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RETIREMENT ANNUITIES…THE TRUTH OF THE MATTER
a powerful investment structure
ESTATE PLANNINGFOR FARMERS
useful techniques toovercome the challenges
NFB'S HEALTHCAREADVISORY SERVICEwhat we can offer you
WIN A TWO NIGHT STAY AT THE ROYALGUEST HOUSE IN PORT ALFRED
see inside for details
Eastern Cape's Community...
PERSONAL FINANCE
A FREE publicationdistributed by NFB Private Wealth Management
p r i v a t e w e a l t h m a n a g e m e n t
issue 16November 2010
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
RETIREMENT ANNUITIES…THE TRUTH OF THE MATTER
a powerful investment structure
ESTATE PLANNINGFOR FARMERS
useful techniques toovercome the challenges
NFB'S HEALTHCAREADVISORY SERVICEwhat we can offer you
WIN A TWO NIGHT STAY AT THE ROYALGUEST HOUSE IN PORT ALFRED
see inside for details
“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.
Only the present is within our reach. To care forthe present is to care for the future.”
- Buddha
p r i v a t e w e a l t h m a n a g e m e n t
2525
East London tel no: (043) 735-2000 or e-mail: [email protected]
Port Elizabeth tel no: (041) 582-3990 or email: [email protected]
Johannesburg tel no: (011) 895-8000 or email: [email protected]
Web: www.nfbec.co.za
NFB is an authorised Financial Services Provider
contact one of NFB's private wealth managers:
fortune favours the well-advised
2525
Providing quality retirement,
investment and risk planning
advice for years.
a sensible read
Iwas fortunate enough to spend two weeks in Athens and the
Greek Islands recently. I envisioned idyllic islands, beautiful
tavernas lining the sea, delicious authentic Greek cuisine,
beautiful clean countryside and first world systems and service. I
managed to get a part of that, but I was very surprised by the
overall experience which was not totally in line with my
expectations.
The Greek economy is essentially bankrupt, idyllic beaches were
often pebbly and small (though the beautiful clear warm water was
great) and beaches and countryside walks were often strewn with
litter. Service was poor relative to other more tourist focussed
destinations, food and drink was mediocre and very expensive,
accommodation was not up to our local standards, buildings were
often in ruin (and I am not referring to the Acropolis), pavements
and some roads neglected, driving was often death defying and
we saw countless neglected animals. On the other hand though, I
met some wonderful, honest and very genuine people, saw
beautiful scenery, learned a lot and marvelled at the historic
monuments.
I love travelling. You can put me almost anywhere from deepest
Congo to a pub in London and I will enjoy the experience, as I did
this one I might add. But what the trip did do, was remind me that
although we may have our problems in South Africa, we also have
a lot to be positive about having one of the most incredible
countries in the world, with exceedingly high standards in many
respects, good value for money, breathtaking landscapes and
some of the friendliest people in the world. What we as South
Africans just need to do is start to see that and realise it, stop
criticising from our armchairs and start building and getting involved!
So as the year comes to a close and Christmas cheer takes
over, remember how lucky you are to live where you do; take a
moment to help someone who needs a hand and give some
thought to how you can make a positive difference. Wishing you all
a happy, peaceful and blessed Festive Season!
Brendan Connellan - Editor and Director of NFB
editor
Advertising
layout and design
address
Contributors
Brendan Connellan
Marc Schroeder (NFB East
London), Travis McClure (NFB East
London), Philip Bartlett (NFB East
London), Chris Lemmon (NVest
Securities), Shaun Murphy
(Klinkradt & Assoc.), Grant Berndt
(Abdo & Abdo), Nadia Muller
(Glacier by Sanlam), Debi Godwin
(IE&T), Brendan Connellan (NFB
East London), Robyne Moore (NFB
East London), Leonie Schoeman
(NFB East London).
Robyne Moore
The views expressed in articles by
external columnists are the views
of the relevant authors and do not
necessarily reflect the views of the
editor or the NFB Private Wealth
Management.
©2010 All Rights Reserved.
No part of this publication may be
reproduced in any form or
medium without prior written
consent from the Editor.
Jacky Horn Design
NFB Private Wealth Management
East London Office
NFB House, 42 Beach Road
Nahoon, East London, 5241
Tel: (043) 735-2000
Fax: (043) 735-2001
E-mail: [email protected]
Web: www.nfb.co.za
a sensible read
sensible finance ED’SLETTER
1
Email your full name to [email protected] to subscribe to
NFB's free economic electronic newsletters.
another aspect of our comprehensive service
sensible finance Nov10
CONTENTSSENSIBLE
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CAPITAL GAINS TAX IMPLICATIONS FORTHE INDIVIDUAL PART 2
STANDARD CONTRACT CONDITIONS
ESTATE PLANNING CHALLENGES FOR FARMERS
A BREAK FROM TRADITION
RETIREMENT ANNUITIES…THE TRUTH OF THE MATTER
ARE YOU SURE YOUR HEIRS ARE GOING TO RECEIVE THEIRINHERITANCE?
BEING ACTIVE IS GOOD FOR YOUR RETIREMENT
NFB'S HEALTHCARE ADVISORY SERVICES
QE II
THE CHRISTMAS SONG QUIZ
Q&A
WIN A TWO NIGHT STAY AT THE ROYAL GUEST HOUSE INPORT ALFRED
Capital gains on the disposal of your primary residence.
As a customer, ensure that the goods or services to besupplied are specified in the contract.
A brief overview of some estate planning techniques.
SA will benefit from the move into emerging market debt and equity.
Significant changes made to legislation have made RA's a powerful investmentstructure.
A look at the Guardian's Fund and the necessity for every individuals to have a welldrafted Will.
One needs to actively assess the world around us, and adapt accordingly.
Here's what we can offer you.
Like the original QE2 the effects of this voyage of money will be global, crossing theworld from New York to Sydney, filtering into assets and markets on all continents.
You know the songs so well you can sing them in your sleep. But can you?
You ask. We answer. Advice column answering your investment, personal finance,life and/or risk insurance questions
Stand in line to win a two night stay for two, compliments of the House of Travel, EastLondon.
ByShaun Murphy, CA (SA), Partner - Klinkradt & Associates.
By Grandt Berndt - Abdo & Abdo.
By Nadia Muller, Estate Planner- Glacier by Sanlam.
Source:Stephen Cranston – Financial Mail.
By Marc Schroeder, Private Wealth Manager - NFB East London.
By Debi Godwin, Director - Independent Executor & Trust.
By PhilipBartlett, Private Wealth Manager - NFB East London.
By Leonie Schoeman, Divisional Manager ofHealthcare Advisory Services - NFB East London.
ByChris Lemmon, Director/Portfolio Manager – NVest.
By RobyneMoore - NFB East London.
with Travis McClure, Private Wealth Manager - NFBEast London.
sensible finance Nov10
SENSIBLE INVESTORSENSIBLE SOLUTIONS
CAPITAL GAINS TAXIMPLICATIONS FOR THE INDIVIDUAL
Part 2
4 sensible finance Nov10
SENSIBLE ADVICE
IIn the last edition we covered the basic
calculation and focused primarily on property
transactions, as to when and how the Capital
Gain was derived and what constituted a disposal.
We further delved into what one was allowed to
include in the base cost of a property. A question
that has been posed by many individuals that have
called and emailed regarding the article, is the
disposal of their primary residence (the home you
live in). With the property market boom
experienced in East London and the rest of South
Africa over the last few years, some homes have
been disposed of for substantial gains and clients
are often very concerned regarding the tax
implications thereof. Firstly the most important thing
to remember is that SARS allows a “primary
residence” exclusion, which at present is as follows:
A residence owned by a natural person or
special trust, used for domestic residential purposes,
where proceeds do not exceed R2 million are not
subject to capital gains tax. If the gross selling price
is less than R2 million, then Capital Gains Tax is not
applicable.
Where the proceeds exceed R2 million, the
exclusion is R1,5 million of the calculated capital
gain. If the property is sold for more than R2 million,
then the first R1,5 million of the profit made
(proceeds less original cost and capital
improvements) is not subject to capital gains tax.
What is critical to remember is that this
exclusion only applies to the house in which you
live and not additional investment properties. A
further point of clarity is that it is not a once off or
lifetime exclusion. It is applicable to each primary
residence which you may occupy. As far as the
investment properties are concerned, the only
relief you will receive on those is the annual
abatement of R17 500 for 2010, which is a
deduction against all accumulated capital gains
and losses for the year prior to applying the
inclusion rate applicable of 25%. The inclusion rate
determines how much of the gain is taxable in the
hands of the taxpayer and as indicated above, for
natural persons 25% of the gain is subject to tax at
the marginal rate per the tables applicable to that
income bracket.
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Should you have any TAX related queries or require
some advice or assistance, please feel free to
contact me on 043 726 9555 or via email at
Following from the last edition's article on Capital Gains Tax for the
individual, the response from the readers has been somewhat surprising.
Having scribed articles from inception, not one article of mine has
engendered as much interest from the readers as this. Accordingly, I
deemed it fit to elaborate further on the subject in a part 2. By Shaun
Murphy, CA (SA) Partner - Klinkradt & Associates
CAPITAL GAINS TAXIMPLICATIONS FOR THE INDIVIDUAL
Photo BigStockPhoto.com
Part 2
STANDARDCONTRACT
CONDITIONS
6 sensible finance Nov10
As a customer, ensure thatthe goods or services to be
supplied are specified in thecontract. By Grandt Berndt -
Abdo & Abdo
STANDARDCONTRACT
CONDITIONS
With the purchase of certain goods or in
contracting with a supplier for the
rendering of a service or the production
of goods, one is often faced with having to accept
the supplier's standard terms and conditions.
1.
2.
3.
The kinds of conditions areusually such as:
The customer confirms that the goods or services
reflected on any tax invoice issued, duly represent
the goods or services ordered by the customer and
that where delivery has already occurred, the
customer is satisfied the goods or services conform
in all respects to the quality and quantity ordered
and are free from defects.
No claim under this agreement shall arise unless
the customer has within three days of the alleged
breach or defect occurring, given the supplier thirty
(30) days written notice to rectify or remedy any
defect or breach.
The customer has no right to withhold payment
for any reason and agrees that no extension of
payment will be granted unless agreed to by the
supplier.
The issue of withholding payment as a result of
a customer establishing, outside the prescribed
period, the defectiveness of the goods purchased
and claiming damages for the defectiveness of the
goods, has recently been considered by our
Courts.
In the particular case, the customer ordered a
substantial quantity of roof sheeting of a specified
thickness and strength. The sheeting delivered was
not of the required thickness or strength. The
customer was unaware of this as it was neither
possible to ascertain with the naked eye whether
the material met these specifications nor to
conduct a physical examination of every sheet.
During the installation by the customer some
two weeks later, problems with the strength of the
sheeting was experienced and it was established
that the sheeting did not in fact meet the agreed
specifications.
The customer claimed damages for the cost of
re-installing the roof to the original specifications
and refused to pay the outstanding balance due
to the supplier. The supplier claimed in terms of its
standard clauses that the customer was outside its
contractual time limit and had no right to withhold
payment.
The Supreme Court of Appeal found that the
roof sheeting delivered bore no relation to the
goods ordered and was an entirely different and
inferior product, meeting none of the minimum
requirements specified. The contract could not be
performed by delivering sheeting irrespective of its
specifications. It could only be performed by the
delivery of sheeting of the required specification.
The Court held further that the suppliers
standard clauses can only govern the situation
where defective goods are delivered in terms of
the contract and do not apply where the goods
delivered are a different product to the goods
ordered.
It is thus important that as a customer, one
ensures that the goods or services to be supplied
are specified in the contract in order to ensure that
the supplier's standard conditions can not be
imposed by the supplier in the event of it failing to
deliver as specified in the contract.
SENSIBLY LEGALPhoto BigStockPhoto.com
Estate Planning Challenges for FarmersA brief overview of some estate planning techniques. By Nadia Muller,
Estate Planner - Glacier by Sanlam.
Estate Planning Challenges for Farmers
8
Farmers face specific challenges when
embarking on an estate planning exercise.
These include (a) the prohibition on the
subdivision of agricultural land in the Subdivision of
Agricultural Land Act, (b) the potential for
unintended consequences of the traditional
usufruct and (c) the provision of adequate liquidity
on death as a farmer's major growth asset is usually
his immovable farming property which he would
not necessarily want sold on his death.
Implementation:
This article provides a brief overview of useful
estate planning techniques to overcome specific
challenges facing farmers.
One option is to sell the farm land (not the farming
operation) to an inter vivos trust (often referred to
as a family trust). The potential advantages
include:
The value of the farm land is pegged in the
estate of the farmer for estate duty, capital gains
tax and executor's fees in the event of his death.
Depreciating assets (such as farming implements
and machinery) remain in the personal name of
the farmer.
The value of the farm land is protected against
the farmer's creditors in the event of his insolvency –
except to the extent of any surety he signed for the
liabilities of the trust or to the extent of his loan
claim against the trust.
If there is more than one child, all the children
can benefit from income or capital generated by
the trust assets in terms of the farmer's specific
guidelines to the trustees in the trust deed.
A trust can provide all the benefits of a usufruct
in favour of the surviving spouse, without any of a
usufruct's unintended negative consequences.
The farmer establishes an inter vivos trust if there
is no existing trust in use.
The farmer sells the farm land on an interest–free
loan account. This sale may be done at the market
value of the farm less 30%.
The loan account can be reduced by annual
donations of R100,000 made by the farmer to the
trust.
The farmer is not hindered in continuing his
farming operations in his own name.
The trust may charge the farmer rent for the use
of the land.
A farmer leases his livestock to a family trust. For tax
purposes the farmer has not disposed of the
livestock. In terms of the lease agreement the trust
must pay the stipulated rental and must return the
same number of livestock to the farmer at the
termination of the lease. Such a lease is typically
terminated at the death of the farmer so that the
growth of the livestock from the date of the lease
until termination accrues to the trust i.e. the growth
is excluded from the famer's estate for estate duty,
capital gains tax and executors' fees.
Recent changes in the legislation governing
retirement annuities have made them a very useful
estate planning tool for a wider market. Using a
farmer as an example, he may donate R1 million to
his spouse (free of donations tax). The spouse may
in turn purchase a retirement annuity. The lump
sum purchase is treated as a “disallowed
contribution” for income tax purposes. As a result
the dutiable value of the farmer's estate is
decreased by the amount of the donation, and
the amount donated is not dutiable in the estate of
the spouse. In addition the retirement annuity can
be used to purchase a living annuity to provide
income to the surviving spouse.
Due to the complexities and personal nature of
the estate of a farmer, it is always advisable to
speak to a specialist regarding which estate
planning techniques would best serve his personal
requirements.
An Inter Vivos Trust
A Sheep lease agreement
A Retirement Annuity
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SENSIBLE ESTATE PLANNINGPhoto BigStockPhoto.com
sensible finance Nov10
SENSIBLE MARKETS
9
Just 10 years ago, investors around the world
were surprisingly home-based. Even in the
UK, pension funds were still allocating 50% of
their equity money to domestic investments.
And this was in the most outward-looking large
financial market in Europe, which had been free of
exchange controls since 1979.
Emerging markets were seen as a fad. A
dedicated emerging markets mandate for a
reputable pension fund would have been
unthinkable.
Now, the asset classes growing most strongly
are those that until recently would have been
considered fringe assets. SA will benefit from the
move into emerging market debt and equity as
well as commodities — perhaps even currencies,
with our macho rand.
Pension funds and sovereign wealth funds —
where countries such as Norway and Singapore
park their surplus wealth — no longer allocate
money in the traditional way. Fund managers used
to have different mandates for domestic bonds,
domestic equity, global equity and global bonds.
Global equities were based around the MSCI
World, the benchmark index, which excluded
emerging markets.
But John Green, head of global distribution for
Investec Asset Management, says just 5% of new
equity money in the UK is allocated on a domestic-
only basis. About 50% of equity allocations in the US
are into global ex-US equity mandates. Global
equity now usually includes emerging markets,
which represent 12% of the MSCI all countries world
index.
Pension funds in the US, Japan and Europe
need to find investment returns to meet obligations
to members — and these have been lacking in
their equity markets, which are down 10% over 10
years. Bonds have been far better, but after a 10-
year bull market, in which investors have doubled
their money, yields are 2%-3%, even less in some
markets.
“The developed world's balance sheets are in
a poor state,” says Green.
In the circumstances, anybody looking for yield
needs to consider emerging market debt and
A Break from Tradition
...Continued on page 15
sensible finance Nov10
SA will benefit from the move into emerging market debt andequity. Source: Stephen Cranston – Financial Mail.
Photo BigStockPhoto.com
10 sensible finance Nov10
For a long time now, retirement annuities along
with long term endowment plans have been
regarded as the vulgarities on the list of
available investment options out there, and for
good reason. The truth of the matter is that RA's
have traditionally been expensive, inflexible and
complicated structures to own, and earned their
reputation as being “the poor man's investment”.
However, over the past few years there have been
significant changes made to legislation and the
design of retirement annuities that should
encourage even the greatest cynic to review his
stance on the matter.
For purposes of reference to this article, and for
those of you still not up to speed with retirement
fund tax, the following tax table is currently applied
on retirement annuities at retirement:
Firstly, the darkest cloud of controversy surrounding
retirement annuities was that of costing, inflexibility
and penalties for early surrenders. In fact, the
dubious RA character often made financial
headlines and even featured on Carte Blanche
several times for abusing the uninformed
consumer. The truth of the matter is that in the
“good old days”, retirement annuities paid their
sellers an upfront commission based on the term of
the investment – unfortunately, many were set to
the maximum. The longer the term, the more likely
a default on contributions became. A default on
contributions could mean that an investor was
maturing his annuity early or making it paid up,
both of which would incur penalties. The life
companies justified the penalties as a
consequence of breach of contract between the
annuitant and the life company, as the former was
not sticking to the “agreed” upon term. Huge
penalties were incurred and left a very sour taste in
many peoples' mouths.
The possibility is very high that one will need to
stop or reduce contributions during their working
careers; the new era retirement annuities fully cater
for these expected events and renders the
prerequisite for a definite retirement age obsolete.
One is now able to retire from a retirement annuity
at any time from age 55 onwards without any of
the legacy complications traditionally associated
with retirement annuities.
The myth that retirement annuities are
expensive can also be dispelled: it is now possible
to own a retirement annuity for the same cost as
owning a unit trust portfolio.
As financial planners we are well versed in
suggested methods to make estate planning more
efficient; tried and tested methods we are all
aware of include:
Intervivos Trusts
Donations
Section 4q – spouse nomination
Usufructs
What most people are unaware of is that due to
recent legislation, retirement annuities have
become one of the simplest and most efficient
structures to reduce one's estate liability. Recent
amendments to retirement legislation have resulted
in the following significant changes to retirement
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Retirement Annuities as CostEfficient and Flexible Structures
Retirement Annuities as an EffectiveEstate Planning Tool
Significant changes made to
legislation have made RA's a
powerful investment structure. By
Marc Schroeder, Private Wealth
Manager - NFB East London.
Retirement Benefit Taxable Portion
Taxable income Rate of Tax
R0 - R300,000 0% of taxable income
R300, 001 - R600,000 18%
R600, 001 - R900,000 R54, 000 plus 27%
over R600,000
R900, 001 and above R135, 000 plus 36%
over R900, 000
annuities:
All payouts from retirement annuities on death
are now FREE of estate duty;
The FULL value of a retirement annuity can now
be paid to beneficiaries.
When considering what strategy to consider for
efficient estate planning, one always needs to
consider the tax implications. For example:
donations incur tax, trusts are highly taxed and
usufructs carry tax consequences. Thanks to
government's efforts to make retirement annuities
attractive saving mechanisms they have become
the most tax efficient structures available.
Here is a simple situation. Mr A has a vast
estate and wishes to reduce his estate duty liability.
He donates R3 million rand to a retirement annuity;
R450,000 is deductable and the balance is not
allowed. When he dies two years later, the estate
implications for his contribution are as follows:
The full amount plus untaxed growth will pay out
directly to his beneficiaries - estimate value at
R3,600,000;
The annuity value will not be dutiable, saving
estate duty of R720,000.
Executor's fees of up to 4% or R144, 000 will be
saved.
Net saving of up to R864, 000 for the estate.
The tax-free portion of the payout is R300,000
plus any disallowed tax-deductible contribution.
The tax-free portion is therefore R300,000 +
R2,550,000 = R2,850, 000. The taxable portion of
R750,000 will be taxed at 25% based on the
retirement funds tax tables on death of the
annuitant.
The amount realised by beneficiaries would
therefore be R3,600,000 less tax of R187,500
= R3,412,500.
To put this in contrast, had Mr A not
contributed to the RA, the following would be
realised by his beneficiaries:
The value of investment of R3,000,000 would be
taxed at an average tax rate of around 35%; the
value after two years at time of death would
therefore be R3,600,000 less 35% = R3,390,000.
After estate duty of 20% plus executor's fees of
4% the value would be R2,576,400.
The potential difference for Mr A's beneficiaries
could be as much as R836,100.
Most small business owners earn non-retirement
funding income of which 15% is allowed as a tax-
deduction if contributed to a retirement annuity. A
business owner who generated an annual income
of R1,000,000 could contribute a tax-free annual
amount of R150,000 into a portfolio that will grow
tax free. Many investors believe this to be a case of
“tax smoke and mirrors” as the tax avoided at
source will be applied later. This statement is
marginally true as there will be tax paid on the
withdrawal, but at a much reduced rate than that
for the individual. If this investor's tax-deductible
contributions amounted to a value of R2.7 million at
retirement, he could withdraw the R900,000 and
pay only 15% tax on the income, as opposed to up
to 40% paid by the upper income bracket.
Apart from the huge tax savings available, the
funds invested into RA's are protected against
insolvency allowing the business owner further
security.
Recent changes to legislation has allowed
investors with small RA's to withdraw their full
proceeds, if the fund value is less than R75,000 per
house. This means that an investor who earned a
million rand in a tax year could make a tax efficient
contribution of R150,000, split three ways into three
separate RA's at different investment houses prior
to age 55. The investor benefits in the following
ways:
Tax deductible contribution into 3 RA's;
Investment into a tax-free structure;
Redeem full proceeds from the RA's if each fund
is less than R75,000.
The tax saving on the contribution alone could be
as much as R60,000, apart from the tax free growth
that will hopefully be achieved.
Lastly, the myth that retirement annuities can only
invest in old school, non-transparent portfolios can
also be put to bed. It is now possible to have your
retirement annuity invested entirely into a
managed share portfolio that one can have a
hand in managing. One of the drawbacks to a
managed share portfolio is that capital gains tax
becomes heavy over the longer-term. As
retirement funds are untaxed structures, all growth
is tax-free allowing investors to realise great
untaxed capital gains.
Retirement Annuities are powerful investment
structures that can save the investor huge amounts
in terms of tax and now estate duty. Apart from the
tax benefits, if utilised correctly they can
outperform all other investment avenues in terms of
returns. The bad press these structures received in
the past may have been well warranted, however,
there is absolutely no reason these pitfalls should
ever be repeated considering current choice and
legislation.
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RA's as Effective InvestmentPlanning Vehicles of BusinessOwners
Share Portfolios as UnderlyingInvestment to a Retirement Annuity
SENSIBLE INVESTOR
11Sensible finance Nov10
13sensible finance Nov10
Photo BigStockPhoto.com
SENSIBLE PLANNING
It was with absolute shock and dismay that I read
about the embezzlement of approximately R80
million from the Guardian's Fund by corrupt
justice officials. The Guardian's Fund falls under the
administration of the Master of the High Court and
was created to hold and administer funds paid to
the Master on behalf of various people such as
minors, people who are incapable of managing
their own affairs, unborn heirs and missing or absent
people. This development of fraud perpetuated by
corrupt officials highlights the necessity for every
individual to have a well drafted Will. To explain a
little further….In practice, the most common form
of inheritances ending up in the Guardians Fund,
are as follows:
This frequently happens when the Will does
not stipulate the funds are to be retained in Trust for
the benefit of the minor, or where there is no Will
and a minor inherits under the Intestate Succession
Act, 81 of 1987. Guardians of minor heirs with funds
in the Guardians Fund can of course make
application to the Guardians Fund, during the heir's
minority to obtain funds for specific purposes such
as education, clothing, medical and other
motivated needs (if they haven't been stolen!).
However, this is a lengthy process and the funds
are not instantly obtainable.
Whilst Executors should do all they can to
trace the heirs, and at times even appoint tracing
agents, there are times when an heir, whose
contact details are not known to the family, simply
can't be found.
If a person suspects that there are funds due to
them from an inheritance /bequest, the first step
would be to contact the Executor and ask if they
have inherited from the estate. When making
payments to the Guardians Fund, Executors are
provided with receipts for the payment and such
receipt can be handed by the Executor to the
person seeking benefits, to take to the relevant
Master of The High Court's Office. If the Executor
confirms that there are funds deposited with the
Guardians Fund, then the claimant can claim the
funds together with any accrued interest on turning
18 (attaining the age of majority). There are some
other instances when a minor may attain majority
earlier than 18, such as getting married or being
declared a major by the High Court.
After the lapse of a period of five years after
the money has become claimable, the Master
pays the unclaimed money to the Receiver of
Revenue Payment Register. This does not mean
that the owner of the money cannot claim the
money from the Guardian's Fund. However, after
the lapse of a period of 30 years after the money
has become claimable, the money is forfeited to
the state. Every year during September the Master
advertises accounts that have been unclaimed in
the Government Gazette.
Inheritances due to the minor heirs to an
estate.
Inheritances due to major heirs who cannot be
traced.
49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210
e-mail:Telephone: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 | [email protected]
A look at the Guardian's Fundand the necessity for every
individual to have a well draftedWill. By Debi Godwin, Director -Independent Executor & Trust.
At Independent Executor Trust we are committed to personalized service and
individual attention. With combined experience of 65 years, we specialize in the
Drafting of Wills, Administration of Estates Testamentary Trusts.
&
&
ARE YOU SURE YOUR HEIRSARE GOING TO RECEIVE
THEIR INHERITANCE?
SENSIBLE EXPECTATIONS
It would be naive to expect the recessionary
consequence to have hop-scotched one's
living annuity, and it would be hazardous to
carry on regardless. Unfortunately, the holding
of thumbs and the ability to quote sound bites from
Summit, although making for interesting debate, is
not really adding value to the management of one
of your most important retirement assets. Active
management, which assumes action, is essential,
and if ever there is a time for the dynamics of the
working relationship between advisor and client to
take hold, it is in the management of a living
annuity.
The hangover from the historic Bull Run is the
delusional expectations of an easy income stream.
Three years ago cash was giving you 11%, and an
income rate of 10 % was sustained with no risk and
a real return on capital left under the Christmas
Tree. But one needs to put this into some sort of
economic context and defer to the lie of the land
at that time - inflation at the beginning of 2008 was
sitting at 10% and the Repo rate was 11%. If we
were to mirror the context in today's terms, it
equates to an income of 6% and a cash return of
6.5%. The obvious conclusion is that a 10 % income
stream in today's world comes with a whole new
set of dynamics.
Like any going concern, cash flow is an active
element of management. When demand falters
and prices bottom out, successful business owners
focus on their bottom lines, cutting costs,
retrenching and tightening up on the
entertainment allowance, all in a bid to preserve
working capital in readiness for when the shoppers
return. One surely needs to copy and paste this
ethos into the Living Annuity strategy.
There are really only three components an
investor can manage:
what risk is one prepared to take in order
to sustain income?
how will one invest capital in order to
sustain a growing income stream over the long
term?
what rate of income is sustainable
without compromising the appropriate risk
mandate (1) and ensuring the longevity of income
stream by growing capital (2)?
In a world where risk is up and growth is down,
cost cutting must surely be the first responsible step
to take in a bid to protect the longevity of one's
income stream. The reality of the matter, however,
is that not everyone is in a position to manage a
bottom line, when ultimately, it is managing them.
It is in this space that something has to give;
either one compromises the growth element and
focuses on capital preservation and income
generation, or one compromises the risk element
and risks capital erosion in the short term, trusting
the growth assets to adhere to the cyclical nature
of the markets. Both seem reasonable options - but
neither is sustainable for a long period and requires
close monitoring together with your advisor.
As mentioned above, one needs to actively
assess the world around us, and adapt
accordingly. The good times will come again, but
for the moment, “vasbyt” comes to mind.
1. Risk -
2. Growth -
3. Income -
14 sensible finance Nov10
Active management assumes action – now more vital than ever in the
management of your living annuity. Written by Philip Bartlett, PrivateWealth Manager, NFB East London
Big
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om
BEING ACTIVE IS GOOD FOR
YOURRETIREMENT
HEALTH
SENSIBLE ACTIVITY
S
15sensible finance Nov10
SENSIBLE MARKETS
First to increase exposure to emerging market
assets, but Green says this year Investec won an
EMD mandate for one of the large Canadian
public-sector pension funds and for a Scandinavian
pension fund. Big supporters of newer asset classes
are US foundations. Like sovereign wealth funds,
they do not have to worry too much about
liabilities, as they aren't paying pensions so they
can afford to experiment with fringe asset classes.
The most specialised mandate Investec has
received was for a frontier public equity fund,
investing in the likes of Kazakhstan and Ghana.
Africa is seen as one of the most exciting
frontier regions, as the population heads towards
1bn and the economy grows off a low base.
Investec also runs a global commodities and
resources mandate for one of the five largest Asian
public pension funds.
Green argues the attraction of commodities is
that demand and supply seem to be structurally
mismatched, so prices should trend upwards. “But
an investment in financial assets, a futures-based
play on metals, for example, has not delivered and
proved far too volatile. A combination of direct
investment into commodities as well as resource
equities is now seen as a more reliable way to tap
into commodity growth,” he says.
The number of requests by US consultants for
managers to pitch to run commodity assets for
pension fund clients has increased from two in 2004
to 45 in 2010.
Currency is another area in which funds are
looking for returns. Daily currency trading has
increased from $1trillion to $4trillion since 2001. And
it is not just the usual suspects such as the US dollar,
euro, pound and yen but the rand, the Polish zloty,
Thai baht and Peruvian new sol which are
considered part of the universe for global currency
funds. Active management of currencies is
increasingly seen as a good source of extra return.
Such thinking was still light years away when
Investec Asset Management first moved into the
international market in 1998, when it bought the
London-based Guinness Flight. But Green says that
while it might have been seen as a weakness to
come in as an outsider back in the 1990s, it is now
seen as a strength.
“We have a distinctive emerging markets
perspective and are more truly global in our
approach than investors brought up in London or
New York, who have a distinct home bias.”
Undoubtedly, Investec has a much more
global client base than the rest of the SA
managers. Old Mutual has substantial assets under
management, but they are predominantly
domestic US assets, run by domestic brands such as
Dwight and Barrow, Hanley. Firms such as
Coronation and RMB have offices in London, but
primarily to serve their SA client base. Sanlam is
buying up a network of international asset
managers, but it is still early days. Allan Gray's Orbis,
one of the best-performing global equity funds in
the world, does not have a significant number of
pension funds (outside SA) or sovereign wealth
funds in its client base. Many investment
consultants and multimanagers are impressed with
Orbis, but it has high fees which are not negotiable.
Investec AM has leveraged off the group's
zebra campaign, which has made the brand
recognisable in the UK, the main hub for
international, non-US fund management. The
business has attracted flows from a wide range of
countries. Africa accounts for 27% of net flows, the
UK for 19%, Asia for 11%, cross-border (mainly
multinational) business another 27% and the
balance is from the rest of the world.
A BREAK FROM TRADITION...continued from page 9
Photo BigStockPhoto.com
17sensible finance Nov10
Most medical schemes offer a wide
selection of benefit options and it is
important to match your medical
needs with a medical solution that
suits your budget - often a very confusing,
complicated and time-consuming task. Once you
have joined an option, you need to understand
how the plan works and how to manage your
medical expenses in order to get the most out of
your medical scheme.
NFB's Healthcare Advisory Services Division is
committed to offering you quality, objective
advice to best suit your individual circumstances,
with an exceptionally strong focus on Service
Excellence.
Compare current benefit options with similar
options on different medical schemes.
Advise on legislative changes.
Ongoing product education.
Provide administrative support.
Best of all - peace of mind!
NFB Healthcare Advisory Services is not affiliated
with any one particular medical scheme and, as
such, is able to give objective advice, most
especially as far as ensuring that your current plan
is the one most suited to your needs. We are also
able to provide administrative support on most of
the major medical schemes in the country. You are
thus able to make use of our services without
needing to change medical schemes. In addition,
as we are not affiliated with any particular medical
scheme, we are thus able to advise you
accordingly as the market changes, as legislation
changes and as changes within your current
medical scheme occur; and hopefully, before you
are impacted negatively in any way.
Handling enquiries on benefit structures offered
by various medical schemes.
Personal Product presentations to prospective
medical scheme members.
Handling enquiries on premiums payable.
Advising on exclusions and enrolment
conditions.
Assisting you with all aspects of claims.
Assisting you with pre-authorisations.
Providing you with Service Provider details.
Providing you with and advising you on Medical
Scheme rules.
Continuously updating you on your medical
scheme's products, benefits and services.
Processing and following up on membership
registrations.
General follow-ups and assistance.
Discovery Health Fedhealth
Bonitas Momentum Health
Liberty Health Resolution Health
Medshield Oxygen
Medihelp
The medical schemes landscape is an extremely
confusing, complicated and daunting one and our
job is to give you the peace of mind of knowing
that your hard earned money is being spent on a
plan suitable to your current and, most likely, future
needs and that various possible risks are catered
for.
NFB's Added Value - what we can do for you in a
nutshell:
NFB can provide the following services:
NFB Healthcare Advisory Services are accredited to
market, amongst others, the following schemes:
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For further information on how NFB's Healthcare
Advisory Service can be of assistance to you,
contact Leonie Schoeman on 043 – 735 2000 or e-
mail her: [email protected]
SENSIBLE OPTIONS
NFB's HealthcareAdvisory Service
Medical Schemes have undergone manychanges in recent years and the process ofidentifying the appropriate scheme has becomemore difficult for both individuals and employers. By
Leonie Schoeman, Divisional Manager of Healthcare Advisory Services - NFB East
London.“The first wealth is health.” ~ Ralph Waldo Emerson
18
What will the world central banks do next?That is the question on every trader'smind, with billions of dollars washing
around global markets trying to anticipatecurrency, commodity, bond and equity marketmoves. While quantitative easing has nothing to dowith the grand old cruise liner The Queen Elizabeth2, I couldn't help but spend some time looking intoher past successes.
For a ship built in 1967, she was the epitome ofluxurious transatlantic cruising, launched by HerMajesty Queen Elizabeth II, with her official maidenvoyage across the Atlantic having taken place onthe 2nd of May 1969. The QE2 of 1967 was symbolicof a world embarking on the early stages ofglobalisation. From continent to continent shesailed, linking cities that would eventually becomethe global community that we now live in. The QE2of 2010 is a rather different animal. Like the originalQE2 the effects of this voyage of money will beglobal, crossing the world from New York to Sydney,filtering into assets and markets on all continents.
The lavish exterior of the QE2 masked the bruteforce driving this massive ship across the world. 9MAN B&W diesel engines producing 10,625 KWeach, 2 propellers, 42 tons a piece and 1 rudder of75 tons - an incredible piece of engineering. Whatwe see today is again a marvel of engineering, butthis time of a financial kind. There is no doubting itsmuscle; we've seen the far reaching effects of QE1as aggressive buying of global government bondshas forced interest rates to near zero, in the processflooding institutions with cheap cash. The problem
is this QE doesn't have a cabin class. With thevelocity of money so low the second leg of thetransmission of cheap finance is not initiatingcorrectly with those sitting in first class (Internationalinvestment banks) choosing to invest this cheapmoney in emerging market currencies and assetsrather than on-lend to business and consumers(cabin class), who in many instances are stillstruggling with the after effects of leveragedconsumption.
And while the QE2's course was governed by acarefully controlled rudder, the course ofBernanke's QE2 seems a little less certain. While wehave not yet received any definitive move from theUS Fed, it would seem the market has begun toprice close on a further trillion dollar programme.Now that could certainly buy you more than 9diesel engines! But the question is, will it be moreeffective than those 9 engines on the old QE2?With emerging markets benefitting substantiallyfrom the flow of cheap money, it's imperative thatwe begin to see a marked improvement ineconomic fundamentals in the G7 nations for atrue recovery to take place. Whether a furtherlarge scale bond purchase will be the correctmechanism to achieve that, remains to be seen. Inwhat has been an unprecedented level offinancial stimulation, markets are finding itincreasingly difficult to price the consequences. Wehave always maintained the view that the worldwill recover; we feel it may just take a little longerthan the market wants it to.
QE II
The Eastern Cape's first
NVest Securities (Pty) Ltd:
www.nvestsecurities.co.za
NFB House 42 Beach Road,
Nahoon, East London 5241
P O Box 8041 Nahoon 5210
Tel: (043) 735-1270
Fax: (043) 735-1337
Email: [email protected]
home-grown stock brokerage…..
Ph
oto
Big
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om
By Chris Lemmon, Director/Portfolio Manager - NVest Securities
sensible finance Nov10
THECHRISTMAS
SONGQUIZ
So every year Christmas comesaround, the carols and songs begin
until you're quite certain you cansing them in your sleep. But can
you? Take our Christmas songs quizto see just how well you know them.
By Robyne Moore - NFB East
London.
1. In Bing Crosby's song he wishes that all your
Christmases may be?
2. In the song 'Christmas Without You' by Dolly
Parton, the fireworks have no:
3. What "will soon be out of sight" in the song 'Have
yourself a merry little Christmas'?
4. In the song 'Rudolph the Red-nosed Reindeer',
what was Christmas Eve like?
5. In the Christmas carol 'Away in a Manger' in what
type of sky were the stars?
6. Where was Mommy when she was kissing Santa
Claus?
7. In Mariah Carey's song 'All I Want for Christmas',
what is it that she wants?
8. What song was originally titled "One Horse Open
Sleigh"?
9. What Christmas carol contains the word "Fa-la-
la-la-la-la-la-la-la"?
10. In Wham's song 'Last Christmas' George
Michael this year will give his heart to someone:
a) white b) blue
c) merry d) sunny
a) spark b) bang
c) fuse d) colour
a)our money b)our turkey
c)our Christmas dinner d)our troubles
a) misty b) foggy
c) cold d) clear
A)dark b)cloudy
C)moonless d)bright
a) on the stairs
b) underneath the mistletoe
c) cooking in the kitchen
d) next to the Christmas tree
a) falling snow b) lots of presents
c) you d) Christmas dinner
a) Jingle Bells b) Away in the Manger
c) Drummer Boy d) Frosty the Snowman
a) Winter Wonderland b) Christmas Song
c) Let it Snow d) Deck the Halls
a. Else b. special
c. Caring d. Kind
1. A 2. C 3. D 4. B 5. D
6. B 7. C 8. A 9. D 10. B
Answers
SENSIBLE EXPECTATIONSSENSIBLE SONGS
THECHRISTMAS
SONGQUIZ
19sensible finance Nov10
20
Q:
A:
What are the benefits of a Financial Needs
Analysis (FNA)?
The role of the FNA is to provide both the client
and the advisor with the tools to identify any risks or
shortfalls a client may have with regards to death,
disability, education, estate planning and
retirement. It is effectively a bunch of calculations
that take into account a number of variables to
give an answer that will act as a guideline or an
illustration.
The strength of any FNA is only as good as the
information given by the individual. Values of assets
and liabilities need to be accurate and goals need
to be realistic within the context of the client's
current income earning ability. This allows the
advisor to use various assumptions with regards to
growth rates and inflation which in turn gives
calculated results relating to the goals and needs
set out at the beginning.
With regards to retirement the main concern for
people is whether or not they will have enough
capital to provide an income that will sustain the
lifestyle that they are accustomed to. The FNA will
not only highlight the capital amount required, but
also highlight the monthly amount that needs to be
invested to reach these goals. Most people will only
retire on about 75% of their current earnings and
often there is still a shortfall.
The FNA can also highlight the sustainability of
income and growth of capital in your retirement
years. It takes into account inflation and expected
mortality and is able to graph these results giving
the client a look into the future. It is also able to
highlight these calculations in both real and
nominal terms.
An FNA also identifies capital amounts that are
needed to ensure that one's family will be
financially secure in the event of death or disability.
It takes into account existing assets and life and
disability policies as well as liabilities that would
need to be settled. The advisor is then able to
suggest the correct amount and type of cover. This
is often an area that is overlooked and many are
underinsured.
There are obviously many assumptions and
variables that one can use. A slight change in
assumed growth rates of 2% p.a. will make a
massive difference compounded over a 20 year
term. It is better to be more conservative and look
at the worst case scenario to ensure that you are
not caught short when it is too late.
The FNA is a powerful tool that can not only assist
with retirement and risk planning, but is also flexible
and can be revisited and updated regularly.
Should you wish for an FNA to be done on your
portfolio contact one of our NFB Private Wealth
Managers for assistance.
sensible finance Nov10
“Sensible Finance - Questions and Answers” is an advice column
that will allow our readers the opportunity to write to a professional
and experienced financial advisor for advice regarding
investments, personal finance, life and/or risk cover.
Travis McClure will be answering any questions that you may have.
Travis McClure
SENSIBLE FINANCE QUESTIONS & ANSWERS
Please address all Questions to: Travis McClure,
NFB Sensible Finance Q&A, Box 8132, Nahoon,
5210 or email: [email protected]
Anthony Godwin
Gavin Ramsay
Andrew Kent
Walter Lowrie
Robert Masters
Bryan Lones
Travis McClure
Marc Schroeder
Phillip Bartlett
Duncan Wilson
Leona Trollip
Leonie Schoeman
(RFP, MIFM) - ManagingDirector and Private Wealth Manager, 22 yearsexperience;
(BCom, MIFM) - ExecutiveDirector and , 16 yearsexperience;
(MIFM) - Executive Director andShare Portfolio Manager, 17 years experience;
- , 24years experience;
(AFP, MIFM) -, 23 years experience;
(AFP, MIFM) -, 19 years experience;
(BCom, CFP) -, 12 years experience;
(BCom Hons(Ecos), CFP) -, 6 years experience;
(BA LLB, -, 9 years experience;
(BCom Hons, CFP), 5 years experience;
(RFP) - Employee Benefits DivisionalManager and Advisor, 33 years experience;
- Healthcare DivisionalManager and Advisor, 12 years experience;
NFB has a separate specialist Short TermInsurance Division, as well as now offeringspecialist group companies in the fields of stockbroking, wills and the administration ofdeceased estates.
Private Wealth Manager
Private Wealth Manager
Private WealthManager
Private WealthManager
Private WealthManager
Private Wealth Manager
CFP) Private WealthManager
– PrivateWealth Manager
(RFP)
NFB have a
with a between them:
STRONG, REPUTABLE TEAM OF ADVISORSWEALTH OF EXPERIENCE
21
TERMS AND CONDITIONS All entrants will be added to NFB's electronic mailing list (recipients may then manually unsubscribe). Thecontact telephone number is simply to contact the winner telephonically. Unless NFB are specifically authorised to do so, entrants will not becontacted directly in an attempt to solicit business. The give-away is valid from 15th December 2010 to 15th June 2011 (subject to availability), isnot transferable and cannot be exchanged for cash. The draw will take place on 6th December 2010 and the winner will be contactedtelephonically. No employees or direct family of employees of NFB or Travel Experience will be eligible to win the prize.
• •
••
•
The Royal Guest House can be found in the quaint coastal town of Port Alfred, high on the east bank ofthe Kowie River. The beaches are almost deserted and our main beach is a safe Blue Flag recognised
beach. Stay in any one of the 11 luxurious rooms, all with en-suite bathrooms, bar fridge, air conditioner, flatscreen TV, telephone and internet facility and hair dryer. The Royal Guest House has amazing views overlookingthe marina, which you can view from the cozy lounge with a bar, television, recliner chair and plush lounge suite.
There is also a large log fire should the evenings turn chilly. French doors from the lounge open onto amagnificent wooden deck, with a plunge pool and loungers, from where you can overlook the town and enjoy
the stunning sea view.
Winner of the
onenight stay
at thePrem
ier Hotel Cascades is:
Angela
Dickinson
Send your first name, surname, email address and contact telephone number [email protected] with “NFB Sensible Finance Giveaway” as the subject line.
Please specify in the email if you would like an NFB private wealth manager tocontact you for a free investment portfolio evaluation or financial advice.
WIN A FANTASTIC…
TO ENTER SIMPLY…
2 Night stay for two people in an Executive Room,
at the Royal Guest House Travel Experience East
including Bed and
Breakfast, courtesy of London.
sensible finance Nov10
fortune favours the well advised
You’ve worked hardfor your money...
“It requires a great deal of
boldness and a great deal of
caution to make a great
fortune...but when you have got
it, it requires 10 times as much wit
to keep it”
Nathan Rothschild, 1834
contact one of NFB’s financial advisors
East London
Port Elizabeth
Johannesburg
• tel no: (043) 735-2000 or e-mail: [email protected]
• tel no: (011) 895-8000 or e-mail: [email protected]
• tel no: (041) 582 3990 or e-mail: [email protected]
NFB is an authorised Financial Services Provider
Web: www.nfbec.co.za
p r i v a t e w e a l t h m a n a g e m e n t
now let NFBmake your money
work for you.
