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As political and economic uncertainty seem to be rushing full-steam ahead, South Africans are naturally concerned whether their investments are heading for a train smash. And it is particularly with regard to their hard-earned pensions that the red signal flags have more recently been going up all along the track.
While you obviously can’t be relaxed about such things, you don’t have to fret too much either: there are solutions available. And good ones too.
When it comes to pensions, an excellent one is the International Corporate Pension.
The ire of many hard-working South Africans planning their comfortable retirements was recently roused by two potentially nasty things.
One was media reports that our over-stretched, under-funded government was eyeing the Public Investment Corporation (PIC) and its public sector pension fund to bail out our troubled, mismanaged parastatals. The other was that the governing ANC, following its policy conference in July, was once again considering prescribed assets. The latter is a tool that allows government to use a part of pensioners’ retirement money to fund state development.
This is enough to give any hardworking citizen trying to build a secure retirement future the jitters.
The use of prescribed assets is not new, however. In the dying days of apartheid, when South Africa was isolated and sanctions threatened to sink its economy, the government of the time made good use of it. The experts say it need not be an all bad thing either, providing it is done within limits and well-managed.
But therein lies the rub, what with Zumanomics and the outstretched hand of the Guptas popping up all over the place. So, enter the International Corporate Pension…if you are concerned and wish to hedge against your existing local pension losing value, or being used for everything but your own retirement.
A supplementary pension
An International Corporate Pension does not replace your existing South African pension. It is rather a supplementary pension that can be built up in hard currency and in assets that are not available locally. Managed by expert fund managers with secure, diversified investments spread around stable markets internationally, it will provide peace of mind and a good retirement option in these uncertain times.
International corporate pensions have been around since the 1970s and are globally recognised as robust vehicles for retirement planning, yet relatively few South Africans have made use of them. For example, people in politically and economically stable Australia have invested on average 60% of their pension assets outside of Australia, yet for South Africans the figure is only 7%.
You can blame this partly on a lack of available information. But the big culprit is more likely the stringent foreign exchange limitations that were in place in South Africa up until a few years ago for people wanting to take money out of the country. The good news is, all of that has since changed, and you can now join the Australians in hedging your pension options offshore.
It is for this reason, to provide expert advice and assistance in this regard, that South African wealth and capital managers Carrick Wealth recently launched their International Corporate Pension product. Carrick Wealth are recognised leaders in the offshore investment environment, with specific specialist expertise in international or offshore pensions.
Corporate pensions & HNWI
According to Anthony Palmer, Director of Product and Investments at Carrick, the new International Corporate Pension product is specifically suitable for executives and top management who have disposable earnings in excess of R350,000 per year. This is the maximum local pension contribution allowed that qualifies for a tax deduction.
Palmer believes it makes complete sense to utilise the tax benefits up to R350,000, but for any additional savings an international pension should be used.
Also, South African pension funds can only invest up to 25% of their portfolio offshore, but even this is not truly an offshore investment, but rather an asset swap because the investment has to ultimately come back to South Africa. So, by using asset swaps, there is no hedging against political risk in South Africa.
Also read: Simple steps to protect your wealth
This therefore is why an international pension is such an effective and attractive vehicle. Given the limits and prescriptions regarding local pensions mentioned above, the best solution would be to taper down local pension contributions and start building an offshore retirement investment as soon as possible. This will ensure that you have sufficient international savings by the time you retire.
Increased forex allowance
The foreign exchange limitations to which South Africans were subjected until a few years ago, have been significantly relaxed and the maximum amount substantially raised.
The current rules administered by the South African Reserve Bank in this regard now allow a tax-payer in good standing, who has obtained a Tax Clearance Certificate, and who is over the age of 18 years, to invest up to R10-million outside the Common Monetary Area (South Africa, Lesotho, Swaziland and Namibia), per calendar year. In addition, in terms of the single discretionary allowance rule, you may transfer up to R1-million abroad within each calendar year, without the requirement to obtain a Tax Clearance Certificate.
This has significantly opened the way for South Africans to utilise offshore investment solutions such as an international pension.
Political and economic uncertainties
Long-term financial stability and security is a priority shared by most if not all people. Given South Africa’s many current uncertainties, many people are obviously searching for simple solutions to avoid potential catastrophe. In this regard Carrick Wealth strongly believes in diversified investment portfolios, with a substantial allocation being invested offshore.
Carrick’s International Corporate Pension product provides both diversification and a simple solution to build wealth outside the country.
This becomes essential if one considers all the uncertainties presently at play in South Africa, among them:
- Whether and in what form the ANC government will introduce prescribed assets to a portion of private pension savings, valued at R3.88-trillion in 2015, to fund the state’s development agenda;
- Will the PIC be forced to channel funds from the R1.6-trillion Government Employees Pension Fund to help poorly managed state-owned entities like SAA recover, as Finance Minister Malusi Gigaba reportedly was considering;
- Will so-called state-capture and associated corruption be ended any time soon to prevent further financial erosion in in the public sector, for instance through the establishment of a judicial commission of inquiry as called for by the Public Protector;
- Will the domestic political situation, driven by factional power struggles, be stabilised or made more volatile by the outcome of the ANC’s national elective conference scheduled for December, when President Jacob Zuma is expected to stand down as ANC president and be succeeded by one of several candidates;
- Will the ANC lose power in the 2019 general election as many are speculating, and be replaced by an unpredictable, potentially unstable coalition government made up of an unholy alliance of completely disparate political parties;
- Will the current relatively high levels of political violence in the country escalate or subside, possibly worsening to uncontrollable levels;
- Will South Africa’s very high unemployment rate of (currently) 27.7% be brought under control, or will job losses continue alongside low growth that creates no new jobs, possibly leading to social instability; and
- Will the country continue to hover on the edge of recession and experience stagnant growth, causing international credit ratings agencies, along with political and other considerations, to further downgrade South Africa’s credit rating, bringing with it more economic pressures.
Get advice today
These are just a few of the questions pertaining to South Africa’s currently very uncertain outlook on many fronts. You probably don’t need to lose too much sleep over all of it: we have an excellent Constitution and solid institutions in place that will, in the longer run, probably take care of much of this, as they have already proved in the past.
But prudence is still required for those unexpected twists in the tale. So, if you are unable to answer any of the questions listed above, should you wait till things possibly go even more awry? Or should you wait till government decides how to invest a portion of your pension and turn your golden years into misery?
The wisest thing to do therefore, would be to gain expert advice without further delay on diversification, offshore investment and international pensions. Contact Anthony Palmer on [email protected] to discuss Carrick Wealth’s International Corporate Pension options today. After all, one’s retirement years should be a time of enjoyment and peace of mind.
- Carrick Wealth are specialists in both local and international financial planning and is a registered financial services provider in South Africa. Carrick is also licensed in Zimbabwe and Botswana, and holds three global licences in Mauritius. Carrick at all times maintains its independence with regard to product providers and asset managers, and provides bespoke risk assessment, financial planning and services to high net worth individuals (HNWI).