In celebrating Women’s Month in South Africa, we may often find the focus on how women can be helped – in their careers, in their relationships, in their sense of safety and in defending their rights.  We know, though, that so much can be achieved through women being financially empowered, and this is often the first step to achieve many of the other goals. 

In encouraging women to work towards their financial wellness, this August Xpress newsletter cites worthwhile and practical steps to take to achieve financial independence. It’s great advice (for men also!) from our strategic partner, Interface Employee Financial Solutions.

Assess your current financial situation

Determine how healthy your current financial situation is.

What is your current income and what are your expenses? What are your prospects for increasing your income and how can you reduce your expenses? How much debt do you have and how can you reduce it? What insurance or savings do you have to cover unexpected emergencies or life events?

Educate yourself about financial matters

Every woman needs to be educated in financial matters! You can speak to a financial planner or do research online or read books.

Take responsibility for your own financial situation

Even if your husband or long-term partner takes care of your family’s financial matters, take charge of your own financial affairs.

Create a budget and stick to it. Save money from your income every month, no matter how little your start with.

Open and manage your own bank account and build up a solid, clean credit record.

If you are married or in a relationship, make sure you understand and are involved in your financial situation as a couple.

Record the account numbers for your joint accounts and your partner’s accounts. Understand what provision has been made for your joint retirement, and what will happen if one of you passes away or becomes disabled, or if the relationship ends.

Create a financial plan for your future 

Plan for your own financial future – don’t rely solely on your financial plan as a couple.

Have your own vision of your financial future and do your part in securing your own retirement, as well as saving for your personal individual dreams.

Discover your capacity to be a woman of financial vision!

The Competition Commission of South Africa released their Healthcare Market Inquiry: Provisional Report, on 5 July 2018.

The consultative process began in 2014. This inquiry was motivated by the high cost of increasing expenditure on private healthcare in South Africa.

We have provided the link to the Executive Summary of the 480 page report at the end of the newsletter, and share some of the concerns below:

Competition within the Industry

As expected, the report highlights the lack of competition within the South African Medical industry. Discovery Health owns 55% of the open-scheme market.

Fee-for-Service Model

This form of remuneration utilised by practitioners has been highlighted as an incentive for over-servicing, resulting in wasteful expenditure. The lack of a regulated pricing environment intensifies this behaviour.

Supply-induced demand

The report has found evidence that supply-induced demand is prevalent in the market. Specific discretionary surgical procedures were compared against those in comparable countries and utilisation rates in the private sector were higher than the average for six of the seven procedures studied.

Plan Selection

There are approximately 270 plans in the medical scheme market, all of which are difficult to compare. This makes it challenging for consumers to understand the value-for-money they get from each plan.

Funders fail to provide better value for consumers

There are concerns over the failure of governance that results in schemes’ interests being too closely aligned with those of administrators. The report refers to the separation of schemes and administrators as being ‘almost artificial’. A lack of transparency, accountability, and alignment of the interests of consumers and funders are some of the other reasons listed.

When is a benefit equal to bribery?

The Prohibition on the Acceptance of Gratification Directive from the Registrar of Pension Funds highlights questionable conduct by officials or service providers to a retirement fund.  In this newsletter, I take a closer look at what that behaviour might look like.

The first quarter of 2018 is about to conclude, as the leaves are starting to brown, we can reflect on a positive and hopeful start to the year.

New leadership, proposed land expropriation without compensation, the exposure of some the State Capture specialists, white slime from Brazil and unsavoury behaviour on the cricket field are some of the newsworthy items that have trended since January.

What constitutes “gratification”?
In the world of retirement funds, the Registrar of Pension Funds issued a final Directive 8 called “Prohibition on the Acceptance of Gratification”.

In summary, this directive provides that officials and service providers to a fund must not be involved in any conduct constituting bribery, fraud or corruption, and any such involvement will affect such a person’s fitness to hold office.

The Directive goes on to qualify what constitutes gratification. It is a long list that includes cash, gifts, interest in property, right or privilege and any valuable consideration or benefit of any kind, including any discount, commission, rebate, bonus, deduction or percentage.

The same officials and service providers have a duty to report any corrupt transactions to the Registrar and the police. Any report to the Registrar can be a protected disclosure, which gives protection to the person submitting the report.

This Directive should not come as a shock to the industry as Trustees already had a duty under the Pension Funds Act to inform the Registrar of material matters that may prejudice members.

In addition, the Prevention and Combating of Corrupt Activities Act requires fund officials and service providers to report corrupt transactions to the South African Police Service.

We are often questioned by members of retirement funds as to the security and wellbeing of their hard-earned retirement savings and it does beg the question as to why suddenly this Directive has been issued at a time when the veil on corruption and State Capture in South Africa seems to be lifting. We hope that members retirement fund savings have been correctly accounted for and there has been no unnecessary leakage or corruption that has prejudiced members.

In conclusion
We hope that into the future, if there is indeed adherence to this Directive, the inducements of the past that may have swayed certain decisions at the Board of Trustees meetings will no longer be tolerated and members will be the recipients of objective and sage decisions.

On my recent business trip to Durban, my parents-in-law were kind enough to put me up in their place situated in the hidden and tranquil corner of the border between Assagay and Hillcrest.

They live in a compact yet comfortable home in a “retirement village”.

There were a number of observations that hit home during my short visit to the folks.

A feel-good place

The “retirees” that attended the weekly Friday night get-together at the clubhouse were the most upbeat and vibrant set of people you could ever hope to meet. They had an absolute whale of a time that evening and, despite some of them facing health challenges, they were in good cheer and optimistic about their futures.

The majority of the older people had had successful working careers and had managed to save enough towards their retirement to able to live in this village. The management company provides an onsite nurse, and frail care is available. The village is very secure (touch wood), yet one never feels claustrophobic.

At Chartered we assist retirees with dealing with both the financial and psychological aspects of retirement. Having witnessed this community and how they engaged with each other, we would strongly suggest that potential retirees at least consider such an option when planning their retirement.  Be aware, though, that waiting lists can extend to over eight years, depending on your choice of village, so don’t wait until you feel you are ready – do your research now, select those villages that suit you, and submit the forms.  You are allowed to decline a number of times when you are offered a vacancy, and still remain on the list.  Some villages may have a ceiling in terms of age (they may not accept applications from those over 80, for example), so that’s also a good reason to apply early.

Accessible healthcare for residents

Directly opposite my in-laws’ village is a private hospital run by the doctors themselves. I am sure that the need for such a hospital was established and hence permission was granted to build it, but the thought did cross my mind that one of the contributing factors to rising medical costs is higher utilisation. A recent report in the Financial Mail indicates a material increase in members of a prominent open medical scheme claiming over the last seven years. This same report stated that in 2006, an average course of chemotherapy to treat cancer would have cost R65,000. Today it’s R1.4M.

Adrian Gore, the CEO of Discovery Group, cites a study which says that in the long term, health-care costs don’t drop – they just end up taking a greater share of your wallet at the expense of other things.

We are entering the time of year when the medical schemes in South African launch their new products for 2017. There is much fanfare as the medical aid consulting community eagerly attends these launches and waits to hear about the increase in medical aid contributions (usually expressed as a percentage across all their plans. Watch Chartered EB’s social media platforms for updates.

Let’s hope there is enough left in the wallet for our jolly retirees and the rest of us making the journey towards retirement to enjoy another glass of wine.

Knowledge, not a knee-jerk reaction, is crucial to bouncing back

Chartered CEO, John Campbell, issued a comment following the release of the BREXIT results, outlining the implications of the surprise ‘Leave’ decision. Besides the seismic global and UK impact, there are potential local effects of which we need to be cognisant, including the strength of the rand.

In the wake of the BREXIT announcement, a deluge of press releases, articles and commentaries hit the media.  Among those are a number of commentators who take the stance that BREXIT will not become a reality, for various practical reasons.  It is an interesting viewpoint, and one which you may appreciate reading.

While there may be uncertainty and anxiety with the political and economic turbulence that has resulted, we assure our clients that their planners are always available to answer any queries.  Feel free to contact them.

Today’s Budget Speech has been pronounced as fair and firm. The self-assurance and authority with which Minister Pravin Gordhan delivered his pronouncements will hopefully go some way to buoy both global and local confidence in the country … in the words of the Minister:  “ … towards hope, confidence and a better future for all.”

Personal income tax
From 1 March 2016, Government will provide some tax relief for lower to middle income earners, compensating for inflation.

Tax threshold
This refers to the amount of income you earn before you need to pay tax.  The new thresholds are as follows:

• if you are under age 65, your yearly tax threshold is R75,000;
• if you are between 65 and 75, the threshold is R116,150; and
• if you are 75 or older, the threshold is R129,850.

Interest exemption
The interest exemption amounts remain the same.  If you are under age 65, the annual interest exemption is R23,800, and if you are 65 and older, the exemption is R34,500.

How will the tax threshold and interest exemption changes affect you?
If you are between the ages of 65 and 75, you can earn a yearly income of R116,150 plus R34,500 interest, before you have to pay tax.  If you are 75 or older, you can earn an annual income of R129,850 plus R34,500 interest before you have to pay tax.

Changes to Retirement Fund contribution deductions
A shock in the last week has been that Retirement Reform will not be fully implemented from 1 March 2016.

What has been implemented?

For the first time, Retirement Fund contribution deductions have been standardised across all types of Retirement Funds. A significant benefit for those earning up to R1,27 million a year is that they can deduct up to R350,000 on their Retirement Fund contributions. The deduction is, however, capped at R350,000 (even if you are contributing more than this!).

So, what has been put on hold?

Provident Fund members have always been allowed to access their full Retirement Fund benefit in cash when they retire. The Retirement Reform proposal intended to allow members to access a maximum of one-third as cash and use the remaining two-thirds to pay them an income (annuity) in retirement. This proposal, however, has been put on hold for the next two years, to afford all stakeholders time to confirm finer details around implementation.

Capital Gains Tax (CGT)
The inclusion rate for CGT for individuals has increased by 6.7% (from 33.3% to 40%). What does this mean? Formerly, if you made a capital gain of R100,000 (by selling shares, for example), you would have paid CGT on R33,333. Now, you will pay CGT on R40,000.

The maximum effective CGT amounts have been adjusted:

• Individuals and special trusts: 16.4% (inclusion rate of 40%)
• Companies: 22.4% (inclusion rate of 80%).

The CGT exemption thresholds are as follows:

• The annual exclusion increased to R40,000
• The exclusion amount on death stays at R300,000
• The primary residence exclusion remains at R2 million.

Adjustments to medical aid tax credits
Medical tax credits have been adjusted for inflation as follows:

•  R286 per month for the main member and the first dependant on a medical scheme;
• R192 per month for each additional dependant.

Estate Duty
Estate Duty tax remains unchanged at 20%.  You are allowed a basic deduction of R3.5 million on your estate when you die. You do not pay Estate Duty on the value of your Retirement Funds or on the value of the assets you leave to your surviving spouse.

The Davis Tax Committee is currently reviewing the Estate Duty system, and we will keep you abreast of developments.

Trusts
Treasury is proposing that assets transferred through a loan to a trust are to be included in the estate of the founder of the trust at death and interest-free loans to trusts are to be treated as donations.  We are awaiting clarification on this.

Offshore Special Voluntary Disclosure Programme
If you have undeclared offshore assets and income, Government has offered a Special Voluntary Disclosure Programme from October 2016 to end March 2017 to regularise your affairs in exchange for income tax and exchange control relief. Only companies and individuals — and not trusts — qualify.

Changes to transfer duty
Transfer duty on properties valued in excess of R10 million will increase from 11% to 13% for properties acquired after 1 March 2016, and this will yield an additional R100 million for the fiscus.

And that bottle of rum …
If you drink or smoke, you will pay between 6% and 8.5% more. You can expect to pay tax on your favourite sugar-sweetened beverages from 1 April 2017.

The general fuel levy goes up by 30 cents a litre on 6 April 2016.

A new tyre levy of R2.30/kg will take effect from 1 October 2016.

Taxes on incandescent globes, plastic bags and motor vehicle emissions are increased.

Conclusion
We found Minster Gordhan’s closing quotation from Nelson Mandela hopeful and an apt conclusion for our summary:

I am fundamentally an optimist … keeping one’s head pointed toward the sun, one’s feet moving forward …

Warm regards
John Campbell

So you are a member of a medical scheme.  This scheme makes provision for covering your day-to-day medical needs by way of a medical savings account.  But, what happens when you run out of medical savings?

An additional benefit is available, if you are prepared to pay just a little more.

This is commonly known as the above-threshold benefit.  Your medical scheme can inform you regarding how this benefit is applied … but there is a caution, and that is the self-payment gap.

Since calculations that determine the self-payment gap amount and how this amount can change has caused much misunderstanding for as long as this innovation has existed.

What you need to know

Self-payment gaps are tools that medical schemes use to try control members from accessing the risk portion of their benefits, as this benefit is funded by the medical scheme and not member’s savings.  The risk portion of the scheme’s benefits is the main part of your contribution and acts in the same way that short term insurance does. You pay this premium in the event that you need to access the funds from your medical scheme to pay for treatment in hospital.

Here are a few key factors I believe are useful for you as a member to understand in order for you to manage your self-payment gap – your aim is to keep the self-payment amount as low as possible. Unfortunately, medical schemes make it quite difficult for members to minimise this amount.

Factors to take into account are:

• Understand what your annual threshold and annual medical savings are. The difference between your annual threshold and annual savings give you your initial self-payment.
• Be aware that you can increase your self-payment gap
• It is essential to understand that self-payment gaps only get reduced by claims you pay for at medical aid rates. Let’s take the following scenario to demonstrate the point. You are in your self-payment gap and it is R1 000. You visit a GP who charges you R500; you pay the GP R500 and submit that claim to the medical scheme to reduce your self-payment gap. The medical aid rate for a GP consultation is R320, so even though you have paid R500, your self-payment gap will only reduce by R320.

Perhaps the most important point to note about self-payment gaps is to make sure you really do need a plan that employs an above-threshold benefit. If you have been on a plan for two years or more, and you have never closed your self-payment gap (that is, you have paid the amount determined by the medical scheme from your own pocket and submitted those claims to the medical scheme; the scheme then started paying for your day-to-day claims from the above-threshold benefit), you are in all likelihood a little over insured.

It is always helpful to consult your financial advisor – he or she can assess your needs and place you on the appropriate plan.

In our previous blog post, we advised that the 2015 Taxation Laws Amendment Bill had been passed by Parliament and only required the signature of the President.

The Bill has now been signed, effectively making T-Day law with effect from 1 March 2016.

In summary, the tax changes effective from 1 March 2016 (T-Day), are:

• Employer contributions to retirement funds will be taxed as a fringe benefit, but these contributions will be deemed to be employee contributions for the purposes of claiming the deduction.
• All approved funds (Pension, Provident and Retirement Annuity Funds) will be subject to a contribution deduction of 27.5% of the greater of taxable income or remuneration.
• A yearly maximum contribution of R350 000 across all retirement vehicles will apply. Contributions exceeding this maximum may be carried forward to following tax years.
• The rights of Provident Fund members to take retirement benefits in cash will be protected for all benefits that they have accumulated to T-Day, plus the growth thereon until their retirement.
• Provident Fund members under 55 years: All contributions from 1 March 2016 will be subject to 1/3 cash and 2/3 pension at retirement; however, if this benefit is less than R247 500, the member may take the entire benefit in cash.
• Provident Fund members who are 55 years or older as at 1 March 2016 will still be allowed to take their retirement benefit in cash, irrespective of the amount, if retiring from the same fund.
• Provident Fund members are likely to see an increase in their take-home pay, as their contributions will now be tax deductible.
• For a Provident Fund member, any pre T-Day savings plus growth thereon may be taken in cash.
• All members will still be able to take their benefit in cash when they leave their employment prior to retirement.

What should employers do?

• Ensure that their HR and payroll systems are adapted to meet the new SARS requirements as a result of the changes.
• Take careful consideration of the impacts of transfers for fund members over 55 years.
• Make certain that member communications focus on:

1. Ensuring that your employees are aware of, and understand, the upcoming changes.
2. Explaining the benefits of additional voluntary contributions and providing instructions on how to make these.
3. Reinforcing the message that your employees do not need to resign to protect their retirement savings or their rights as a fund member.

The tax changes have created uncertainty among members of retirement funds. This uncertainty is mainly owing to rumour and misunderstanding.

The tax changes are largely a positive step for the retirement fund industry as it encourages saving through greater tax relief, thereby creating the conditions for members to be financially secure at retirement.