidiso Moeti, on 8 July said that “16 African countries are now in resurgence, with Malawi and Senegal added this week, and the Delta variant has been detected in 10 of these countries”. According to the Africa Centres for Disease Control and Prevention (CDC), Uganda, DRC, Namibia, Rwanda are some of the worst hit.

The outlook for some of the highly populated countries, such as Nigeria, Ethiopia and Sudan is not good, as they have escaped the third wave until now. But it appears that they are about to face it, as the dreaded Delta variant hit the ground in

Nigeria in the second week of July.

With less than one percent of SubSaharan Africa fully vaccinated, it is a race against time. “If we do not vaccinate at speed, our economy will continue to be damaged,” said John Nkengasong, director of the Africa CDC, quoted recently by Bloomberg. “You will see a fourth, fifth and sixth wave and it will be extremely difficult for us to survive as a people.”

The sense of urgency led to President Ramaphosa’s announcement of an agreement that will boost the delivery of Johnson & Johnson (J&J) vaccines to South Africa and the rest of Africa. The J&J vaccine requires only a single dose whereas other vaccines require two jabs to ensure full vaccination.

Of the 250 million doses scheduled for 2021, 30 million will be produced for use in South Africa and the rest for other countries on the continent. Another 250 million doses will be provided through 2022, mostly to other countries in Africa.

I am afraid that Sub-Saharan Africa will face severe economic hardship in coming quarters. Botswana, Equatorial Guinea, Eswatini, Mauritius, Namibia, Rwanda and South Africa are the best prepared to get their populations fully vaccinated in a relatively short time. That is due to their medical facilities based on the number of the populations tested and the number of hospital beds available per one thousand people. Among the said group only Rwanda is classified as a HIPC.

Due to long distances to travel to get vaccinated, the limited medical facilities and apparent shortage of qualified personnel, as witnessed in the lack of coronavirus testing, to administer the jabs leave little prospect of a significant proportion of other Sub-Saharan Africans to be vaccinated in coming quarters.

Hospitals will be overrun and deaths will mount.

Investment risk

Sub-Saharan Africa ex-South Africa is a poor territory. The population-weighted gross domestic product in relation to the number of inhabitants, or GDP per capita, is US$1 290 for the region. In HIPCs it is just over US$900, compared with just over US$5 000 in South Africa. Any delay or deferment of the resumption of economic growth due to a limited or phased-in rollout of the vaccine will severely affect the breadwinners in these countries.

At risk is foreign direct investment – one of the main pillars of current and future economic growth. The biggest prospect for growth in Africa in future is in the East and Central Africa region on the back of China’s One Belt One Road strategy and specifically the Maritime Silk Road, where three economic passages will be knitted together through a chain of sea ports from the South China Sea to Africa that will

direct trade to and from China.

The prevalence of the coronavirus and its variants will undoubtedly stall foreigners from investing in certain projects as they are scared off by internal political strife and the prevalence of the viruses.

The deterioration of household livelihoods is a possible breeding ground for adverse political environments, instability and terrorism. The World Bank’s political stability index (PSI) measures perceptions of the likelihood of political instability and/or politically-motivated violence, including terrorism.

On a scale of 0 to 100, where 100 is the least likelihood and 0 the most likelihood of instability or unrest, Sub-Sahara Africa ex-South Africa has a population-weighted PSI of 17. It means that the region has a significant likelihood of political instability. Any adverse movements in some parts of

the region are likely to push the number lower and have a negative impact on financial markets in that region.

At this stage, South Africa’s PSI score is 40 out of 100. But it is not to say that it will hold, given the current lawlessness and disrespect for the judiciary*.

So as things stand, Sub-Saharan Africa is in trouble. No one knows what the individual countries’ actual debts in relation to the underlying economies are. What we know is that the sub-continent is entering a J-curve. Things will deteriorate before they improve. The virus rules, OK?

Ryk de Klerk is analyst-at-large. Contact rdek@iafrica.com. He is not a registered financial advisor and the views expressed above are his own. *The article was written during the breakout of riots and destruction/ looting of property in KwaZulu-Natal and Gauteng.

ESG: THE TRIUMPH OF COMMON SENSE

Gareth Stokes compares investors’ growing interest in companies that score highly on environmental, social and governance criteria with the ‘irrational exuberance’ of their love affair with technology stocks and their attraction to higherrisk instruments such as cryptocurrencies

Environmental, social and governance (ESG) factors now rank alongside risk and return as key factors when making asset allocation decisions. The fervour with which global asset managers are throwing their weight behind impact and sustainable investment opportunities is not only evidenced by the massive inflows to ESG-focused equities, exchange traded funds and unit trusts in 2020/21, but by its naked display at most investment outlook roadshows over the past year or two. It would seem that ESG is the only emerging investment theme with the legs to keep pace with technology, and whereas ESG is grounded in common sense, the technology boom is showing signs of dizziness in an atmosphere of irrationality.

Growth stocks dominated equity market returns in the immediate recovery following the March 2020 pandemic crisis, driven by investors’ hunger for exposure to firms that could generate revenue in a remote work, stay-at-home environment. The result was that the US-listed FAANGs (Facebook,

Amazon, Apple, Netflix and Google) and Chinese technology darlings such as Alibaba and Tencent rewarded investors with stellar returns last year; despite having been on multi-year highs when Covid-19 first surfaced. There are strong arguments for the record high valuations placed on many of these companies, but some asset managers are concerned that technology-backed growth stocks cannot maintain this level of price exuberance indefinitely.

An Allan Gray and Orbis Investments update held in May this year revealed that US equities have never been dearer. A decade ago, the cheapest US-listed companies were trading at six times earnings and the most expensive at around 25 times; today, the cheapest firms are still stuck at six times, but the most expensive are at nearly 80 times! “We are seeing a disconnect between asset prices, on the one hand, and incomes, on the other … with the ratio of US equity market capitalisation to GDP at an all-

time high,” said Jacques Plaut, a portfolio manager at Allan Gray. He observed that commodity prices and house prices were increasing way faster than incomes in the US and most other developed markets too.

Irrational expectations

Investors’ trading behaviours in crypto assets, individual shares (think Game Stop) and SPACs (special-purpose acquisition companies) were held up as examples of how uninformed investors with too much cash are driving individual shares (and even entire asset classes) deep into bubble territory. Throughout 2020 and during the first half of this year, Ms and Mr America were throwing their pandemic support cheques at trading platforms like Coinbase and Robinhood in the hope of riding the next penny stock or cryptocurrency “to the moon”.

The cryptocurrency universe expanded to almost US$2 trillion, while GameStop, an obscure and struggling share, surged from less than US$20 to US$350 in a matter of two weeks. SPACs, a US equity market phenomenon described as “blank cheque companies”, raised nearly US$200 billion from investors in 2020 and were close to exceeding this amount by mid-May 2021. “Another danger sign is that, towards the end of last year, there was so much demand from retail investors to buy stocks and options that certain global brokerages could not cope,” said Plaut.

These opening paragraphs paint the irrational return expectations that retail investors are demanding from asset managers, with scant regard for such trivialities as asset allocation strategies or portfolio benchmarks. It also explains why asset managers are under increasing pressure to expand their investable asset universe to include crypto-assets such as cryptocurrencies and non-fungible tokens (NFTs).

Most are taking a cautious approach, constructing portfolios in line with their investment mandates, appropriately matching risk and return objectives. More importantly, asset managers are starting

to assess all investments, regardless of asset class, through an ESG lens. In South Africa, this ESG slant could see longerterm investor capital, most notably that in the retirement fund industry, shift away from listed companies towards opportunities in private markets (more on that later). It is worth noting that the focus on impact and sustainable investing is being driven from the ground up, by consumers.

The mortality shock of the pandemic, the growing realisation that climate change is “happening”, and renewed concerns about the impact of inequality and poverty on the global social construct have refocused ordinary consumers on the need to get maximum impact from their investments. And they in turn are pressuring asset managers, employers, financial advisers, institutional fund managers and retirement fund trustees to use their life savings to make a real difference.

ESG in practice

What does this emerging ESG focus mean and how does it play out in the investing and retirement saving environments?

In June this year, Sanlam Investments hosted a panel discussion under the banner: “Critical Conversations: The (South) Africa Investment Opportunity”. The debate centred on the role of the investment community in contributing to impactful and sustainable investing outcomes for South Africa and Africa. Andrew Johnstone, chief executive at Climate Fund Managers, suggested that the aim of investing activity had shifted from maximising dollar returns toward striking a balance between the usage and replenishment of the planet’s resources.

At the same event, Nersan Naidoo, chief executive of Sanlam Investments, noted that asset managers would always interrogate the expected financial returns from investments; the big change is that the impact of these investments is reaching parity in guiding decisions: “We have to start seeing the world through the dual lenses of financial return and positive impact.”

Private and listed equity Investment via private markets is seen as the only way Africa will make up the additional US$150 billion per annum in infrastructure investment needed for the continent to meet the SDGs by 2030.

Johnstone noted that infrastructure was essential for economic growth as it serves as an enabler of trade; offers a safe-haven for investor funding; and remains the best tool to manage and mitigate climate change and adapt to the consequences of it. He added that it would take coordinated efforts from asset allocators, businesses and retail investors – working in concert with government – to channel capital into the right opportunities.

The private sector will play a significant role in expediting these efforts.

“Businesses are influencers and decision makers in the allocation of capital,” said Andile Khumalo, chief executive of Khumalo Co, during the Critical Conversations debate. “What is the point of business if the money we allocate and decisions we make do not serve society?”

The panel agreed that a mass mobilisation of capital, spearheaded by private-public partnerships, was necessary to address the continent’s infrastructure investment shortcomings, with Johnstone chipping in that blended finance was probably the best way to augment small amounts of government capital with trillions in private market funds.

The ESG debate is slightly different in the South African listed company context. Commenting during an “Investing Green” presentation in June, Nigel Green, group personal account chief executive at deVere, observed that the growing focus on ESG factors in investment decision making could see ESG replace “Baby Boomers” as the main trend driving financial market returns. “There is a massive trend towards ESG investing and it is compounding,” said Green, pointing out that fund managers had seen a 20% increase in fund flows to ESG opportunities over the last 12 months.

These fund flows have been driven by consumer choice, government incentives to produce and consume “green” goods and services, and the achievement of

return parity between ESG and non-ESG funds. In the past, ESG investing resulted in a trade-off between conscience and return; nowadays investing with due concern for E, S and G factors is expected to deliver market returns or better. For asset managers, the ESG trend involves ensuring that clients can protect their capital and generate real returns, while simultaneously investing to achieve “net good” environmental and social outcomes.

ESG versus investing for impact

Is ESG an investment theme and should it be favoured for its investment merits or rather viewed as a form of capital philanthropy?

“The pursuit of delivering a world that can develop in a more sustainable way is a significant investment theme,” said John

Green, chief commercial officer at Ninety One. “And there are plenty of related sub-themes, such as decarbonisation or clean energy.” He was participating in an Asset Management CEO debate on day two of The Investment Forum, held in June this year.

But Magda Wierzycka, ex-joint chief executive of Sygnia Asset Management, cautioned that asset managers should draw a firm distinction between ESG and impact. “ESG is about marketing and presenting yourself as the most investable company … that is not going to be where the returns come from,” she said. Her belief is that a positive screening for ESG factors has little impact in isolation; rather, impact comes from allocating capital to firms that have the potential to change the world in areas such as agriculture, clean energy or healthcare provision.

So, while return remains paramount, it must be considered alongside environmental and social measures, such as reduced carbon emissions, infrastructure improvements and job creation, among others. This shift is seen as crucial for the world to achieve the United Nations’ 17 Sustainable Development Goals (SDGs) by 2030. Most SDGs hinge around impactful infrastructure investment, such as renewable energy to tackle carbon emissions (climate change) or transport projects to encourage economic growth or universities to improve education outcomes.

ESG strategies

How can individual investors make sure that the shares in their portfolios live up to the ESG, impact and sustainability hype?

Retail investors’ preference for ESGfriendly investment strategies has prompted a mad rush among asset managers to rank or rate companies listed on the world’s major bourses and to publish ESG ratings on their fund fact sheets. The likes of BlackRock and Schroders are leading the charge by appointing teams of internal analysts to develop and manage internal ESG

screening processes as well as guide portfolio managers on their ongoing interactions with company executives.

“Asset prices and portfolio risks do not yet fully reflect sustainability-related factors, [meaning that] market factors will accelerate the reallocation of capital toward issuers and assets with positive sustainability characteristics, in turn impacting valuations,” said Sophie Thurner, ESG product specialist for BlackRock’s iShares Sustainable Products. Thurner was commenting during a Glacier International investment outlook webinar in May.

Reasons for the industry’s renewed focus on environmental factors include the record damages from extreme weather events recorded in 2020, global regulation moving decisively towards a net-zero carbon emissions economy, and the downward pressure on renewable prices due to technology innovation. Asset managers are thus under pressure to provide investors with a variety of investment approaches that will resonate with the degree of sustainability investors want to achieve in their portfolios. These solutions are unquestionably easier to structure on the global stage.

Siboniso Nxumalo, portfolio manager at Old Mutual Investment Group, reflected on “ESG integration into listed equity analysis” in his presentation to The Investment Forum 2021. He pointed out that ESG ratings were important given the proportion of South Africa’s retirement funding assets that were required, by regulation, to be invested in the JSE. Before focusing on environmental and social factors, he commented that the impact of poor governance on stock market performance was well documented, starting with the Enron and WorldCom scandals in the early 2000s. Locally, we have the Steinhoff debacle, estimated to have destroyed a staggering R219 billion in shareholder value, and African Bank.

Environmental and governance failures often overlap, as evidenced by the emissions-cheating scandal that rocked global vehicle manufacturer Volkswagen in September 2015. Shares in the German company fell more than US$25 billion immediately following the news, with a striking headline lamenting “Volkswagen’s value destruct-o-meter at US$55 billion and counting”.

“You have to pay attention to ESG factors, because when ESG failures happen you actually lose money … share prices go down,” said Nxumalo. And retail investors are cottoning on to this reality.

Paul Traynor, wealth and asset management consulting lead at EY Dublin, writes: “Increasingly investors want to know that the investments and pension contributions they are making will help to sustain and build a better world, while delivering long-term capital gains.” In other words, the asset manager’s responsibility for client’s capital expands from investing purely for return to investing for sustainable wealth generation.

Integrating ESG into stock picking was among the discussion points during the Allan Gray and Orbis Investments event, which briefly considered the pros and cons of investing in British American Tobacco, which is considered to have

less-than-favourable social factors due to the well-documented mortality and morbidity legacy associated with smoking. “ESG is a big part of the process,” said Duncan Artus, a portfolio manager at Allan Gray. “We have always put a lot of work into governance, because it improves underlying companies and portfolio returns, but the environmental and social factors are complex, and it can be difficult to please everyone.”

He commented that domestic asset managers faced a unique challenge due South Africa’s relatively small universe of investable stocks, only numbering around 100. Another issue is that the economy is also heavily exposed to fossil fuels and other environmentally damaging activities, such as mining. It is therefore extremely difficult to operate an exclusionary share selection process in the South African market. “If you start eliminating things, you are left with an extremely narrow pool of assets to invest in,” said Nxumalo.

Dealing in reality

Of greater concern is what might happen to the domestic economy if the investment and financing communities pull the plug on these firms overnight: the country would be left without electricity and fuel. Avoiding the likes of Eskom (in the bond market) and Sasol on the JSE could prove impossible for SA-based allocators of capital. This reality is commonplace on the African continent. “The continent is dependent on a fossil fuel-based energy system,” said Naidoo. “We cannot switch that off overnight and expect the economies to be unaffected … and still be able to achieve the economic dividend [proposed in the SDGs].” He said the way forward involved a sensible transition towards clean energy (whether that is hydro, solar or wind) and finding an optimal balance between the current energy mix and a renewable energy future.

Local asset managers will therefore have to strive for the so-called ESG trifecta of maximising returns, minimising risk and maximising impact without strictly

excluding opportunities based on carbon emissions and other ESG factors. “An exclusionary strategy does not work domestically, because we still have to maximise returns … what we can do is make sure we think smartly about the risks,” he said.

Nxumalo concluded by saying that ESG was a complicated discussion that created tension between asset managers and their clients. But he also warned that ignoring ESG-related risks would lead to trouble. “Whenever these risks come to bear, not only are they on the front page of the daily news, but they have a direct impact on your investment statements and wealth.”

The reality is that all pockets of capital, including investors’ discretionary funds and retirement funds, will have to come on board for Africa to achieve the UN SDGs by 2030. “Every allocator of capital must realise that money must be deployed in a sustainable way,” said Johnstone. “There is no if/or option; we cannot choose impact or return.”

According to Khumalo, the pressure for impact investing should not be driven by asset managers in attempts to be seen as “benevolent asset allocators”, but by asset owners: the members of retirement funds.

“I am investing in my retirement fund to create a comfortable retirement; but I also want to know what [asset managers] are doing about the environment, infrastructure and addressing poverty,” he said.

On the utilisation of South Africa’s retirement fund assets to achieve impact, the Critical Conversations discussion concluded that asset managers would have to refocus from delivering a financial return on investors’ money to ensuring dignified savings outcomes – which meant delivering return in addition to impact and sustainability. “The asset manager’s role is to match the objective of a dignified retirement while ensuring that the broader community benefits from upliftment,” said Naidoo. “You can invest for impact and deliver return as well.”

HOW YOU ARE TAXED ON CRYPTO

If you are buying and selling cryptocurrencies, for long-term investment or as a speculator, you need to be aware of the tax implications, which SARS has not done enough to make public.

Many people are dabbling in cryptocurrencies without being aware of their obligations to the South African Revenue Service (SARS). However, recent interventions by SARS requesting client data from some leading cryptocurrency exchanges underline the fact that the government is serious about getting its share of any profits you make.

On your tax return, you need to be prepared to declare your cryptocurrency transactions to SARS and to pay tax on them where applicable.

In 2018, SARS released the following statement: “SARS will apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. The onus is on taxpayers to declare all cryptocurrency-related taxable income

in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”

In a tax presentation to financial advisers hosted earlier this year by Glacier by Sanlam, Diane Seccombe, national head of taxation at the Mazars Academy, said SARS treats cryptocurrency as an asset, not as a currency. In fact, SARS and the National Treasury now use the term “crypto-assets” rather than cryptocurrencies. However, they are not assets like shares or bonds – a cryptoasset is defined as a financial instrument, in a class of its own.

Seccombe warned that because SARS is working more closely with the SA Reserve Bank, along with other measures it has instituted, it is able more easily to detect the buying, selling and ownership of crypto-assets, including transactions on offshore exchanges. She reminded the

By Martin Hesse

advisers that their clients’ obligations to SARS extend to assets held offshore. There are two ways you can be taxed on crypto-assets: either on a capital gain if you sell them during the tax year or on income derived from trading or mining.

1. Capital gains tax (CGT). If you are taxed on a capital gain, you get off relatively lightly: as an individual you have an annual exclusion of R40 000, after which 40% of any gain must be included in your taxable income, which is taxed according to the income tax tables. The most you will effectively pay on the whole gain, if you are in the top marginal tax bracket of 45%, is 18%.

(If you’re a young person starting out in your career, your marginal rate is likely to be much lower, say about 31%.

You need to be earning more than R1.6 million a year to fall into the top bracket.) Remember that CGT only applies when you sell an asset; you don't pay anything on an asset you own that rises in value.

For example, if you bought a Bitcoin five years ago, when it was R11 000, and sold it in January this year, for R550 000, your capital gain would have been R539 000. You will need to add R199 600 to your taxable annual income (R539 000 minus the R40 000 exclusion, which equals R499 000, multiplied by 40%: R199 600). If your marginal rate is 31%, you will pay R61 876 (31% of R199 600, or 11.5% of the total gain) to SARS on your Bitcoin gain.

2. Revenue as a trader. If you are taxed on revenue derived from trading or mining, then your entire profit (less any qualifying expenses you incurred earning that profit, such as your fibre network costs) must be added to your taxable income.

On a profit of R539 000 after expenses,

if you are already in the highest marginal tax bracket you will pay R242 550 in tax (45%).

Investor or trader?

On the tax return, there is a section under which to declare capital gains on assets you have disposed of during the tax year, and it makes specific reference to cryptoassets. If you are a trader, there is another section for income earned as such.

So what determines whether you are a crypto-asset investor or trader?

The answer is not a simple one, Seccombe said. This is because cryptoassets currently have little use beyond your wanting to sell them for a profit, unlike other investments, which provide an income stream (in the form of dividends, interest or rental income), or assets bought for personal use, such as a residential property.

If you have shares, the route is more straightforward. According to tax legislation, if you hold a share for three years or more, you are considered an investor by SARS and will be taxed on a capital gain.

This rule does not apply to crypto-

assets, Seccombe said. The answer lies in convincing SARS of your intention.

Seccombe said that in 2016, in the Capstone case, a Supreme Court of Appeal decision went in favour of a company that made a large profit on the sale of shares. “The court was gentle on the taxpayer by looking at its activities in a broader context. Making profit on the shares wasn't the company’s overriding intention.”

The moral of the story for taxpayers, she said, is that if you have broadened your investment portfolio, which is likely to include assets such as unit trusts and shares, to include some crypto-assets, as long as you hold them for a while, you can show SARS that your intentions regarding crypto-assets are no different from those for your other investments - that you are simply diversifying into another asset class.

She emphasised that if you are speculating in crypto-assets, buying and selling them relatively frequently, the answer is clear: you must declare your profits as revenue.

“But if you are genuinely diversifying into crypto and have other investments in your portfolio, then use your intention regarding your overall portfolio to convince SARS that it applies to your crypto-assets as well, and that you are acting in the same way regarding your crypto-assets as you are in respect of your other investments. Then you can argue that it is a capital asset in your hands and any gain or loss on disposal is a capital gain or loss,” Seccombe said.

A further note: if you did not time the market correctly and made a loss on your crypto, you still need to declare it, because the loss can be offset against capital gains on other assets or ring-fenced to be offset against capital gains in future years.

It has been more than three years since SARS’s media statement on cryptocurrencies. In this statement, SARS said that it would apply “normal income tax rules” to cryptocurrencies when assessing whether a gain is revenue or capital in nature, and that crypto-assets are not seen as currency for income tax purposes.

Tertius Troost, tax manager at Mazars in South Africa, notes that any further guidance from the Revenue Service has been scarce. “Crypto traders, especially those that have no financial or tax background, often turn to fellow traders on social media platforms for advice (not an advisable option). Based on my interaction with cryptocurrency HODLers (a term referring to buy-and-hold strategies in the context of cryptocurrencies), uncertainty remains with many being surprised when I explain the so-called “normal rules”, which become pretty complicated as the crypto market continues to develop.”

He adds that the media, along with SARS commissioner Edward Kieswetter, have been quick to state that SARS will crack down on non-compliant taxpayers who do not declare their crypto-asset profits. “However, many of these taxpayers do not even know that they are non-compliant. So why not provide more guidance to assist taxpayers in declaring their crypto-asset profits? The only guidance to date is the previously mentioned media statement along with 15 FAQs on cryptocurrencies hidden away on the SARS website.” (For

an edited version of these FAQs, see “SARS FAQs on cryptocurrencies” on page 31.)

Troost says that anecdotally it seems that SARS still views crypto-assets as highly speculative, intangible assets. “However, it should be noted that exponential change is taking place in this industry since their initial media statement on 6 April 2018. Cryptocurrencies have provided us with various initiatives and businesses that are shaping this alternative financial system. These initiatives include cryptocurrency arbitrage, investments into predefined cryptocurrency bundles, lending and borrowing through the use of decentralised finance (DeFi), staking and mining rewards for solo or pooled staking and mining.”

At a minimum Troost suggests that SARS – together with National Treasury – states that gains (and losses) on crypto-assets are deemed to be capital in nature if held for a period of more than one year (similar to section 9C, which provides equity shares to be deemed to be capital in nature after three years). “In this way, SARS can at least assist taxpayers in having certainty in their disclosures. It also assists in bringing taxpayers to SARS, instead of SARS needing to try to find non-compliant taxpayers in a space they are ill-equipped to conquer.”

With all tax collection methods, the cost of the collection must be weighed up against the actual amount that can be collected. Providing this form of incentive will encourage taxpayers to disclose their positions and save SARS the cost of finding

extremely expensive methods of obtaining this information from markets. Troost notes that there are a number of devices that shield this information from authorities.

“For true transparency, SARS should attempt to detail as much of the current crypto transactions they are aware of in an interpretation note. Touching on aspects like the interaction between crypto-assets and section 24J (interest), whether cryptoto-crypto conversions qualify as disposals (in my opinion they do), the rebalancing of crypto bundle investment and whether these should fall within the ambit of a collective scheme of investments, staking rewards that could be argued as being interest and the tax implication of collateralised lending through DeFi.”

In the meantime, Troost says that if taxpayers have not declared crypto-asset profits, it remains advisable to follow the voluntary disclosure programme provided for by SARS. Failing to disclose any relevant amounts could result in substantial penalties and/or harsh criminal sanctions.

“Crypto-assets were originally designed to facilitate peer-to-peer transactions across the internet. This meant that there was no need for any intermediary or monetary regulations, which led people to believe that crypto-assets should operate independently from any form of regulation. However, they fail to realise that certain regulations are, in fact, imposed to protect consumers and economic stability,” Troost says. – supplied by Mazars

SARS should ‘give crypto investors more carrot and less stick’

SARS FAQs on cryptocurrencies

What is SARS’ take on cryptocurrency; do you consider it a real currency?

Cryptocurrency is not considered to be legal tender; however your question relating to the current legal status of cryptocurrency would best be answered by the SA Reserve Bank. Visit www.resbank.co.za.

How is cryptocurrency treated for tax purposes?

Transactions or speculation in cryptocurrency is subject to the general principles of South African tax law and taxed accordingly. Depending on the facts and circumstances of a case, capital gains tax or normal tax may apply.

Is an individual who "mines" cryptocurrency

as a trade or business subject to tax on the income derived from those activities?

Such income is subject to normal tax. The person may be liable to register as a provisional taxpayer if the total taxable income received exceeds the tax threshold for the financial year.

Should a taxpayer who receives cryptocurrency as payment for goods or services include, in computing gross income, the fair market value of the cryptocurrency?

Yes, such income is subject to normal tax. Does cryptocurrency paid by an employer, as remuneration for services, constitute wages for employment tax purposes? Such income is considered to be

remuneration for tax purposes and is subject to normal tax.

Will taxpayers be subject to penalties for having treated a cryptocurrency transaction in a manner that is inconsistent with South African tax laws?

Taxpayers may be subject to penalties, depending on the behaviour involved. See Chapter 16, and section 223 specifically, of the Tax Administration Act.

How is SARS going to trace cryptocurrencies, such as Bitcoin transactions?

SARS is granted a wide range of collection powers in terms of the Income Tax Act. Enforcement and audit processes are confidential and not shared with members of the public.

WITHER NHI ?

The National Health Insurance scheme is still on the government’s agenda, but the bill that governs its implementation leaves many questions unanswered, write Neil Kirby and Helen Michael

Notwithstanding the attention that has come to be focused on the prevailing Covid-19 pandemic, preparations continue in respect of the implementation and establishment of a National Health Insurance scheme, or NHI, in South Africa. In this regard, we are guided by the provisions of the National Health Insurance Bill.

While the bill remains a bill and is not enforceable as a matter of law, it contains various transitional arrangements for the implementation of NHI, which are set out in clause 57. The transitional arrangements are divided into two phases. There is arguably not much time within which to substantively achieve the requirements that are described in the bill for the completion of Phase 1.

Phase 1

In terms of clause 57(2)(a) various tasks are set out in respect of what must be achieved during the course of Phase 1. These are described as follows:

1. Continue with the implementation of health systems strengthening initiatives, including alignment of human resources with that which may be required by users of the Fund;

2. Include the development of NHI legislation and amendments to other legislation;

3. Include the undertaking of initiatives which are aimed at establishing institutions that must be the foundation for a fully functional Fund; and

4. Include the purchasing of personal healthcare services for vulnerable groups such as children, women, people with disabilities and the elderly.

It is not clear from the provisions of the Bill how one is to measure the successful implementation of the tasks or initiatives set out above, more particularly with reference to the

relatively vague wording used in the clause. If one is to have regard to the wording used in the clause, then one is required to have a clear understanding of, at least, the following concepts:

• The “strengthening initiatives” that are currently in place, the structure of those initiatives and the goals that such initiatives are arguably required to attain;

• The current status of other pieces of legislation that are to be amended so as to facilitate the existence of an NHI scheme and the nature of the amendments concerned with reference to the provisions of those pieces of legislation and the provisions of the bill;

• The particular institutions that are to be the foundation of a fully functioning NHI scheme, more particularly, with reference to the committees that are referred to in clause 57(3) of the bill and dealt with in more detail below;

• The particular human resources that are required for purposes of operating a substantively successful NHI Fund, based on what will be required by users of the scheme and, more particularly, with reference to what it is that users will be able to access in terms of healthcare services provided by the proposed scheme.

Clause 57(3) of the Bill deals with what interim committees are to be established to advise the Minister of Health on the implementation of an NHI scheme. These so-called interim committees are described as the National Tertiary Health Services Committee, the National Governing Body on Training and Development, the Ministerial Advisory Committee on Healthcare Benefits for National Health Insurance and the Ministerial Advisory Committee on Health Technology Assessment for National Health Insurance. Each of the committees is afforded a mandate in clause 57(3) of the bill. However, the various committees are described as

interim committees in the bill and are thus intended to be precursor committees to final committees to be established presumably once the bill becomes an act.

Set objectives

Clause 57(4) of the bill sets out certain objectives that must be met during the course of Phase 1 and therefore on or before 31 December 2021. Primarily, the objectives are concerned with the structuring of certain components of the NHI scheme, which are arguably designed to create the foundation of such a scheme. All in all, there are eight objectives to be achieved during the course of Phase 1.

These objectives include the following:

• The migration of central hospitals that are otherwise funded, governed and managed nationally to so-called “semi-autonomous entities” – albeit that the term “semi-autonomous entities” is not defined in the bill and the precise intended status of central hospitals is therefore largely unknown;

• The structuring of the Contracting Unit for Primary Health Care at a district level “in a co-operative management arrangement” with the relevant district hospital/s, which hospital/s is/are, in turn, linked to a number of primary healthcare facilities. The precise terms and conditions of a “co-operative management arrangement” are not detailed in the bill;

• The establishment of the NHI Fund including its governance structures –bearing in mind that the fund is to be established in terms of clause 9 of the bill which, in turn, contemplates that, in order for the fund to be established, the bill will have to become effective legislation, which is not one of the objectives contemplated during the course of Phase 1;

• The Health Patient Registration System needs to be established as contemplated in clause 5 of the bill and, once again, one is required to have the bill enacted into law in order for its provisions to take effect legally and for the proposed registration system to be established in accordance with the principles of legality that emerge from the Constitution and various pronouncements by the Constitutional Court;

• The process for the accreditation of healthcare providers who are to provide services to users of the NHI scheme, which also includes the requirement of the inspection and certification of health establishments by the Office of Health Standards Compliance but, once again, the process for accreditation of both health establishments and healthcare providers, for purposes of providing services to users of the Fund, is a feature of the Bill that will be required to become effective law in order for the particular objective to be achieved;

• The purchasing of healthcare services benefits by the fund. Such services are described in the bill as both primary healthcare services and hospital services as well as other clinical support services. The particular primary healthcare services that are referred to in clause 57(4)(f) of the bill include maternity and child healthcare services, which include school health services, health services for the elderly and people with disabilities and those in rural communities. Such services are to be provided by contracted healthcare providers, who are described as general practitioners, audiologists, oral health practitioners, optometrists, speech therapists and other designated providers at a primary healthcare level “focusing on disease prevention, health promotion, provision of primary healthcare services and addressing critical backlogs”. Particular hospital services and other clinical support services are also dealt with in clause 57(4) (g) where there is an implied indication that the purchasing of hospital services and other clinical support services will be an expansion of those services referred to in the bill as primary healthcare services;

• Various pieces of legislation are to be amended. These pieces of legislation, which are currently in effect, are identified in clause 57(4)(h) of the bill and include legislation such as the Medical Schemes Act, as amended, the Traditional Health Practitioners Act and the Medicines and Related Substances Act, as amended.

Phase 2

Of interest and importance to potential users of the NHI scheme is clause 57(5), which contemplates that the objectives to be achieved in Phase 2, which is described as operating from 2022 to 2026, must be achieved on the basis of a system of mandatory pre-payment. It is unclear from the provisions of the bill when a system of mandatory prepayment by users will be implemented – bearing in mind that the term “mandatory prepayment” is not defined in the bill.

Presumably, in order to achieve the particular objectives included in Phase 2, a system of mandatory prepayment may have to be introduced sooner rather than later, in order to secure the requisite funds prior to the commencement of Phase 2 on 1 January 2022.

However, the Bill is largely silent on

when the particular steps, contemplated in Phase 1, are to be taken and the consequences, should the time periods stipulated for Phases 1 and 2, not be met as a result of various external factors including prevailing pressure on the Department of Health in order to deal with the Covid-19 pandemic and a successful rollout of an appropriate vaccination program for the entire country.

The bill remains alive and we should be keenly watching the developments that occur in order to achieve the objectives of Phase 1 ahead of the commencement of Phase 2 during the course of next year. However, there are many i’s to be dotted and t’s to be crossed, from a legal perspective, in order for the bill to become law, more particularly, a law that is consistent with existing pieces of healthcare legislation and, more importantly, the legality provisions imposed by the Constitution – a process that, within and of itself, cannot be rushed nor manipulated, no matter how laudable the objectives of the bill may be.

Neil Kirby is director and head of Werksmans Attorneys’ healthcare and life sciences practice and Helen Michael is a director at the firm.

PORTFOLIO POSITIONING WILL SERVE INVESTORS WELL

Scott Cooper argues that rising inflation is not as big a problem as some industry commentators foresee it to be, and it should not be a particular concern to investors that focus on diversified, high-quality companies.

he beginning of 2021 was all about “reflation” – a belief that massive fiscal stimulus, historically low interest rates and the reopening of economies on the back of Covid-19 vaccinations will drive an economic boom placing upward pressure on inflation. Although we expect a strong recovery in GDP growth and higher inflation in the short term, we do not believe these inflationary pressures will be sustained. This belief is driven by four core considerations:

1. Base effects, caused by the disinflation which occurred in many economies last year, temporarily distorting the reported inflation upwards.

2. Upwards inflation pressure caused by supply chain bottlenecks and logistical delays will reduce over time.

3. An uneven global recovery will act to curtail global inflation.

4. The global debt burden will likely prove deflationary in the years ahead.

Looking ahead, Marriott believes investors should consider their portfolio positioning for the longer term as the market comes to realise that the economic road ahead will be a challenging one. We continue to believe a portfolio of high-quality, diversified,

multinational companies with robust balance sheets and track records of delivering increasing dividend streams will serve investors well. Companies of this nature tend to be less volatile and more resilient, making them more predictable and less likely to come under pressure in the months and years ahead if growth and inflation do not live up to the elevated expectations currently being priced into the market.

Our investment process (see diagram below) applies a stringent filter process when selecting companies for our portfolios. This ensures we hold only top-quality companies that can reliably grow their dividends through all stages of interest rate, inflation, business and economic cycles for a successful longterm investment outcome.

The companies that make it through the filter process tend to be market leaders with strong brands and pricing power, boast robust balance sheets and cash flows, and produce goods or services that are integral to the lives of their customers. These qualities enable them to perform well in an inflationary environment and when times are tough.

Filters out small-cap companies

Filters out companies that don't pay reliable dividends

Filters out cynical companies vulnerable to economic downturns

Filters out companies in volatile industries

Filters out companies with weak balance sheets

Filters out expensive income streams

The table below outlines some of the companies held in our international portfolios which have announced meaningful growth in dividends despite the economic uncertainty brought about by Covid-19. Investors can invest in these companies with Marriott via:

• Marriott’s offshore share portfolio (International Investment Portfolio)

Company Dividend How it is successfully navigating the Covid-19 crisis

• Marriott’s international unit trusts (using your annual individual offshore allowance of R11 million)

• Marriott’s local feeder funds which invest directly into our international unit trust funds (rand-denominated) .

Scott Cooper is an investment professional at Marriott. This feature was sponsored by Marriott.

Procter & Gamble, have delivered strong revenue and earnings growth throughout the pandemic by continuing to sell a diversified range of consumer goods around the world. Their recent dividend increase was their 65th consecutive increase in annual dividends. In addition, they expect to return a further $11bn to shareholders in the form of share buybacks during the fiscal year. Microsoft

It is clear that Covid-19 has accelerated digital transformation, whether it be remote teamwork and learning, or critical cloud infrastructure and security. This plays to another of our holdings strengths – Microsoft who, along with Amazon Web Services, are leading the cloud revolution. These trends have allowed Microsoft to flourish over the past year, with revenue for the 3 Months ending 31 March 19% above the same quarter last year.

The ability to maintain robust profit margins, even in difficult times, is a key characteristic of Texas Instruments, another quality company we invest in. Although the semi-conductor industry came under pressure early in 2020 during the Chinese lockdown, they were still able to produce a free cash flow margin of 38% in the financial year. Moving through 2021, Texas Instruments are ideally positioned to benefit from the global chip shortage, with Q1 revenues along increasing by 29% year on year.

IS CREDIT LIFE COVER WEIGHTED AGAINST YOU?

Theoretically, credit life cover should be highly beneficial to consumers with loans and credit agreements. But the product has a murky past and remains obscure, even though it rakes in billions in premiums.

Martin Hesse reports

Regulators and consumer bodies have long had a problem with credit life cover, which credit providers require you to have when you take out a loan of any significant amount. It applies to housing loans, car finance, personal loans and credit agreements when you buy, say, a washing machine on the never-never.

The concept behind it is perfectly reasonable: your loan is covered if anything happens to you, so that the burden of the outstanding debt does not fall on your loved ones. But the application

of credit life insurance in South Africa – and, no doubt, in other countries too – has been heavily weighted against the consumer.

In recent years, the regulators have clamped down on the industry, imposing limits on what it can charge you for credit life cover, among other things. But a big problem with this type of insurance, which persists to this day, is that many people (and by “many” we’re talking millions) don’t even know they have it.

This means that they were sold a product they didn’t know they bought,

and are paying a premium each month for benefits they don’t know they have, and for which, therefore, they will never claim, should they need to. It’s a free lunch for the credit life providers, and it’s in their interests to keep consumers in the dark –the less they know, the less they’ll claim.

Research done in 2013 by Nina Shand with Janice Angove for FinMark Trust among furniture stores and microfinance outlets found that many salespeople did not tell customers about the cover and its benefits, and were also reluctant to tell them that, while credit life cover was

Equal to the amount you had to pay in terms of the loan agreement for the month before you became temporarily disabled, that is, your bond repayment Permanent illness or disability

Paid out after 24 months if you have not recovered from illness or disability, until you recover or turn 75

Paid out after 12 months; thereafter the outstanding amount of the bond will be paid to the bank as a lump sum, only if disability is deemed to be permanent

Guaranteed for 10 years on life cover and for five years on income replacement benefits

Insurer does not guarantee premium rates and reviews them at least once a year

Insurer will pay the retrenchment benefit to the value of your monthly bond repayment to the bank monthly

required, they did not have to accept the product offered and could shop around. In their report, “Credit life insurance in South Africa: the customer’s perspective,” Shand and Angove note: “Consumers interviewed were asked to recall if they had been told about credit life insurance when they took out credit: 26 out of 47 said they were told about it, and 24 out of 47 said they were given details; 19 out of 47 recalled being told that they could choose not to use the credit life proposed by the retailer; and only 9 out of 47 recalled being advised that the proposed product could be substituted with a product from another provider.”

Last year, when the pandemic and lockdowns were really starting to bite, Personal Finance reported on a presentation by the Financial Sector Conduct Authority (FSCA). The regulator found that just over a quarter (26%) of consumers were unaware that they had insurance on their credit products, which many could have claimed against to alleviate their financial stress.

Caroline da Silva, who was the FSCA’s divisional head of regulatory policy at the time, said not enough was being done at the point of sale to inform consumers about their cover. The Covid crisis brought the issue to the fore – customers could potentially have had protection on their credit agreements because of the mandatory insurance on them and a requirement by the National Credit Regulator that retrenchment cover be built into these products, she said.

Credit life cover versus regular life cover

Taking out a separate policy on a loan may not be necessary if you already have standard life and disability cover and can show that it will cover your debt if anything happens to you. This particularly applies to big purchases such as a car or a house, where such additional cover can run to hundreds of rands a month.

Requirements among lenders differ on what they will accept. However, you are not obliged to accept a lender’s credit life

product; while it may insist on a form of credit life cover, you have the right to shop around and compare products from other providers (see “Shop around for cover”).

Evelyn Doubell, a private wealth manager at NFB Wealth Management, compared the costs of bond protection cover, a form of credit life cover, against regular life and disability cover . He says: “Dealing with estate agents, banks and lawyers during the bond approval transfer process can be nerve-wracking, during which time you will probably be faced with more paperwork and information than you can conceivably process. Most people are so anxious at this stage that they just sign where they are told to sign.”

“I have a young client, Mark, who recently purchased his first home. He received his bond statement from his bank and was perplexed as to why his loan amount was not decreasing. He discovered that he has life and disability cover on the loan and this premium was part of his loan repayment to the bank. The premium was a budget-straining

R1 018, a hefty sum for a young man aged 23 who has only recently started to earn an income.

Doubell researched and prepared a couple of quotations, comparing an insurer's life cover to the bank’s bond protection cover (see table), and discovered that the life cover premiums of Insurer A were about two-thirds cheaper than the bank’s premiums. Not only was the cover more appropriate for his needs, it was also much more affordable and flexible.

“The problem with the bank’s policy is that it only covers the outstanding loan amount,” Doubell says. “Should Mark die or become disabled, the payout from the claim is paid straight to the bank to cover his bond. As the bond decreases, the cover decreases. The premium does not decrease, though; it may even increase as it is not guaranteed.”

With the bank’s policy, Mark is not covered for his living expenses should he become disabled and unable to work, Doubell says. “Of course, it is great that his bond will be paid, but what about him? How will he afford to carry on living?”

Doubell says the bank’s contract stated that Mark had 30 days to cancel the policy and take up cover elsewhere, which he then had to cede to the bank. “Unfortunately, he did not realise this, as this was his first experience with purchasing a home. Trying to cancel the cover with the bank has been

SHOP AROUND FOR COVER

New regulations on credit life cover were introduced by the National Credit Regulator in 2017. They imposed “a monthly credit insurance limit of R4.50 for each R1 000 owed on all credit agreements except mortgages. Ordinary mortgage agreements have a R2 limit for each R1 000 owed. In practical terms, a mortgage agreement of R700 000 should carry a maximum monthly credit life insurance premium of R1 400”. The regulations apply to all loans taken out on or after August 9 2017.

The new regulations also state that, from August 2017, “you have a right to substitute your credit life policy if another policy offers you a more favourable rate for the same benefits and protection”.

If you want to change your policy, it's important that the new policy complies with the minimum cover and limited-exclusion provisions in the new regulations. If you speak to an adviser, he or she must disclose all fees and commissions related to your cover upfront.

an uphill battle, even though he has implemented alternative cover, which is much more comprehensive. Although the new policy has been ceded to the bank – which they gladly signed and accepted – it has refused to cancel his cover because he does not have retrenchment cover. Mark works in a family-owned business, so retrenchment cover is moot.”

Doubell says that, to be fair, not all banks have the same policy. But there is a lesson in the story. “When buying a home or car and financing a loan, you will be required to sign numerous documents. Read the documents, ask

questions, know your rights and get information. Don’t be pressured into taking the bank’s cover, which is a much more expensive option, as you don’t go through the medical underwriting process, which means your premiums are based on the worst-case scenario.

“Take your time and don’t rush. Make sure that you are in control of the relationship with your bank and are equipped with the right information. Consult your financial adviser when you have big decisions to make such as buying a home to ensure you are not inadvertently signing up for more costly options,” Doubell says.

THE VALUE OF A HEALTHCARE ADVISER

Navigating the vast number of schemes available and sifting through all their options to find the best fit for you and your family is almost an impossible and timeconsuming task.

When looking for medical scheme cover we often find ourselves overwhelmed by complexity in the range of schemes and plan options, medical jargon, fine print on medicine lists, designated service providers and possible exclusions.

Understanding the benefit design, rates and clauses is important, but there are many other factors to consider, such as: is the scheme financially stable, how will it underwrite you, and will you be exposed to penalties and waiting periods?

You do not have to have a healthcare adviser to belong to a medical scheme. However, using one can help you cut through the complexity of medical scheme matters and the variety of benefit options.

Medical scheme advisers are specialists in providing advice and services about

joining a medical aid scheme. They should have your best interests at heart at all times. Having an adviser with extensive knowledge of the industry and complexity of the products is crucial.

Your relationship with your adviser will continue past that important first step of joining to receiving ongoing services and support throughout your life. This includes:

• Liaising with the medical scheme on your behalf about difficult claims that have been rejected;

• Updating you on new rates, benefit changes and increases for the following year to select a suitable medical scheme or option;

• Reassessing your changing health needs and advising whether you should upgrade, downgrade or remain on your current option;

• Explaining consequences of changing schemes and your rights to ensure you are protected;

• Discussing the impact of any changes in legislation;

• Giving feedback on the financial stability

of your chosen scheme; and

• Providing ongoing educational support Healthcare advisers are independent in their advice and conduct in-depth risk analyses and ongoing health assessments. In this way, you can weigh up the most appropriate medical scheme options based on your budget and specific health requirements.

Before advisers can provide advice and intermediary services, they must be accredited by the Council for Medical Schemes and comply with the code of conduct under the Financial Advisory and Intermediary Services Act, enforced by the Financial Sector Conduct Authority. There is no additional cost to you having a broker, as brokers are paid by your scheme and not by you. Their fees are governed by regulations under the Medical Schemes Act. The fees are currently either 3% of your contributions or R101.91 a month, plus VAT, depending on which amount is lower.

Rachel Janssens is the principal consultant at Alexander Forbes Health.

Rachel Janssens explains why choosing medical cover is best done with the help of a specialist adviser, and there is no cost to you – the adviser is paid by the scheme

THE FWORD

Johann Rossouw explains the various types of fees investors face in their portfolios

Fees is the F word that strikes fear in the heart of any investor. We work hard to save money to put aside for investing purposes and our goal is to see our capital grow. So if the subject of fees hasn’t come up with your adviser, avoid bad habits by unpacking the topic until you are satisfied with the answers.

Begin by asking the right questions:

• Are you aware of how much you are currently paying for your investments?

• Are you receiving value for money?

• What is the impact of fees on my investment portfolio over the long term?

• And why is the salesman that sold me

an old-generation retirement annuity (RA) 30 years ago driving a Ferrari while I need to work until age 70?

Broadly speaking, there are three types of fees charged within investments: investment management fees, administration fees, and financial advice fees.

1. Investment management fees

This is the fee paid to the investment manager of the fund you are invested in. It covers a variety of things, such as the cost of running the fund, transaction fees generated when the fund trades an instrument, auditors’ fees, the salaries of the fund managers, and performance

fees where applicable. This fee will not be shown as a separate line item on your investment statement but will be included in the unit price of the investment. So, for example, if your investment fund’s minimum disclosure document states the performance over the last 12 months was 10%, this would be after the investment management fees have been deducted.

Always look out for the TIC or Total Investment Charge of the funds you are investing in. A higher TIC does not mean better or worse performance – it is just a standardised measure to determine the investment management fee a fund charges.

2. Administration fees

These fees are paid to the administration platform, or linked investment service provider (Lisp). A Lisp is a platform that provides you with access to a variety of investment funds and products, such as RAs and living annuities. The Lisp also takes care of reporting requirements, such as your investment reports and annual tax certificates. For this function, the Lisp charges an administration fee which is deducted from your investment. For example, if you invest R100 000 with a platform that charges 0.40% per year, your total administration fee for the year will amount to R400, or about R33 per month. This R33 will be shown on your monthly investment statement.

3. Financial advice fees

The term “broker” is generally accepted to mean someone who can only give advice on and sell the products of one provider; they are also known as “tied” agents. A “financial adviser” or “financial planner” is generally someone who considers the client’s needs and seeks out the best products to meet those needs from a range of providers.

Tied agents work on a commission-

based structure, which is built into the pricing of the product that is sold. This applies especially to life-insurance based products, such as old-generation RAs and endowment policies. Historically, commissions have been lucrative and have incentivised sales and this is why some brokers have ended up with a bad reputation.

A fee-based financial adviser, on the other hand, charges the client directly with an upfront fee, an ongoing fee or a combination of the two. The ongoing fee is typically charged to implement and monitor the client’s financial plan, ensuring that the client is on track to meet his or her goals over time.

Like administration fees, the financial advice fees will be deducted from your investment and will be shown on your investment statement.

Effective Annual Cost

In 2016, the Association for Savings and Investment South Africa (Asisa) introduced a new measure to compare the fees across investments in South Africa – the EAC (Effective Annual Cost). Under this system, the fees charged by brokers have become more transparent

and comparable. This has led to a drive towards lower fees, which is a good thing for one main reason: compound interest.

For example, Smart and Lazy both need to invest R100 000. Smart gets access to a low-cost platform through her adviser, who charges an ongoing fee of 0.5% per year. In total, Smart pays 2.00% per year. Lazy, on the other hand, invests in the same fund, but through a product that has higher fees, and ends up paying a total of 3.5% in fees per year.

Over 20 years and assuming a return before fees of 11%, Lazy’s investment will have grown to R424 785, while Smart’s will have grown to R560 441 – a difference of almost R136 000, about 32% more.

The EAC report is mandatory on any investment product bound by Asisa’s rules. Make sure you understand what you are paying in fees by reviewing your EAC report. Then research all the possible alternatives available. An educated investor is an empowered investor. When in doubt, seek advice from a professional, qualified financial planner.

Johann Rossouw is a Certified Financial Planner at Fiscal Private Client Services in Cape Town.

THE COST OF FOCUSING ONLY ON COSTS

While investment costs are an important consideration in financial planning for the long term, they should not override considerations such as the cost-saving benefits of professional advice, says Wynand Gouws

The cost of investing is a critical component in financial and investment planning. This should however not be the only consideration. Eliminating all unnecessary costs where possible is an integral part of an overall financial and investment plan. The impact of even low costs over the long term can be significant on the performance of an investment.

For example, a R100 000 investment that earns 10% per year for 15 years and has an additional 2% charge per year will return R100 508 less than an investment that does not have the additional fee.

An additional 1% per year charge will reduce the final value by R53 477. This is extremely important for retirement planning investments, which typically have long-term investment horizons. Managing costs requires an understanding of all components of investment costs,

including the costs for administration, advice, and investment management. It is also important to understand what you are forgoing when you make an investment decision if you only consider costs and don’t look at the bigger picture. Investors often get lured by the promise of lower or “lowest” costs and then get forced into a limited range of investment solutions or funds. This is often the only way low-cost platforms can survive –by forcing you into their own inhouse solutions and limiting your investment choice and freedom.

With many of the low-cost investment options you also forfeit the opportunity of getting professional financial advice. These options often rely on investors making their own decisions and having a deep understanding of the investment options, regulation, tax implications and behavioural biases in financial and

investment planning. It is therefore important to consider the value forfeited in only focusing on costs and not getting professional financial advice.

Quantifying the value of advice

There have been several studies to quantify the value of advice. These studies initially only focused on the importance of investment returns and the impact good advice can have on realising market related returns by understanding and managing investors’ reactions to market “noise”. The best known of these is the Dalbar research, which quantifies the importance of not reacting to market noise and uncertainty and to hold on to a well-structured and considered financial plan even during times of uncertainty. These studies have evolved to now capture the overall value of advice, not only investment returns.

Even though the studies differ, there is a common thread in all of them, there is value in professional financial advice. The tenets of good advice and better financial outcomes for clients are coaching and behavioural guidance, appropriate tax planning, being invested in the right products, and active portfolio management and rebalancing. A recent study in the US by Russel Investments quantified the value of advice in 2021 as 4.83% a year, which is significantly more than the cost of advice, typically 1%. Some other studies and research worth noting:

• International Longevity Institute (UK). The Longevity Institute focuses on the impact of longevity the impact of good advice in providing for people living longer. From a recent study they found advice can result in a 50% higher average pension relative to those who do not

actively engage in financial planning and advice.

• Vanguard. Vanguard’s Advisor’s Alpha suggests that behavioural coaching is the single most impactful thing an advisor can do to add value to investors, adding, on average 1.5% of value, this is followed by Wealth Management adding up to 1.45% and portfolio construction adding up to 1.4 %. Vanguard estimates cost effective implementation can add 0.4% of value per year.

• Morningstar. Morningstar’s Gamma research demonstrates that making sound financial planning decisions in five areas – asset allocation, withdrawal strategy, guaranteed income products, tax-efficient allocation, and portfolio optimisation – can generate 29% more income on average for a retiree.

• Additional research by Morningstar. Further research conducted by

Morningstar suggests that offering clients personalised advice and using a combination of interventions, such as increasing someone’s pension contribution rate and postponing their retirement age to 67, can help 71.2% of households avoid extreme austerity.

In conclusion

The area that investors often get caught up in is the portfolio costs. To minimise portfolio costs investors often fail to benefit from the overall value of good financial planning. Even though the numbers from these studies differ, they do conclude that there is significant value in financial advice. Do not get lost in focusing only on costs.

Wynand Gouws, a Certified Financial Planner, is a wealth manager at Gradidge Mahura Investments in Johannesburg.

IS INHERITANCE TAX AN ANSWER TO INEQUALITY?

A recent report by the Organisation for Economic Co-operation and Development outlines ways to address wealth inequality through inheritance taxes, which include donations tax and estate duty, writes

On 11 May 2021, the Organisation for Economic Co-operation and Development (OECD) published a report exploring the role of inheritance taxes in addressing the impact of wealth inequality in poorer countries. The publication of the report was motivated by high wealth inequalities across OECD countries and the economic

Prenisha Govender

pressures suffered internationally as a result of the Covid-19 pandemic.

According to the OECD, inheritance taxation could be an important tool “to address inequality, particularly in the current context of persistently high wealth inequality and new pressures on public finances linked to the Covid-19 pandemic.” The report, “Inheritance Taxation in OECD

Countries”, compares inheritance, estate and gift/donation taxes across the 37 OECD member countries. While South Africa is not a member of the OECD, it does adhere to numerous OECD instruments, and the findings of this report, pertaining to ways to address the impact of unequal wealth distribution, have important implications for the country.

The report states that, on average, inherited assets and donations reported by the wealthy top 20% of households in OECD countries are about 50 times higher than those reported by the poorest 20%. The report also notes that inheritance taxes are easier to assess and collect than other forms of wealth tax, but that only around 0.5% of total tax revenues are currently sourced from inheritance, estate and donation taxes across the OECD countries that levy them.

Currently, tax exemptions and other forms of tax relief enable wealthy individuals to pass their wealth on taxfree, and in-life gifts/donations are also used to avoid paying inheritance tax. The report notes that these taxes need to be better designed, but that such reforms would need to be country specific.

The report suggests that tax levied on an inherited asset’s value is a fair approach, with exemptions applied to low-value assets. Another solution mentioned is lifetime inheritance tax, where tax is levied on the full amount of wealth inherited over a lifetime. But while this could reduce tax avoidance, it would also increase the costs of ensuring compliance and of administration.

The report also finds that more information needs to be made available to the public on the way such taxes may address inequality, and reviews of other forms of taxes, such as income tax and capital gains tax, should also be part of the solution.

In South Africa, laws such as Administration of Estates Act (1965), the Wills Act (1953) and the Intestate Succession Act (1987) govern inheritance tax. Beneficiaries of an inheritance don’t pay tax on their inherited assets in South Africa; instead, estate duty is payable by

the deceased estate, which is regulated by the Estate Duty Act (1955). Currently, estate duty is payable at 20% on assets up to R30 million, and at 25% on anything over that.

Davis Committee proposals

In 2013, the Davis Committee was set up to review and recommend improvements to the tax policy framework in South Africa. In 2016, Judge Dennis Davis submitted his report, which contained significant proposals to change the way estate duty is paid in the country. To date, the National Treasury has implemented only some of the Davis Committee recommendations, one of which was to increase estate duty to 25% on the amount of the estate exceeding R30 million.

Other changes the Davis Committee proposed included a change to section 4q of the Estate Duty Act, which involves cancelling the deduction of the full value of a property that accedes to the surviving spouse from the estate of the deceased. The suggestion was that this should be replaced with a substantial rebatement. Another suggestion was that inter-spousal donations made before death should no longer be exempt from donations tax.

The committee also found that taxpayers were using trusts to reduce income and avoid paying estate duty and proposed a flat tax rate of 41% on all discretionary income in a trust. It also suggested that where an interest or lowinterest loan existed between a trust and connected person, the assets of the trust should be brought into the estate of the taxpayer for tax purposes.

The committee did not provide details on a potential wealth tax, but said it

would conduct further investigations regarding its implementation.

Wealth tax

According to research by Chatterjee, Czajka and Gethin – “Taxing wealth in a context of extreme inequality legacy: The case of South Africa” – the unequal distribution of wealth in South Africa would make a wealth tax an efficient policy to aid fiscal sustainability. The authors estimated that the potential revenue that could be collected from a progressive wealth tax on the richest 1% could amount to R160 billion.

The authors found that the top 10% own 86% of total wealth in South Africa and the top 1% own 55%. The top 0.01% (3 560 individuals) own about 15% of household wealth, greater than the share of wealth owned by the bottom 90% of the population as a whole (32 million individuals). Meanwhile, the average wealth of the poorest 50% is negative in that their debts exceed their assets. They noted that wealth inequality has remained stable at extreme levels since the end of the apartheid regime.

South Africa, alongside the rest of the world, is now actively looking at ways to address the devastating economic and social impact of the pandemic, with new and innovative ways to collect revenue currently being studied, proposed and implemented. As such, the recommendations of the OECD paper on inheritance tax, in line with Davis Committee proposals, could become applicable in some form in the South African context.

Prenisha Govender is an associate in tax practice at the law firm Baker McKenzie in Johannesburg.

IZIBIZO: IS THE TRADITION BECOMING EXTORTION?

South African customary law consists of various customs, traditions and practices that are carried out, including during the process of getting married. It forms part of the observations of culture and traditions that date back decade upon decade. However, unfortunately, with time the most sacred traditions are being opened up to abuse.

In many South African customs a man may ask for his partner’s hand in marriage. This is customarily followed by sending a letter of intent to her family for lobola negotiations to commence. On the day of the negotiations the families agree on a set figure, which is not necessarily only a monetary amount but may include livestock, clothing and other items such as blankets. This is seen as a form of gratitude that a prospective husband affords to the prospective bride’s family. A portion of this agreed-upon arrangement is paid upfront. The families celebrate the newly found union and the wedding date for the customary marriage is set. To the groom and bride, the joy of tying the knot and having the dream wedding overshadows the realities they may soon face.

Although not a requirement of a valid customary marriage, in the eyes of the law, lobola is one of the most common practices.

In terms of section 3 of the Recognition of Customary Marriages Act, the requirements for a valid customary marriage are that both parties must be above the age of 18, both parties must consent to the marriage and the marriage must be negotiated, entered into and celebrated. There is an assumption that after lobola has been paid the couple can start living as husband and wife; however, often various other traditions and practices still need to take place.

One such tradition that has become abused over the last few years is that of uMembeso or izibizo. This is a Zulu tradition that involves the giving of gifts to the bride’s family. These gifts traditionally included blankets, pinafores, head scarves, clothes, food and straw mats, among others.

However, over the years these gift requests by the bride’s family have become increasingly costly branded items and gadgets. The young grooms are forced to incur debt to make these gift requests a reality. Some customary marriages have thus seen a change over the years, as izibizo has been used to fund such luxuries at the groom’s expense. This, as a result, is discouraging young couples from getting married, as they are unable to afford this sort of practice.

According to StatsSA, the registration of customary marriages decreased by 11,7% from 2018 to 2019.

A customary marriage is, by default, an “in community of property” marriage, except where the parties have entered into an antenuptial contract. The result is that after the big celebrations and the dust has settled, the young couple are straddled with settling debts that arise from these lavish gifts.

The questions we are faced with are whether this once sacred practice has lost its true meaning and whether “culture” is being misused for hidden agendas that fall outside the customary marriage rituals and practices.

Are we now living in a world where we incur years of debt by abusing customary marriage practices? Or worse still, have customary marriages rather become a sad situation of “who can afford to get married”? It unfortunately seems as if we are entering an era that will see expensive shoes, bags and cars being the standard of izibizo and financial affordability the measure in getting married.

Shani van Niekerk is a senior associate and a matrimonial disputes and family law attorney and Sikelela Masumpa is an associate at Adams and Adams Attorneys.

Shani van Niekerk and Sikelela Masumpa voice their concerns about a practice related to customary marriages that is being abused for material gain

NICOLETTE MASHILE

One of the biggest unspoken burdens young professionals face is that of Black Tax. Not the simplified “I send some money home” rhetoric, but having to consider your extended family with every financial decision you make.

Considering that many South African households do not have generational wealth, the first ones from the house to “make it” cannot indulge in their income selfishly but must share a portion of it with the family to keep them living sustainably. Nor can they make individualistic financial decisions, as these have a ripple effect on the family's financial trajectory.

Black Tax is a phrase you hear joked about by comedians and overlooked by people of privilege, but it truly is a real struggle for many, as they may need that money to start their own businesses, save for investments, or merely feed their own mouths.

However, I feel that Black Tax is as complicated as trying to generalise personal finance. Each person's situation is different, so there is no one-size-fits-all solution.

MILLENNIAL VIEW BLACK TAX CAN BE REWARDING IF PLANNED FOR

The last thing you want to feel is resentment towards your family. Aunts and uncles may tell you that they changed your diapers when you were a baby, that they fed you when they did not have money, and for that reason you should help them in their elderly state. You may also find that, within your social circle, other people always talk about giving to their families, so you feel guilty, and if you do not give back, you are not playing your part to the societal notion of ubuntu.

There are healthier ways to approach Black Tax, ways that are not as daunting. You determine your budget, so you should determine how much you are willing to give.

One, you can see it as an investment. You

contribute financially, knowing that in the future you will receive your return tenfold. For example, you may have a cousin who needs petrol for his car. You could give your cousin petrol, and in return, he could fetch your child from school after work whenever you are unable to.

Two, you can view Black Tax as a way of giving without expecting any quantified return. This is probably the truest to ubuntu as Black Tax can be. For example, you see a need at home for financial assistance, and you genuinely want to help out of love and care for your family, which is self-satisfying on its own.

But how can you best prepare for Black Tax? Do your research. Read and find out how the general society perceives Black Tax and how other people are managing it. You can have a conversation with your immediate family members and tell them that you will provide what you can, but they must not make you feel as if they are entitled to your money. In the conversation with your family, do a needs analysis and plan for Black Tax. Finally, set financial goals to know how much you can actually give without financially depriving yourself.

Remember that you need to live within your means. Money does not grow on trees, so you cannot just go into your garden, and voila, your pocket is full again. Create a budget plan for the month, and determine where your money needs to go without anyone pressurising you. Instead, you pressurise yourself because you genuinely want to help your family.

Black tax can be favourable if you approach it in a healthy and financially savvy way.

This is an edited version of an edition of a column, Nicolette’s Nickels, which appears twice a month in the Personal Finance newspaper edition on Saturdays.

Nicolette Mashile is co-host of the SABC1 talk show Daily Thetha, an actress on Generations, and the founder of Financial Bunny, a financial literacy platform. She has written a book: What’s Your Move? A Collection of Ordinary Financial Lessons.

OMBUD CASE FILE

Mr X’s fraudulent claim rejected by insurer

Honesty is the best insurance policy. Blatantly lying or omitting the truth when claiming puts you on a slippery slope. If you get caught committing insurance fraud, you not only could have a claim denied but could be the subject of more extreme consequences.

In supporting the denial of a claim, the Ombudsman for Short-Term Insurance (Osti) recently relied on an insurer’s warning that a policy may be cancelled if false or incomplete information is supplied in connection with an application for cover or a claim.

The insurance company rejected a policyholder’s claim and cancelled his policy on the basis that the policyholder, Mr X, had intentionally misrepresented and provided false information concerning an engagement ring and tablet computer to receive a benefit.

The insurer submitted that the discrepancies in the replacement price and valuation of the engagement ring made it impossible to validate the claim. It added that, given the value of the ring, it found it peculiar that the insured had

not specified it in the policy.

Concerning the tablet, the insurer said that Mr X was claiming for the same device which had been stolen, blacklisted, and last used in March 2016.

Mr X was dissatisfied with the rejection of his claim and approached the Osti for assistance on the grounds that the insurer had not proved that his claim was not valid. He sought to set aside the rejection and to compel the insurer to remove its record of the cancellation of his policy based on fraud or dishonesty.

Ombudsman’s assessment

Senior assistant ombudsman, Ayanda Mazwi, found that the discrepancies concerning the engagement ring

and the tablet computer reasonably indicated that Mr X had claimed for items lost in previous incidents.

She also said that the policy wording included an exclusion, which stated that the value of jewellery may not exceed one-third of the sum insured. The sum insured in terms of the schedule was R302 500.

According to the insured’s submissions, the total value of jewellery items stolen in this incident alone was about R200 000, exceeding the onethird limit. Furthermore, on its alleged value, the engagement ring would fall within the locked safe warranty.

“After reviewing the policy documents, we also noted that all jewellery and watches per item, pair or set that exceed R20 000 in value, which are not specified under the portable possessions section, must be kept in a locked safe when not in use. The warranty further stated that ‘In the event of a claim, there must be visible, forcible and violent entry to the safe’,” said Mazwi.

“When discrepancies are found during validation, it demonstrates that the insured has not been truthful in his submissions.”

“These arguments were not put forward by the insurer as grounds for declining liability. The terms and conditions of the cover also placed a contractual obligation on Mr X to give the insurer true, correct, and complete information concerning the claim,” Mazwi added.

She explained that the purpose of this obligation is to allow the insurer to establish the facts surrounding the loss and to determine its liability for the claim. The assessment findings pointed out material discrepancies in this claim.

“When discrepancies are found during the validation process, it demonstrates that the insured has not been truthful or upfront in his submissions, which thereby prejudices the insurer’s right to validate the claim. The policy also contains a forfeiture clause that entitles the insurer to reject the entire claim and cancel the policy retrospectively where there is evidence of dishonesty or where the quantum of the claim has been inflated.”

The ombudsman found that the

insured did not provide the insurer with conclusive evidence of the alleged replacement or ownership of the items in dispute at the time of the loss.

“Essentially, the credibility of Mr X’s claim is in question. Issues concerning the engagement ring and tablet were irreconcilable. The valuation in respect of the replacement ring was conducted after the loss. This evidence must, therefore, be reviewed under a rigorous standard.

“Mr X’s email was not sufficient evidence on which to accept the valuation certificate without his proof of purchase, the repairs, and an explanation of the significant discrepancy in the value of the ring. In the same regard, the replacement of

the tablet was not confirmed by any evidence and the issues concerning its blacklisting have not been cleared.”

Ombudsman’s decision

After assessing the merits of the review, the ombudsman found that the matter had the hallmarks of a dispute that could not be resolved by the Osti forum.

“Against this background, the unanimous decision of the escalation committee is that this complaint is not capable of a resolution in this office and is better suited for adjudication in a civil court, as envisaged in clauses 5.1 and 7.3 of Osti’s Terms of Reference,” Mazwi concluded.

If you have a complaint relating to a short-term insurance claim or to poor service by an insurance company, and if you have not had success by first using the insurer’s internal complaint channels, you can complain to the Ombudsman for Short-Term Insurance –contact details on page 56.

“Essentially, the credibility of Mr X’s claim is in question. Issues concerning the engagement ring and tablet were irreconcilable.”

AYLETT BALANCED PRESCIENT FUND

Aylett & Co. Fund Managers, a Cape Town-based boutique asset manager founded by Walter Aylett in 2005, offers asset management services to retail, institutional and private clients. It runs two white-label retail unit trust funds under the Prescient banner: the Aylett Equity Prescient Fund and the Aylett Balanced Prescient Fund. The company also manages the Nedgroup Investments Bravata Worldwide Flexible Fund and runs a retail hedge fund: the Aylett Prescient QI Hedge Fund.

The Aylett Balanced Prescient Fund, a South African multi-asset high-equity fund, was launched in 2013, and currently holds just under R1 billion in assets. It has consistently been a top performer in its category. In 2019 it won two awards for risk-adjusted performance over three and

five years to the end of 2018: the Morningstar Award for Best Aggressive Allocation Fund and the Raging Bull Award for the Best South African Multi-Asset High Equity Fund. This year it has been the best performing high-equity multi-asset fund, returning 40.5% over 12 months to June 30, according to Morningstar.

Personal Finance found out more from fund manager Walter Aylett:

Please explain your investment philosophy/strategy regarding the balanced fund, looking at asset allocation and investment style. Our approach is a fundamental, bottom-up research process, which drives the portfolio construction. Macroeconomic factors such as interest rates, inflation and economic growth will naturally factor into any

investment case but are not substitutes for deep, fundamental research at the asset level. However, for macroeconomic factors at extreme levels we do make calls as to whether an asset class is too expensive or cheap. For example, R19 to the US dollar in the Covid-19 crisis was clearly undervalued and R6.50 to the US dollar in the past was clearly overvalued.

Our investment approach is not a clearly definable style such as value or growth, rather one that we term rational investing, where we invest based on common sense. Our time horizon is truly long term: generally a minimum of 10 years, which is proven by our low portfolio turnover. This long-term approach results in us being true business owners. We look at all assets and asset classes, work on understanding the underlying drivers and then build the

Walter Aylett

AYLETT BALANCED PRESCIENT FUND

Blended Benchmark*

Aylett Balanced Prescient Fund (A1)

Asisa category average

*Benchmark changed from a blended benchmark to the Asisa SA multi-asset high-equity average on 1 November 2020. Source: Bloomberg, Morningstar

investment case for an asset should we find it attractive. The underlying cash flow or yield of an asset is the main focus, with downside protection being of utmost importance. An example of an asset class that doesn’t feature in our fund is gold, as there is no yield from owning the underlying commodity. However, we may own a miner that has gold as part of its revenue stream. We believe inflation protection is best gained longer term from exposure to cash-generating assets that can grow over long periods.

To what do you attribute the fund's excellent performance over the last 12 months and its solid returns over the previous four years when balanced funds generally underperformed?

The fund was well positioned before the Covid-19 crisis and the downgrade through ownership of attractively valued assets. In the selloff we were able to deploy more capital into assets that we already understood at even cheaper valuations, as the margin of safety was much larger. This is reflected in the subsequent performance of the fund, as these assets have rebounded off the lows. None of the companies we owned required rights issues, which is testament to the focus on downside protection and

business quality. Along with existing portfolio holdings we are able to introduce new equity holdings as well as South African bonds into the portfolio. Recently, having no exposure to Naspers and Prosus and fewer foreign assets has been good for us, given the performance of the rand and South African equities, which have been very strong. Finally, we made very few mistakes that detracted from the overall performance. Notably, our clients believe in our approach, which was shown through limited withdrawals in 2020, allowing us to deploy capital instead of needing to sell at the lows.

The pandemic continues to generate market volatility. How do you see the next 12 months for the markets, and how are you positioning the fund accordingly?

Forecasting the overall level of markets is not our business and not something we engage in. We focus on owning good, attractively valued assets that should do well for us in any market environment. Our fund is fully invested currently, as we see lots of opportunities to grow clients’ capital and we see little reason for the fund to change dramatically right now. We will certainly be taking advantage of the stronger rand should

some of the global stocks we follow sell off, in order to add them to the portfolio. Portfolio management is a dynamic process that changes as conditions and businesses change, but at any point in time we have a portfolio that we believe is ideally positioned in terms of assets to generate through the cycle returns for clients.

The investment costs are remarkably low for an active balanced fund, at 1.33% all inclusive. How are you able to keep costs so low when some balanced funds are in the region of 3%?

We think that our fee is fair. There is very little in the way of transaction costs due to low portfolio turnover. Other managers may charge less with the view to growing their assets under management. We prefer to attract our assets under management and the right clients via long-term performance, which the clients benefit from entirely, as we do not charge any performance fees. We eat our own cooking, as all staff members are invested into Aylett funds and do not invest in individual shares for their own account. This ensures that incentives are fully aligned with clients, who benefit from both the long-term performance of the fund and the fair fee structure.

At a time when many global indices are trading at or near all-time highs, investors are reminded that it's wishful to think of any definitive stock market trend as moving only in one direction. But behind every monthly or annual performance number are multiple daily or weekly data points, and the picture we see changes considerably depending on our viewpoint and our state of mind.

On a day-to-day view, markets very often run counter to the trend, and it is this noise or variability that makes it so difficult to confirm the bottom of the market or the beginning of a new cycle. Therefore, investors waiting for a clear sign of change in any direction seldom get their timing right. No-one rings the bell at the bottom of the market, and declares it is safe to get back in, as many who disinvested into the first quarter of 2020 found out. No market trend (or recovery) moves in a straight line.

ON THE CONTRARY THERE IS NO SUCH THING AS STRAIGHT-LINE INVESTING

Markets produce contrary signals all the time. Economically sensitive stocks may appear to be on an upward trend, only to reverse direction for days or even weeks; a blistering commodity run will end suddenly and appear to reverse direction; and we have already highlighted the rand’s legendary volatility above. The challenge to us as long-term investors, is not to be fooled by noise and random short-term movements.

Looking for catalysts (the “one” variable that signals a sea-change) is a dangerous pastime. Often the catalyst has long been expected and priced in and therefore has little or no discernible effect (the Moody’s downgrade of 2020 is a good example of this).

A more robust strategy in our view is to build your investment thesis from the ground up, based on sound research and debate, and to always

include opportunities in unloved and underappreciated sectors of the market where low entry points provide a margin of safety. Using multiple measurement points and tools can also add to your confidence that you are seeing the bigger picture and aren’t fooled by the shorterterm data. It is also imperative not to underestimate how context (news headlines) and our own emotional state (often influenced by the headlines) can sabotage your judgement.

When the market runs counter to what is expected, as it so often does, it is very easy for investors to give up, think they got it wrong, and sell out of their investments prematurely. It has been shown time and again that investor behaviour is often a destroyer of long-term wealth. It is only when our investments are founded on thorough research, employing many different measurement tools and techniques, that we can stick with our long-term positions even during challenging times, if that is what is appropriate.

Confidence in your investment philosophy and process becomes that much more important when your aim is to seek out underappreciated and overlooked gems with a view to securing longterm growth. You can only successfully invest in what is underappreciated or overlooked if you are early to the market: by the time the trend emerges, a large part of the opportunity has long dissipated.

Markets do not move in straight lines, and multi-year trends do not reverse smoothly either. Investors wanting to build long-term wealth also need to be prepared for having their views tested by market volatility and be confident enough in their chosen philosophy and strategy to sometimes sit on their hands and be patient, waiting for the bigger picture to come into full view.

ANET AHERN

Anet Ahern is the CEO of PSG Asset Management.

DATABANK

WHERE TO GET HELP

With BANKING problems:

The Ombudsman for Banking Services is Reana Steyn.

ShareCall: 0860 800 900 or Telephone: 011 712 1800

Fax: 011 483 3212

Post: PO Box 87056, Houghton, 2041

Email: info@obssa.co.za

Website: www.obssa.co.za

With COMMUNITY-SCHEME-RELATED problems: The Community Schemes Ombud Service is a statutory dispute-resolution service for owners and residents of community schemes, including sectional-title schemes share-block companies, homeowners’ associations and schemes for retired persons. The Acting Chief Ombud is Advocate Ndivhuo Rabuli.

Telephone: 010 593 0533

Fax: 010 590 6154

Post: 63 Wierda Road East, Wierda Valley, Sandton, 2196

Email: info@csos.org.za

Website: www.csos.org.za

With CONSUMER-RELATED problems: The National Consumer Commissioner is Ebrahim Mohamed.

Toll-free: 0860 003 600

Telephone: (complaints) 012 428 7000 or (switchboard) 012 428 7726

Fax: 086 758 4990

Post: PO Box 36628, Menlo Park, 0102

Email: complaints@thencc.org.za

Website: www.thencc.gov.za

The Consumer Goods and Services Ombud is Magauta Mphahlele. This is a voluntary dispute-resolution scheme that only has jurisdiction over retailers, wholesalers and manufacturers that subscribe to the Consumer Goods and Services Industry Code of Conduct.

ShareCall: 0860 000 272

Fax: 086 206 1999

Post: PO Box 3815, Randburg, 2125

Email: info@cgso.org.za

Website: www.cgso.org.za

With CREDIT TRANSACTION problems: The Credit Ombud is Howard Gabriels.

MaxiCall: 0861 662 837

Telephone: 011 781 6431

Fax: 086 674 7414

Post: PO Box 805, Pinegowrie, 2123

Email: ombud@creditombud.org.za

Website: www.creditombud.org.za

With DEBT COUNSELLING problems: The National Credit Regulator also deals with disputes that are not resolved by the Credit Ombud. The Chief Executive Officer is Nomsa Motshegare.

ShareCall: 0860 627 627

Telephone: 011 554 2600

Fax: 011 554 2871

Post: PO Box 209, Halfway House, 1685

Email: complaints@ncr.org.za or (debt counselling complaints) dccomplaints@ncr.org.za

Website: www.ncr.org.za

With FIDUCIARY problems:

The Fiduciary Institute of Southern Africa (FISA) is a selfregulating body in fiduciary matters such as wills, trusts and estate planning.

Telephone: 082 449 2569

Post: PO Box 67027, Bryanston, 2021

Email: secretariat@fisa.net.za

Website: www.fisa.net.za

With FINANCIAL ADVICE problems:

The Ombud for Financial Services Providers is Nonku Tshombe.

Telephone: 012 470 9080 or 012 762 5000

Fax: 086 764 1422, 012 348 3447 or 012 470 9097

Post: PO Box 74571, Lynnwood Ridge, 0040

Email: info@faisombud.co.za

Website: www.faisombud.co.za

With INVESTMENT problems:

The Financial Sector Conduct Authority, which is headed by Dube Tshidi, regulates the financial services industry.

ShareCall: 0800 110 443 or 0800 202 087

Telephone: 012 428 8000

Fax: 012 346 6941

Post: PO Box 35655, Menlo Park, 0102

Email: info@fsb.co.za

Website: www.fsb.co.za

With LIFE ASSURANCE problems:

The Ombudsman for Long-term Insurance is Judge Ron McLaren.

ShareCall: 0860 103 236 or Telephone: 021 657 5000

Fax: 021 674 0951

Post: Private Bag X45, Claremont, 7735

Email: info@ombud.co.za

Website: www.ombud.co.za

With MEDICAL SCHEME problems:

The Council for Medical Schemes is a statutory body that supervises medical schemes. The Registrar of Medical Schemes is Dr Sipho Kabane.

MaxiCall: 0861 123 267

Fax: (enquiries) 012 430 7644 or (complaints) 086 673 2466

Post: Private Bag X34, Hatfield, 0028

Email: complaints@medicalschemes.com or information@medicalschemes.com

Website: www.medicalschemes.com

With MOTOR VEHICLE problems:

The Motor Industry Ombudsman of South Africa is an independent institution that resolves disputes between the motor and related industries and their customers. The Ombudsman is Johan van Vreden.

MaxiCall: 0861 164 672

Fax: 086 630 6141

Post: Suite 156, Private Bag X025, Lynnwood Ridge, 0040

Email: info@miosa.co.za

Website: www.miosa.co.za

With RETIREMENT FUND problems:

The Pension Funds Adjudicator is Muvhango Lukhaimane.

ShareCall: 0860 662 837

Telephone: 012 748 4000 or 012 346 1738

Fax: 086 693 7472

Post: PO Box 580. Menlyn, 0063

Email: enquiries@pfa.org.za

Website: www.pfa.org.za

With SHORT-TERM INSURANCE problems: The Ombudsman for Short-term Insurance is Judge Ron McLaren.

ShareCall: 0860 726 890 or Telephone: 011 726 8900

Fax: 011 726 5501

Post: PO Box 32334, Braamfontein, 2017

Email: info@osti.co.za

Website: www.osti.co.za

With TAX problems:

The Tax Ombud is Judge Bernard Ngoepe.

ShareCall: 0800 662 837 or Telephone: 012 431 9105

Fax: 012 452 5013

Post: PO Box 12314, Hatfield, 0028

Email: complaints@taxombud.gov.za

Website: www.taxombud.gov.za

PLEXCROWN RANKING OF MANAGEMENT COMPANIES

PERFORMANCE OF DOMESTIC SUB-CATEGORIES TO 30 JUNE 2021

PERFORMANCE OF OFFSHORE SUB-CATEGORIES TO 30 JUNE 2021

PERFORMANCE OF DOMESTIC FUNDS TO 30

WHAT DO THE PLEXCROWN FUND RATINGS TELL YOU?

The last column in the collective investment scheme performance tables on pages 58 to 69 shows the PlexCrown rating of a fund if it qualifies for a rating. The PlexCrown Fund Ratings system encompasses the different quantitative measures used in calculating investment performances in one number and makes it easy for investors to evaluate fund managers on the basis of their long-term risk-adjusted returns.

The PlexCrown Fund Ratings enable investors to know at a glance how a unit trust fund has fared over time on a risk-adjusted return basis, compared with the other funds in its Association for Savings & Investment SA subcategory. Therefore, the ratings assist investors in determining whether or not a fund manager is adding value to their unit trust investments, given the manager’s mandate and the amount of risk he or she is taking.

The PlexCrown Fund Ratings are unbiased and objective because they are based on quantitative measures; no

subjectivity is brought into the research methodology.

In calculating risk-adjusted returns, the methodology accepts that various quantitative formulae each have their unique drawbacks. In order to overcome this, up to five different risk measures are used:

• Total risk (Sharpe Ratio);

• Downside risk (Sortino Ratio and Omega Risk/Reward Measure); and

• Manager’s skill (Jensen’s Alpha and Treynor).

The research method ensures that the unit trust funds under evaluation are exposed to similar risks; therefore, the subcategories for unclassified funds and money market funds are excluded.

The PlexCrown rating system is a measure of consistency because ratings are done over three and five years and are time weighted, with the emphasis on the longer period of measurement. Funds within a unit trust subcategory are ranked only if there are at least five funds in that subcategory with a

track record of at least five years. To qualify for a rating, a fund must have an official track record of at least five years.

Each qualifying unit trust fund is awarded a certain number of PlexCrowns ranging from one to five, with the top-performing funds allocated the highest rating of five.

The PlexCrown ratings distinguish between poor performers and excellent performers, but are based on historical data and should be used only as a first step in the construction of a unit trust portfolio. It remains the responsibility of investors together with their financial advisers, to make sure that the funds they choose suit their risk profiles and that their investment plans include an appropriate level of diversification.

Visit www.plexcrown.com for a full description of the PlexCrown Fund Ratings system.

Information in the above tables was provided by PlexCrown Fund Ratings and ProfileData

COLLECTIVE INVESTMENT SCHEME PERFORMANCE TO 30 JUNE 2021

ABOUT THE LISTINGS

• Results are based on the performance of a lump-sum investment over four periods that ended on 30 June 2021. In each of the periods, there is a percentage (to two decimal places) by which an investment would have grown or shrunk, and the fund’s position or rank relative to other funds.

• Returns for the three- and five-year periods are annualised (that is, the percentage represents the average performance in a year). As unit trust funds are medium- to long-term investments, the most important performance periods are those of three years or longer.

• INITIAL COSTS have not been taken into account and can have an effect on returns.

• ANNUAL MANAGEMENT FEES are included in the returns.

• DIVIDENDS have been reinvested on the ex-dividend date (the day after they are declared) at the price at which the units are sold to you.

• INDICES normally supplied as benchmarks reflect percentage changes and take into account dividends and interest. In the case of new indices, a history is not yet available.

• The PLEXCROWN RATING indicates how a fund has fared over time compared with the other funds in its subcategory on a risk-adjusted return basis. Turn to page 57 for more information about the ratings.

WHAT DOES THE * INDICATE?

The asterisk (*) before a fund’s name indicates that the fund complies with the investment requirements of Regulation 28 of the Pension Funds Act. Funds suitable for retirement savings must comply with Regulation 28, which lays down guidelines about Inv. in different categories of assets. To reduce the risk and volatility of a fund, the Act restricts exposure to equities to a maximum of 75 percent of the fund and its exposure to property to 25 percent.

HOW FUNDS ARE CLASSIFIED

The Association for Savings & Investment SA’s classification system categorises unit trust funds according to their investment universe: where they invest, what they invest in and their main investment focus.

The first tier of the classification system categorises funds as South African, global, worldwide or regional.

South African funds must invest at least 70 percent of their assets in South African investment markets at all times. They may invest a maximum of 25 percent in foreign markets and a maximum of five percent in African (excluding South African) markets.

Global funds must invest a minimum of 80 percent of their assets outside SA. Worldwide funds do not have any restrictions on where they may invest but they typically allocate between South African and foreign markets in line with the manager’s outlook for local versus foreign assets.

Regional funds must invest at least 80 percent of their assets in a specific geographic region, such as Asia or Africa, excluding South Africa, or a country such as the United States. Regional funds may invest a maximum of 20 percent of their assets in South Africa.

The second tier of the classification system categorises funds according to the asset class in which they predominantly invest. At this level, funds are categorised as equity funds, interest-bearing funds, real estate funds or multi-asset funds.

Equity funds must invest at least 80 percent of the net asset value of a fund.

Interest-bearing funds invest in bonds, fixed interest and money-market instruments.

Real estate funds must invest at least 80 percent of their assets in shares in the real estate sector of the JSE or a similar sector of an international stock exchange. A fund may invest a maximum of 10 percent in property shares that are not classified in the real estate sector.

Multi-asset funds save you the trouble of deciding how to allocate your assets between shares, bonds, property or cash. The managers of multi-asset funds decide, for you, which asset classes they believe will produce the best returns and then, within those classes, which securities will perform the best. Some funds have a fixed allocation to the different asset classes whereas others change the mix of asset classes in line with their views of how the different classes or securities will perform.

MONEY MARKET YIELDS

The third tier of the classification system categorises funds according to their main investment focus.

WHAT DOES THE ‘R’ OR ‘A’ MEAN?

These indicate the annual management fees a unit trust company can charge and depend partly on the class of units you buy.

Before June 1998, the fees charged on funds were regulated with a maximum annual management fee of one percent a year plus VAT. Funds launched before this date have the letter “R” behind the fund name and can only change their fees after a ballot of all unit trust holders. Many unit trust companies have closed their “R” class funds to new investments and launched new fund classes.

Funds and fund classes launched after June 1998 can charge any fees. Typically, fees range from 0.25 percent to 2 percent, excluding VAT. Funds with unregulated fees can be “A”, “B”, “C” or “D” class funds.

Typically, “A” class funds are offered to retail investors while cheaper “B” class funds are for institutional investors who invest in bulk. Only the institutional funds available to you through a linked-investment services provider (Lisp) are published here.

The different classes of a single fund are managed collectively and the difference in performance between them is purely a result of the difference in management fees.

Most recently what are known as all-in-fee classes (“C” or “D” classes) have been introduced. These funds charge a single fee covering the management fee, the broker fee and the administration (or Lisp) fee.

Performance figures supplied by ProfileData

Telephone: 011 728 5510

Email: unittrust@profile.co.za

Website: www.fundsdata.co.za

Disclaimer: Although all reasonable efforts have been made to publish the correct data, neither ProfileData nor Personal Finance can guarantee the accuracy of the information on the unit trust fund performance pages.

SOUTH AFRICAN INTEREST-BEARING

GLOBAL INTEREST-BEARING

REGIONAL EQUITY

TAXES AND DEDUCTIONS FOR THE 2021/22 TAX YEAR

INCOME TAX RATES FOR INDIVIDUALS AND SPECIAL TRUSTS*

the benefit of disabled people and testamentary trusts established for the benefit of minor children. All other trusts pay income tax at a flat rate of 45%.

DEDUCTIONS FOR RETIREMENT FUND CONTRIBUTIONS

Amounts contributed to pension, provident and retirement annuity (RA) funds are deductible by fund members. Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employee. The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). The deduction is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions that exceed the limits are carried forward to the next tax year and deemed to be contributed in that year. The amounts carried forward are reduced by contributions set off when determining taxable retirement fund lump sums or RAs.

DEDUCTIONS FOR MEDICAL AND DISABILITY EXPENSES

All taxpayers: If you contribute to a medical scheme, you are entitled to a tax rebate (referred to as a medical scheme contributions tax credit) of up to R331 each for the individual who paid the contributions and the first dependant on the medical scheme and up to R224 a month for each additional dependant.

Additional tax credit for taxpayers under 65 years: You are entitled to a tax credit of 25% of an amount equal to your qualifying medical expenses plus an amount by which your medical scheme contributions exceed four times the medical scheme contribution tax credit for the tax year, limited to the amount that exceeds 7.5% of taxable income (excluding severance or retirement fund lump sums).

Additional tax credit for taxpayers with a disability and/or with a disabled family member or taxpayers over 65 years: You are entitled to a tax credit of 33.3% of your qualifying medical expenses plus 33.3% of the amount by which your medical scheme contributions exceed three times the medical scheme contribution tax credit for the tax year.

TAX ON LOCAL AND FOREIGN DIVIDENDS

Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax at a rate of 20% is withheld by the entities paying the dividends to individuals. Dividends received by resident individuals from real estate investment trusts (Reits) are subject to income tax. Non-residents in receipt of those dividends are subject only to dividends tax. Most foreign dividends received by individuals from foreign companies (a shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%.

CALCULATE REAL AFTER-TAX RETURNS ON INTEREST-BEARING INVESTMENTS

CPI INFLATION RATE: 4.9% IN JUNE 2021

PROVISIONAL TAX

A provisional taxpayer is any person who earns income by way of remuneration from an unregistered employer income that is not remuneration or an allowance or an advance payable by his or her employer. You are exempt from the payment of provisional tax if you do not carry on any business and your taxable income:

• Will not exceed the tax threshold for the tax year; or

• From interest, dividends, foreign dividends and the rental of fixed property and remuneration from an unregistered employer will be R30 000 or less for the tax year.

Deceased estates are not provisional taxpayers.

CAPITAL GAINS TAX

INCLUSION RATES

• Individuals special trusts and individual policyholder funds: 40% • Other taxpayers: 80%

MAXIMUM EFFECTIVE RATES

• Individuals and special trusts: 18%

• Other trusts: 36% • Companies: 22.4%

SOME OF THE EXCLUSIONS

• R2 million gain/loss on disposal of primary residence

• Annual exclusion of R40 000 to individuals and special trusts

• R300 000 in the year of death (instead of the annual exclusion)

• Retirement benefits

• Most personal use assets

• Payments in respect of original long-term insurance policies

• R1.8 million for individuals (at least 55 years of age) when a small business with a market value that does not exceed R10 million is disposed of.

ESTATE DUTY

Rate: 20% on the first R30m; 25% on estates above R30m. Amounts in an estate up to R3.5m are not taxed. For the second-dying spouse, amounts up to R7m less the exemption used by the first-dying spouse are not taxed.

TAX-FREE SAVINGS ACCOUNTS

No income tax on interest, dividends withholding tax or capital gains tax. Contributions are limited to R33 000 a year, up to R500 000 over your lifetime. Contributions that exceed the limits will be taxed at 40%.

DONATIONS TAX

• Donations tax payable by the donor is levied at a rate of 20% on property donated with a value up to R30 million. The rate on property with a value of more than R30 million is 25%.

• The first R100 000 of property donated in each year to a natural person is exempt from donations tax.

The real rate of return on money you invest is affected not only by inflation, but also by the rate at which you are taxed. The lower the inflation rate, the better your real rate of interest is likely to be. To calculate your real return, first work out what your after-tax return will be and then subtract the inflation rate. The table provides the marginal tax brackets and the interest rates at which you will start to receive a real (after-tax) rate of return on your money if it is taxed at that rate. The calculations ignore the fact that in the 2020/21 tax year, the first R23 800 (R34 500 if you are over 65 years of age) you earn in interest is tax-free. Any interest you receive above the exempt amount is taxed at your marginal tax rate.

• Donations between spouses are exempt from donations tax.

• Tax deductions on donations to approved public benefit organisations are limited to 10% of taxable income before deducting medical expenses (excluding retirement fund lump sums and severance benefits).

RETIREMENT FUND LUMP-SUM WITHDRAWAL BENEFITS

LUMP SUM RATE OF TAX

R0 to R25 000 0% of taxable income

R25 001 to R660 000 18% of taxable income above R25 000

R660 001 to R990 000 R114 300 plus 27% of taxable income above R660 000 R990 001 and above R203 400 plus 36% of taxable income above R990 000

Retirement fund lump-sum withdrawal benefits consist of lump sums from a pension, pension preservation provident, provident preservation or retirement annuity fund on withdrawal (including assignment in terms of a divorce order).

The tax on a retirement fund lump-sum withdrawal benefit (X) is equal to:

• The tax determined by applying the tax table to the aggregate of lump sum X plus all other retirement fund lump-sum withdrawal benefits accruing from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011; less

• The tax determined by applying the tax table to the aggregate of all retirement fund lump-sum withdrawal benefits accruing before lump-sum X from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011.

RETIREMENT FUND LUMP-SUM BENEFITS OR SEVERANCE BENEFITS

R500 001 to R700 000 18% of taxable income above R500 000

R700 001 to R1 050 000 R36 000 plus 27% of taxable income above R700 000 R1 050 001 plus R130 500 plus 36% of taxable income above R1 050 000

Retirement fund lump-sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death retirement or termination of employment due to attaining the age of 55 sickness accident injury incapacity redundancy or termination of the employer’s trade.

Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment.

Tax on a retirement fund lump-sum benefit or a severance benefit (Y) is equal to:

• The tax determined by applying the tax table to the aggregate of lump-sum or severance benefit Y plus all other retirement fund lump-sum benefits accruing from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all other severance benefits accruing from March 2011; less

• The tax determined by applying the tax table to the aggregate of all retirement fund lumpsum benefits accruing before lump-sum Y from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all severance benefits accruing before severance benefit Y from March 2011.

TRANSFER DUTY RATES

SARS INTEREST RATES

RATES OF INTEREST FROM 1 AUGUST 2020:

Fringe benefits - interest-free or low-interest loan (official rate): 4.5% a year

RATES OF INTEREST FROM 1 NOVEMBER 2020:

Late or underpayment of tax: 7% a year

Refund of overpayment of provisional tax: 3% a year

Refund of tax on successful appeal or where the appeal was conceded by the South African Revenue Service: 7% a year

Refund of VAT or late payment of VAT: 7%

WHO DOES NOT HAVE TO SUBMIT A TAX RETURN?

You do not have to submit a return if: your total pre-tax earnings from one employer were less than R500 000 for the tax year, you have no other sources of income (for example rental or interest) and there are no deductions that you want to claim.

TRAVELLING ALLOWANCES

Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:

Note:

• 80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

• No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (for example the vehicle is covered by a maintenance plan).

• The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.

• The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a logbook are used to determine the costs that may be claimed against a travelling allowance.

Alternative simplified method:

Where an allowance or advance is based on the actual distance travelled by the employee for business purposes no tax is payable on an allowance by an employer to an employee up to the rate of 398 cents per kilometre regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

FRINGE BENEFITS: EMPLOYER-OWNED VEHICLES

• The taxable value is 3.5% of the determined value (the cash value including VAT) a month of each vehicle. Where the vehicle is:

– The subject of a maintenance plan when the employer acquired the vehicle, the taxable value is 3.25% of the determined value; or

– Acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.

• 80% of the fringe benefit must be included in the employee’s remuneration for the purpose of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the vehicle for the tax year is for business purposes.

• On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes (substantiated by a logbook) divided by the actual distance travelled during the tax year.

• On assessment further relief is available for the cost of the licence, insurance, maintenance and fuel for private travel if the employee has borne the full cost thereof and if the distance travelled for private purposes is substantiated by a logbook.

SUBSISTENCE ALLOWANCES AND ADVANCES

If you are obliged to spend at least one night away from your usual place of residence on business and you receive an allowance or advance for accommodation in South Africa, which is to pay for:

• Meals and incidental costs: R452 a day is deemed to have been spent; or

• Incidental costs only: R139for each day is deemed to have been spent. Where the allowance or advance is for accommodation outside South Africa, a specific amount per country is deemed to have been spent. Refer to www.sars.gov.za > Legal counsel > Secondary legislation > Income tax notices > 2018.

FOR MICRO BUSINESSES

ANNUITY RATES

Rates valid for July 2021. Information supplied by the relevant life assurance companies.

COMPULSORY ANNUITIES

ABOUT THE TABLES

These tables show initial monthly pensions guaranteed for 10 years and then for life if, at the ages listed, you buy a life annuity (see definition below) with R1 million. In these tables. the amount escalates at a rate of 6 percent a year.

WHAT IS AN ANNUITY?

An annuity is a payment you receive annually. The life assurance industry has adapted the word to mean any amount you receive regularly (normally monthly) from an investment, usually in the form of a pension, when you retire.

COMPULSORY PURCHASE ANNUITY

VOLUNTARY ANNUITIES

COMPULSORY JOINT LIFE AND

ANNUITIES

VOLUNTARY JOINT LIFE AND SURVIVORSHIP ANNUITIES

This must be bought with at least two-thirds of the benefits you receive from your pension fund or retirement annuity when you retire (provident funds are excluded from this requirement). If you are a member of a defined-benefit pension fund, the annuity is normally provided to you without any choice.

VOLUNTARY ANNUITY

This is an investment you choose to make with a lump sum from any source. With voluntary annuities, you can invest for a fixed period. For example, for 10 years – or for life. Note that compulsory and voluntary annuities are taxed differently, both on the investment itself and on your income from it. This is because you buy a compulsory annuity with pre-tax savings whereas you buy a voluntary annuity with after-tax savings.

TRADITIONAL (LIFE) ANNUITY

You buy this type of annuity from a life assurance company. You are guaranteed a fixed income for life, which may or may not escalate annually at a certain rate, depending on whether you have a level or escalating annuity. In the initial years, you will receive less from an escalating annuity than from a level annuity but the level annuity will be eroded over the years by inflation. Because the life assurance company takes on your longevity risk, your investment normally dies with you. You can, however, buy an annuity “guaranteed for X years and then for life”, which means your nominated heir will receive the income if you die before the X years are up. After X years, the annuity dies with you. Joint life annuities are based on a pension being paid to the surviving spouse after the death of his or her partner.

LIVING (INVESTMENT-LINKED) ANNUITY

You buy this type of annuity from an asset manager and can choose the underlying Inv. You must decide each year how much of your investment you want to draw down as a pension with a minimum of 2.5 % and a maximum of 17.5 %. When you die, what is left of your investment is passed on to your heirs. However, you take the risk of outliving your capital.

OFFSHORE ALLOWANCES

HOW MUCH YOU CAN TAKE OUT OF SOUTH AFRICA

Offshore investment allowance: R10 million each year

Discretionary allowance for adults: R1 million each year

Travel allowance for children under 18: R200 000 each year

The tax on international air travel is R190 per passenger or R100 for flights to Southern African Customs Union countries.

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