First Quarter 2014 – In touch

Investment news from Mark Jurgens

Can you believe that we are almost at the end of the first quarter of 2014?
As you are aware, 2013 was a great year for investors, particularly investors with exposure to offshore equities.  The JSE also performed well with the All-share Index having shown growth of 20.59% for the calendar year.

The Mining and Resources sector performed poorly, with global demand decreasing and labour unrest causing instability. As we face these and other economic problems, we question whether the returns in our market are justified.

We also saw significant Rand/Dollar depreciation, perhaps more than expected. Most analysts suggest that the Rand will recover to around R10.40/USD in the short term.

Rand Dollar exchange

Although positive for many, the 2014 Budget did not deliver any serious changes.  From a financial planning point of view, the first R500 000 from retirement annuities or pension funds is will now be paid out tax-free. As from 1 March 2015, there will be fairly significant changes to all retirement products.

The focus is on trying to ensure employees do not cash in the proceeds from their pension or provident funds when leaving their employer. We will be discussing these changes with clients as and when we see you as certain changes have not yet been legislated.

The amount that you save and invest while you’re working will determine your income and quality of life when you retire. Don’t forget the benefits of investing monthly into a retirement annuity (RA). If you are self-employed, it is extremely important to invest at least 15% of your gross income per month (as you are probably not a member of a pension fund).

Growth in an RA is totally free of tax, i.e. no Capital Gains Tax is paid on profits.

Contributions are also tax deductible.

Although saving for retirement may not be the most exciting prospect now, it is imperative to do so should you wish to retire with dignity.

Employee Benefits from Estelle Susanna

The Taxation Laws Amendment Act, 2013 was signed into law on 12 December 2013.
The main aspects of the Act that will impact on the employee benefits industry are the following:

  • From March 2015 income disability insurance (PHI) premiums will no longer be tax deductible, but benefit payments will be tax-free;
  • From March 2015 employer contributions to retirement funds will be taxed as fringe benefits in the hands of employees – for tax purposes these employer contributions will be deemed to have been made by the employees. Employees may deduct up to 27,5% of remuneration or taxable income in respect of contributions (employer/employee) to pension, provident and retirement annuity funds, subject to an annual cap of R350 000.
  • From March 2015 not more than one-third of the retirement benefit from a provident fund may be taken as a lump sum. However, this restriction does not apply to the balance in the fund as at 1 March 2015 (and growth thereon) and therefore funds will have to keep separate member accounts for pre-March 2015 contributions (and growth) and post-March 2015 contributions (and growth). Provident fund members who are 55 years or older on 1 March 2015 will however, be able to commute the full retirement benefit, including contributions made after 1 March 2015 (and growth thereon) to the provident fund of which he/she was a member on 1 March 2015.
  • From March 2015 the commutation threshold upon retirement will be increased from R75 000 to R150 000 for all retirement funds.

Short Term News from Greg Brits

As our first article of the year, I’d like to reiterate a few points that continue to be a challenge when dealing with claims and the replacement value of goods and services.

Replacement items are often imported and the weakness of the Rand, together with other factors such as inflation, have a negative impact on clients’ policies and effectively creates the obstacle of being under-insured.

Here are some ways to prevent this:

When initially writing a policy with new clients and again at renewal time, we highlight the policy terms and conditions and endeavour to make clients aware that it is ultimately their responsibility to bear in mind that the valuations of their possessions should be realistic and current, and to keep their insurer informed of  new acquisitions.  This is very important in order to ensure adequate cover is in place at all times.

We have the services of professional valuators available to clients, however this is usually not taken up due to an additional cost being involved.  Clients in general are usually of the opinion that they have enough cover.

A quick calculation to see if a building is adequately insured is to take the basic square meterage of the building and multiply it by R13 000. For example, a house of 300 square meters should be insured for R3 900 000. This value would include the cost to build and also includes all additional extras like swimming pools, boundary walls, driveways and the like.  It also includes professional fees and demolition costs. This is an assumed cost and as mentioned earlier,  a professional valuator should be used to get an accurate value.

This is an example to help understand how the insurers establish the sum insured.  Other factors to be taken into account are things such as whether your home is built on a steep incline or you have expensive fixtures and fittings, the value per square meter would obviously need to be increased.

The contents of a basic three bedroomed home occupied by a family of four members, should be insured for a minimum of R600 000 as a guideline.  A larger home with expensive artwork, sound systems and designer furniture should be insured for a whole lot more.

With regard to your short term insurance policy, please remember that we try and offer our clients the best value for money and not the cheapest product on the market. It is our opinion that the cheaper products do not live up to our or our client’s expectations. Unfortunately, it is often the case that with the cheaper premium products, problems arise at claim stage.

Cheap products give cheap cover.

Should you wish to discuss any of the above please do not hesitate to contact us and we will gladly assist.

Trivia Naked Numbers

  • 450 Cups of coffee were bought by journalists on the first day of the Pistorius trial.
  • -3.1%  Vehicle sales growth contracted year on year.
  • R3bn – R4bn  To be invested in the Victoria & Alfred Waterfront in Cape Town over the next three to four years, much of it in residential  apartments.
  • 4000 More passengers use the Gautrain daily since e-tolls were introduced.
  • R300m Fine paid by bread producers for price fixing.