NFB Sensible Finance Magazine Issue 37 by NFB

ISSUE 37 | NOV 2017

SENSIBLE FINANCE A PERSONAL FINANCE MAGAZINE A free Eastern Cape publication distributed by NFB Private Wealth Management

HOME COUNTRY BIAS AND HAVING THE CORRECT MIX A domestically overweight portfolio is not a bad thing

INTRODUCING NFBâ&#x20AC;&#x2122;s NEW BRAND

THE CASE FOR ENDOWMENTS

A new page in our history book

Listing the advantages

Every dream needs a plan, because a goal without a plan is just a wish...

Let NFB help you plan your financial future.

NFB PRIVATE WEALTH MANAGEMENT | WWW.NFB.CO.ZA East London Office Johannesburg Office Port Elizabeth Office Cape Town Office

T: +27 43 735 2000 T: +27 11 895 8000 T: +27 41 582 3990 T: +27 21 202 0001

E: info@nfbel.co.za E: nfb@nfb.co.za E: info@nfbpe.co.za E: info@nfbct.co.za

NFB is an authorised Financial Services Provider Member of the NVest Financial Holdings Group of Companies

SENSIBLE READ

EDITOR Brendan Connellan bconnellan@nvestholdings.co.za CONTRIBUTORS Alex Grunewald (NFB Port Elizabeth), Pieter Hugo (Prudential Unit Trusts), Nonnie Canham (NFB East London), Kim Doolan (Klinkradt Chartered Accountants), Xolisa Funani (NFB Port Elizabeth), Phomolo Moreng (NFB East London), Mohamed Hassain (NFB Gauteng), Bryan Ridley (NFB East London), Tiaan Van Greunen (Bee Biz Compliance), Laurie Wiid (NFB Gauteng), Roenica Tyson (Glacier by Sanlam), Debi Godwin (IE&T), Lonwabo Simbi (NFB East London), Zukiswa Sonjica (NFB East London), Grant Berndt (Abdo & Abdo), Greg Farland (NVest Securities). ADVERTISING Robyne Moore rmoore@nvestholdings.co.za

layout and design Jacky Horn TA Willow Design jaxx@at-media.co.za

Photos used in this magazine - 123rf.com

ADDRESSES EAST LONDON OFFICE NFB House, 42 Beach Road Nahoon, East London Telephone: (043) 735-2000 Facsimile: (043) 735-2001 E-mail: el@nfb.co.za PORT ELIZABETH OFFICE Ground Floor, Building 6, Ascot Office Park, Cnr. Ascot & Conyngham Rds, Greenacres Telephone: (041) 582-3990 Facsimile: (041) 586-0053 Email: pe@nfb.co.za CAPE TOWN OFFICE 15th Floor, Metropolitan Building, 7 Walter Sisulu Avenue, Cape Town Telephone: +27 21 202 0001 Facsimile: +27 21 202 3888 Email: ct@nfb.co.za JOHANNESBURG OFFICE NFB House. 108 Albertyn Avenue. Wierda Valley. Sandton Telephone: +27 11 895 8000 Facsimile: +27 11 784 8831 Email: jhb@nfb.co.za WWW.NFB.CO.ZA 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 NFB Private Wealth Management. ©2017 All Rights Reserved. No part of this publication may be reproduced in any form or medium without prior written consent from the Editor.

FROM THE

EDITOR

hose of you that are more observant or who have become familiar with NFB's brand and logo over the years, will notice a whole new look to this edition. NFB are proud to announce the launch of our new company logo as part of the on-going evolution of our company's brand. To set the scene as to why NFB decided to rebrand: there was a period of approximately 12 years during which the Johannesburg business had a separate ownership and management structure to the East London, Port Elizabeth and Cape Town businesses. During that stage, NFB Johannesburg made the decision to modernise and update their logo from the one that the companies had previously been sharing, whereas the Eastern Cape / Cape Town businesses made the decision to retain the old logo – resulting in the two businesses becoming differently branded. After the decision to list NVest Financial Holdings onto the JSE, an opportunity was seen to reunite the NFB companies, given their continued and close relationship, in order to help build a bigger, better listed entity – and NFB's Johannesburg-based business was acquired into the NVest Financial Holdings Group (“NVest Group”). This coming together has resulted in the collation of an extended array of specialised skills, years of professional expertise, a geographical footprint which extends across four cities in South Africa and a scale which makes us one of the largest independent private wealth managers in the country. It also resulted in the need to align branding. Whilst retaining the essence of what we signify, our new brand represents a modern, dynamic and progressive face of NFB as well as a linkage to the NVest Group as a whole. The main version of the logo consists of an aquamarine coloured chronograph that surrounds the NFB logotype and divisional descriptor [quick historical facts to help at this point: The chronograph was invented in 1816 for use in tracking astronomical objects. More modern uses of chronographs involve piloting airplanes, car racing, diving and submarine maneuvering]. As such, NFB's logo and its elements represent instruments used to find direction and chart a course to a (possibly financial) destination as well as strength and timelessness. The “N” in the logo represents the NVest linkage (with a portion of the “N” forming an abstract “V”) and the contemporary aquamarine colour ensures a linkage to the NVest brand and the previous logo. The cogs are all turning in the background and many players from various units in the businesses have been involved in making the new brand come to life. We hope you share in our excitement as you become a recipient of our new, and we believe improved, brand. Wishing all our clients and friends a happy and relaxed Festive Season. For those who are travelling please be safe. And may the New Year bring everyone health, kindness and new adventures. Brendan Connellan Editor and Director of NFB SENSIBLE FINANCE NOV17

SENSIBLE CONTENTS NOVEMBER 2017

14 22

49 4

HOW HEALTHY IS YOUR MEDICAL AID? Giving thought to your options for 2018. By Alex Grunewald, MD/Private Wealth Manager - NFB Port Elizabeth.

17 IN THE BEGINNING Tips for helping your child to save. By Bryan Ridley, Private Wealth Manager NFB East London.

18 BEE Codes of Good Practice. By Tiaan Van 6

THE TIME TO MOVE TO CASH HAS PASSED And multi-asset funds have been delivering the returns. By Pieter Hugo, MD - Prudential Unit Trusts.

WHAT IS THE SOURCE OF YOUR CERTAINTY? Don’t listen to the noise. By Nonnie

Greunen, Head of Veriﬁcation - Bee Biz Compliance.

20 THE DOLLAR LIFE PLAN A simple and secure way of creating a dollar-based legacy. By Laurie Wiid, Director/Private Wealth Manager - NFB Gauteng.

Canham, Financial Paraplanner - NFB East London.

21 THE CASE FOR ENDOWMENTS Listing the 9

SARS IS CLAMPING DOWN ON OUTSTANDING TAX RETURNS AND DEBIT By Kim Doolan, Tax Consultant - Klinkradt Chartered Accountants.

10 INSURANCE FRAUD A victimless crime? Sourced from FA News by Trevor Damon (submitted by NFB Insurance Brokers).

advantages. By Roenica Tyson, Investment Product Manager - Glacier by Sanlam.

22 WHEN YOUR FAMILY GET MORE THAN THEY BARGAINED FOR Consider the potential impact of your wishes. By Debi Godwin, Managing Director - Independent Executor & Trust.

23 CO-HABITATION AND THE LAW The 11 SPECIAL TRUSTS Playing an important part in your estate planning. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth.

implications you should be aware of. By Lonwabo Simbi, Financial Paraplanner - NFB East London.

24 GEPF AND DIVORCE Explaining the options. By 12 TAXATION OF SEVERANCE BENEFITS A brief look at how you are taxed. Phomolo Moreng, Financial Paraplanner - NFB East London.

Zukiswa Sonjica, Financial Paraplanner - NFB East London.

25 MUNICIPAL CERTAINTY A charge on property 14 HOME COUNTRY BIAS AND HAVING THE CORRECT MIX An investor’s portfolio must be analysed holistically. By Mohamed Hassain, Financial Paraplanner - NFB Gauteng.

16 NFB’s NEW BRAND A new page in our history book.

SENSIBLE FINANCE NOVEMBER17

lapses on transfer. By Grant Berndt - Abdo & Abdo .

26 ANAESTHESIA TO NUMB THE PAIN Discussing Aspen Pharmacare Holdings Limited. By Greg Farland, Stockbroker/Portfolio Manager NVest Securities.

SENSIBLE MEDICAL

HOW HEALTHY IS YOUR MEDICAL Giving thought to your options for 2018. AID? By Alex Grunewald, MD/Private Wealth Manager - NFB Port Elizabeth.

his time of year always sneaks up on one and, no, I am not talking about the year-end staﬀ functions, the crazy shopping missions and frantic year-end holiday arrangements as to who is going to have to look after Granny and Grandad this year. What I am referring to is that dreaded year-end decision making process with regard to your Medical Aid option!! One certainly could refer to it as the “silly season”, but for a whole host of diﬀerent reasons. So what does 2018 have in store for us on the medical aid front? Medical aids in South Africa are in a tough position as the government moves forward with its National Health Insurance (NHI) plans. Regulations published this year will uproot many established schemes, and force others to change. It is going to be extremely interesting as to who remains and who has to go. The table below depicts the weighted average increase of the plans that our clients are insured with: Medical Aid

Percentage Increase

Discovery Health

7.9%

Momentum

8.3%

Bonitas

8.9%

Medshield

10.9%

One must bear in mind that these depict the average increase of all the plans that each scheme offers, so your specific plan may very well be slightly less or slightly more than what is reflected in the table above. So what does one look out for when deciding what to do for the New Year? I would recommend looking at the following aspects: 1. Increases Although your scheme may have a larger increase, it does not necessarily mean that it is more expensive than the rest of the market. This would depend on what base the percentage increase is being added to. 2. Benefits It is imperative that one takes a look at what benefits 4

SENSIBLE FINANCE NOV17

have been removed or added for the New Year. It does not help having a lower increase, but removing benefits to assist with the lower increase. It also helps to look at what benefits have been added. Discovery, for example, have a rich Maternity benefit for next year that is covered from risk (their pocket) and not from the member's savings or pocket. Out of interest, Momentum has had this benefit on their health platform for a number of years. 3. Solvency All schemes have to hold 25% of their members' premiums in reserve. This is often used as a marketing tool to indicate how stable a scheme is, although one has to be careful, as this is not always a true reflection. If members leave a scheme, they cannot take their reserve with them to the new scheme; in other words, some smaller schemes who are losing large amounts of members may very well have a large solvency ratio relative to their member size, which does not necessarily mean that they are stable! 4. Waiting Periods Although it may very well be more cost effective to move schemes, one needs to be aware that there may very well be waiting periods were one to move. 5. Wellness Programmes Although some may really only be a loyalty programme, other Wellness programmes can add financial value by giving members discounted gym fees, groceries, flights and sporting goods, and at the same time encouraging the member to improve his or her health through rewards. I have only mentioned a couple of areas that one must look at in this article; it is imperative that you receive thorough, knowledgeable, and most importantly, accredited advice when selecting your option for 2018. It is also extremely important to take note of the benefit of GAP cover going forward. Please feel free to pop in and chat to us about your medical aid and GAP cover needs or if you would like to find out more about NHI, and remember...the coffee is great!

SENSIBLE TIMING

THE TIME TO MOVE TO CASH HAS PASSED And multi-asset funds have been delivering the returns. By Pieter Hugo, MD - Prudential Unit Trusts.

fter three years of low equity returns, investors drawing an income from their investments may be considering shifting some of their portfolio exposure away from multi-asset funds with equity exposure towards cash. However, the appropriate time for switching - if there ever was any - has passed, and retirees are in danger of eroding the longer-term value of their retirement capital should they switch now. This trend towards cash has been evident in South Africa over the past year in the wake of the higher returns (of around 7.0% p.a.) offered by bank deposits and money market funds compared to riskier equity holdings. Poor equity performance has dragged down the returns of well-diversified multi-asset funds in which many retirees are invested: the average ASISA low-equity multi-asset fund delivered only 6.3% p.a. over the three years to 31 July 2017, and the average ASISA high-equity multi-asset fund (the typical “balanced” fund) returned only 5.5% p.a. over the same period, according to Morningstar. Compare these returns with those of the past 15 years, where high-equity fund returns averaged 12.5% p.a., and low-equity funds averaged 10.0% p.a. The longer-term performances are in line with the funds' generally accepted return targets of inflation + 4% for the less aggressive low-equity category, and inflation +6% for the more aggressive high-equity category, with long-term inflation at approximately 6%. Given their recent underperformance, retirees dependent on income from multi-asset funds may think that they will benefit by moving to cash now. However, they would be getting their timing wrong by being too late. Current valuations show that prospective returns from multi-asset funds are higher than those from cash assets. So by moving to cash now, retirees will be exposed to falling cash returns in future (the SARB has already started cutting short-term interest rates), and will miss out on any improvement in returns from multi-asset funds. The accompanying graph shows how a R1.0 million retirement investment has performed over the past 15 years (July 2002-July 2017), starting with a 5% annual drawdown and escalating the drawdown by inflation, when invested in different funds. The initial capital investment is represented by the fixed black line. In order to have maintained its real value over time, it would have needed to grow at a rate equal to inflation, to R2.26 million (as shown by the red line).

SENSIBLE FINANCE NOV17

Would a money market investment have given the retiree an adequate return over the 15 years? Clearly not: the yellow line in the graph depicts how the R1.0 million would have performed invested in the average South African money market fund (the ASISA IB Money Market category) while drawing the income over the period. Due to its low return, the capital would have grown to only R1.25 million. Although it would have successfully given the retiree their income (totalling R1.1 million), the real value of the retiree's capital would have been signiﬁcantly eroded (shown by the gap between the red and gold lines). By contrast, an investment in the average low-equity multi-asset fund is shown by the green line. Although the fund return varies over time, it manages to outperform or remain in line with the inﬂation requirement (red line) for much of the period. Its more recent underperformance is partly compensated by the earlier excess performance. The retiree ends up with R2.09 million, while also having drawn down R1.1 million in income payments over the 15 years. From this evidence, it is clear that multi-asset funds have been delivering the returns they are expected to over longer periods, and investors, especially retirees, need to think twice before moving away from them. Anyone switching to cash now is likely getting the timing wrong – they will receive lower returns over the longer term (as the graph demonstrates), or if they plan to switch back to multi-asset funds later, they will also likely mis-time their move.

SENSIBLE READ

TITLE Lead

SENSIBLE FINANCE JULY17

SENSIBLE CERTAINTY

WHAT IS THE

SOURCE OF

YOUR

CERTAINTY? Don't listen to the noise. By Nonnie Canham, Financial Paraplanner - NFB East London.

recently attended a presentation where several speakers from various investment management companies shared their thoughts on the markets as well as how a plethora of factors were affecting (or not affecting) their decision making when it came to portfolio construction. One of these managers was Raphael Nkomo from Prescient Investment Management. He mentioned that at one point, the JSE dropped by as much as five percent, but based on the information that was available to him he did not engage in panic selling out of equities. His specific words were “There was no noise”. Apologies to Raphael, but in that moment, I zoned out and remembered the story of the 2,000 stripling warriors. To summarise, their parents had vowed to never again fight in any wars and they were determined not to break that vow despite the fact that they were now under eminent attack from their enemies. The children (now teenagers and young adults) who had not made that vow volunteered to go and fight so that their parents would not have to break their vow. In the end, these young men won the battle and none of them were killed. When asked how they had accomplished this they answered that they did not doubt that they could because their mothers knew they would. Their mothers were the source of their certainty and confidence that led to their eventual victory, despite their personal inexperience. Mr Nkomo's certainty comes from the hours of work he has put into research. He has looked at reams of macroeconomic data and analysed historical patterns and based on that he could recognise that the market movement mentioned earlier did not warrant a reaction. It was 'silenced' by what he knew. 8

SENSIBLE FINANCE NOV17

What then is your source of certainty as an investor when there is a lot of this 'noise' in the market? How do you remain calm and carry on with your investment strategy? Do you remain calm? Or does your relative inexperience cause you to panic somewhat and pay attention to all the political noise, or the currency noise, or the socio-economic noise, or simply the noise that will be shared around the braai fire this coming Saturday? Who do you look to, to silence the noise? You can look to your financial advisor to temper your reactions and silence irrelevant noise. NFB Asset Management does copious amounts of due diligence on various funds, involving sound research, meetings with fund managers, understanding their asset allocation strategy and finding the intersect with NFB's investment philosophy and from that, making decisions on where to place your capital based on your stated objectives as well as your ascertained needs. When your financial advisor is certain and you understand the reason for his certainty and you trust him or her, you can then remain calm in the market storms that will invariably arise from time to time, despite your inexperience. To coin a popular tag line, “We do the work so that you don't have to…” Your certainty and calm can come from ours so that in times of market volatility and panic you can also hear “No noise” and stay the course, in order to eventually achieve your investment objective. For assistance, please contact one of our financial advisors on one of the following numbers: EL (043) 735-2000 PE (041) 582-3990 CT (021) 202-0001 JHB (011) 895-8000.

SENSIBLE RETURNS

SARS IS CLAMPING DOWN ON OUTSTANDING TAX RETURNS AND DEBT By Kim Doolan, Tax Consultant - Klinkradt Chartered Accountants.

ARS issued a media statement on the 28 September 2017 conﬁrming that there has been an increase in taxpayers not submitting their tax returns by the stipulated deadlines and not settling their outstanding debt with SARS. For this reason, SARS announced that they will now intensify criminal proceedings against tax oﬀenders from October 2017. Failure to submit the return(s) by their due date could result in: Administrative penalties being imposed on a monthly

basis per outstanding return or Criminal prosecution resulting in imprisonment or a

ﬁne for each day that such default continues. It is also important to note that any tax debt due to SARS must be paid before the relevant due date to avoid any interest for late payment as well as legal action. Should outstanding taxes not be paid within the due dates stipulated, there are a number of debt collection procedures available to SARS: Third party appointments i.e. to collect the debt from

someone who holds money on your behalf such as your employer or bank; Issue a judgement and have your name blacklisted; Attach and sell your assets; Obtain a preservation order in respect of your assets; If you hold assets oﬀ-shore, an order can be obtained

compelling the assets to be repatriated to South Africa and in the interim your right to trade or to travel can be restrained; and Liquidate or sequestrate your estate. Should you or your business be in a position in which you have outstanding debt with SARS which you are unable to settle, there are options available to you which will prevent the steps referred to above being taken by SARS. There are provisions in the Tax Administration Act (TAA) which allow SARS to enter into an agreement in which you are able to, within an agreed period, pay the tax debt off in monthly instalments. The TAA also makes provision for circumstances in which you are unable to settle the full outstanding debt. A request can be submitted to SARS to 'compromise' a portion of the tax debt due which could result in a permanent write-off of a portion of the debt due. On a side note, should the debt due be as a result of a dispute with SARS regarding an incorrect assessment, an application can be made to SARS requesting that the payment for the disputed tax debt be suspended until the dispute is resolved. This will also prevent the steps referred to above being taken. Please contact our offices should you require any assistance with either outstanding tax returns or the submission of any of the applications discussed in order to prevent any debt collection steps being taken against you. References: SARS media release, 28 September 2017 - SARS to clamp down on outstanding tax returns and debt. SENSIBLE FINANCE NOV17

SENSIBLE INSURANCE

INSURANCE FRAUD The South African Insurance Association (SAIA) statistics tell us that insurance fraud, like tax fraud, is often thought to be in the same category as a little white lie. Sourced from FA News by Trevor Damon (submitted by NFB Insurance Brokers)

eople who would never dream of shoplifting or helping themselves to the oﬃce stationery are fairly comfortable with keeping a few secrets from the tax man or inﬂating an insurance claim.

THE TRUE COST OF FRAUD Last year, according to the South African Insurance Crime Bureau (SAICB), three of the common categories of insurance payouts accounted for: CLAIM Vehicle theft

AGGREGATE AMOUNT R900m+

Theft out of motor vehicles

R80m

Robberies from homes and business premises

Rl,6bn

Just as legitimate claims arising from South Africa's high crime rate inflate the cost of insurance, so do inflated and fraudulent claims. The SAIA estimates that, in line with international norms, fraudulent claims amount to about one third of all claims submitted annually. In money terms, the Association of Certified Fraud Examiners says insurance fraud costs the local shortterm sector around R4bn a year. When you add up South Africa's high crime rate and insurance fraud, the outcome of higher premiums is clear. It is obviously not true, then, that insurance fraud is a victimless crime. As an industry, the need to combat fraud becomes critical to ensure affordable insurance products for consumers.

THE SCHEME OF THINGS

A VICTIMLESS CRIME?

She would identify an insurance client, change the debit account number on their policy to her own bank account number, and then submit and support a fraudulent fasttrack claim on that policy. After the pay out, she would change the account details back, and enjoy the proceeds, which totalled about R250 000, before she was caught. The brokerage's clients themselves had no idea this was going on. In another case, employees of a funeral parlour procrastinated in issuing a death certificate to the deceased family for nearly two years, during which time they took out life policies in the deceased's name. When they finally issued the death certificate, it put the date of death about 18 months in arrears, and the fraudsters collected R3 million before the family smelled something fishy and reported the "mistake". Another scam described by the SAICB involved the wreck of a luxury car bought from an insurance salvage agent. The gang obtained a false roadworthy certificate, re-registered the car, insured it, and then had an accident which resulted in an insurance payout. The wreck, meanwhile, remained a wreck; it was just an elaborate fraud. Almost anyone reading this story will have their own hearsay anecdotes to add in the form of staged breakins; businesses being saved from bankruptcy by convenient fires at their premises and dodgy doctors who, on scrutiny, appear to be seeing an impossible number of patients a day from across the spectrum of medical schemes.

ADAPTING APPROACHES With every premium paid, there is a price to be paid for

The SAICB says most cases of insuance fraud fall into the "soft" category of legitimate-but-inﬂated claims; but cases of systematic "insider" fraud have also been uncovered.

continued on page 28

The SAICB website carries a case study, for instance, of an employee of an insurance brokerage in Groblersdal who came up with a canny plan. 10 SENSIBLE FINANCE NOV17

Telephone: +27 43 735 2460

SENSIBLE TRUSTS

SPECIAL TRUSTS Playing an important part in your estate planning. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth.

rusts have been a topical conversation for some time now, and the question that seems to come up is whether they will remain tax beneficial. On the other hand, trust structures are not always just for tax benefits. There are a multitude of reasons why a trust would be particularly attractive in a certain situation such as the protection of assets and the protection of beneficiaries' interests. Special trusts still remain tax beneficial when the requirements thereof are met. Special trusts are treated differently to normal or ordinary trusts in terms of taxation. They are essentially treated as a natural person, as far as tax is concerned.

benefit of a person or persons, who are related to the person who died and who are alive on the date of death of the deceased; this includes beneficiaries conceived, but not yet born on the date of death, where the youngest of those beneficiaries is under the age of 18, on the last day of the year of assessment of that trust.

HOW THESE TRUSTS ARE TREATED IN TERMS OF TAX For Income Tax purposes, special trusts are taxed on a sliding scale from 18% - 45%; as for a natural person, there are also rebates and partial interest exemptions available.

THERE ARE TWO TYPES OF SPECIAL TRUSTS Special Trust Type A – is a trust formed solely for the benefit of a person or persons with a disability as defined in section 18(3) of the Income Tax Act, where the disability makes it impossible for such a person or persons to earn sufficient income for their maintenance, or from managing their own financial affairs. Section 18(3) defines a disability as “a moderate to severe limitation of a person's ability to function or perform daily activities, as a result of a physical, sensory, communication, intellectual or mental impairment. The disability must be diagnosed by a duly registered medical practitioner, and that disability must have lasted or have a prognosis of lasting more than one year.”

For Capital Gains Tax purposes, a special trust is subject to the same inclusion rate as a natural person of 40% and is also entitled to a primary residence exclusion, personal-use asset exclusion and an annual exclusion of R40,000 as compared to a normal or ordinary trust which has an inclusion rate of 80% and is not entitled to any of the previously mentioned exclusions. Special trusts can play an important part in your estate planning, should you meet the requirements. Please feel free to speak to one of our ﬁnancial advisors who are more than capable in assisting you with your planning. Our contact telephone numbers are: EL (043) 735-2000 PE (041) 582-3990 CT (021) 202-0001 JHB (011) 895-8000.

Special Trust Type B – is a trust formed via a Will for the SENSIBLE FINANCE NOV17

SENSIBLE BENEFITS

TAXATION OF SEVERANCE BENEFITS

A brief look at how you are taxed. Phomolo Moreng, Financial Paraplanner - NFB East London.

ith the changing economy, some companies are finding themselves having to tighten their belts, and as part of that process some employees are being retrenched. For instance, the Johannesburg Securities Exchange (JSE) announced that it has embarked on a retrenchment process which will result in 14% of its full time staff being retrenched by the end of 2017. In accordance with the Basic Conditions of Employment Act no 75 of 1997, section 41(2) an employer is required to provide severance payment to its employees where the company is dismissing the employee due to the employer's operational requirements. The question therefore arises as to how these benefits are taxed. From the 1st of March 2011 severance benefits qualified to be taxed based on a table similar to the one used for retirement benefits: Taxable Portion of lump sum

Rates of tax

R0-R500 000

R500 001-R700 000

18% of the amount over R500 000

R700 001-R1 050 000

R36 000 +27% of the amount

R1 050 001+

R130 500 +36% of the amount

over R700 000 over R1 050 000

As can be seen from the table above, the first R500 000 of the severance benefit will be tax free. The principle of aggregation applies for the taxation and therefore any retirement benefits received as of 1 October 2007 and retirement fund withdrawal benefits from 1 March 2009 will be aggregated (added) to the severance benefit when calculating the tax due. Depending on whether you have received any retirement benefit or retrenchment benefits within the time frames listed above, your R500 000 'tax free' amount might have already been used up.

12 SENSIBLE FINANCE NOV17

In order for your benefit to be taxed according to the rates listed in the table above, the benefit you receive should meet the requirement for severance benefits as defined in the Income Tax Act. The Act defines a severance benefit as 'an amount received from an employer in respect of termination or loss of employment if: a. The employee is 55 years or above, or b. The termination is due to the employee being unable to hold their office due to sickness or injury, or c. The termination is due to the employer having ceased trade or the employee having become redundant in consequence of a general reduction in personnel.â&#x20AC;&#x2122; Should the employee at any time have held more than 5% of the issued shares or members' interest in the employer company, the rates will not apply. The employer might include certain benefits in the retrenchment package. Not all of these benefits will qualify as severance benefits; these include leave pay and pro rata bonuses which will be taxed based on the employees marginal tax rate. Prior to payment of the benefit, the employer will request a tax directive from the South African Revenue Service (SARS) to determine the amount of tax which should be withheld from the lump sum benefit due to the employee. Due to the fact that human error can happen, it is advised that the employee should request a copy of the tax directive from the employer to see that the correct tax directive number was used and that they were taxed accordingly. For advice on investment of a severance benefit lump sum and on the preservation of the retirement fund benefit, please contact one of our wealth managers on one of the following numbers: EL (043) 735-2000 PE (041) 582-3990 CT (021) 202-0001 JHB (011) 895-8000.

HOME COUNTRY BIAS AND HAVING THE CORRECT MIX An investor's portfolio must be analysed holistically. By Mohamed Hassain, Financial Paraplanner - NFB Gauteng.

nvestors tend to be most attracted to investments in their domestic market as they have a sense of familiarity with them and thus more confidence.

REASONS WHY INVESTORS TEND TO BE OVERWEIGHT DOMESTICALLY Investors feel that they do not know offshore markets well enough and this leads them to have a preference to investing domestically. There are numerous reasons that could influence investors' decisions to favour the local market. Some of the reasons are as follows: Owning large amounts of fixed property: we are not referring to a primary residence, but instead, investment property such as commercial and residential. Individuals often ignore the extent of their property holdings as a percentage of their entire wealth. Retirement funds: these funds need to conform to regulation 28 (Pension Fund) limits. Regulation 28 of the Pension Funds Act set the limits as follows: maximum local equity 75%, maximum local property 25% and maximum offshore assets 25%. These limits restrict offshore investment. Local business ownership and share options: individuals that have large private company holdings or corporate employees that have share options in a local company. These investors often fail to consider their private holdings and these can sometimes be ignored when looking at the geographical allocations of a total portfolio. Exchange Control: historically, investors were limited to the amount of funds that they could take offshore, but due to more recent relaxation in Exchange Controls, we are afforded more capacity to externalise funds. 14 SENSIBLE FINANCE NOV17

It is imperative that when setting out a wealth plan that an investor's portfolio is analysed holistically and not just a section in isolation. This kind of analysis will provide for a true picture of your overall asset allocation. Performance on the JSE The Johannesburg Stock Exchange (JSE) has historically produced double digit returns and is complimented by a bond market that pays out relatively high yields. The returns on the JSE were stellar from 2010 up until 2014, but more recently the market has largely been trading sideways. The lack of political leadership has negatively affected the economy, which in part has driven low corporate earnings growth and subsequently high priceearnings (PE) ratios as prices stay flat. There has been little real growth in the JSE this year. If we look at the year-to-date performance most of it has been driven by internet and media giant, Naspers. In turn, almost all the growth of Naspers can be attributed to its large investment in Chinese conglomerate, Tencent Holdings Ltd.

SENSIBLE MIX

WHAT ARE THE RISKS OF HAVING A HOME COUNTRY BIAS Political risk

Rating description Prime High grade

Jacob Zuma has constantly been in the spotlight for all the wrong reasons and this is unlikely to abate until, at least, his removal as head of the ANC. It comes as no surprise that business confidence is at levels last seen in 1993 with both local and foreign investors nervous to commit new capital, and in some instances, holding on to existing positions. A country plagued with corruption and weak leadership does not imbue confidence, especially to foreign investors who make up a respectable portion of our investment markets. Emerging markets sentiment, which can be very fickle, has been positive over the last few months and on this basis, we have seen consistent rand strength as foreign investors chase yield. There is the other side of the coin...when Zuma is no longer the president in favour of someone such as Cyril Ramaphosa, who “vows to get things done”, then potential inflows into the country as a result of stronger economic growth is a possibility. A change in the governing party is a low possibility, but if it were to materialise, investors could be more confident in respect of the country's future.

Upper medium grade Lower medium grade Non-investment grade Speculative Highly speculative

Substantial risks Extremely speculative

Moody’s

S&P

Fitch

Rank

Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3

AAA AA+ AA AAA+ A ABBB+ BBB BBB-

10 9 8 7 6 5 4 3 2 1

Ba1

BB+

Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3

BB BBB+ B BCCC+ CCC CCC-

-1 -2 -3 -4 -5 -6 -7 -8

-9

-10

RD SD D

DDD DD D

-11 -12 -13

Default imminent In default

C / /

Currency risk USD/ZAR

Sovereign credit risk South Africa is one of the few emerging markets to be included in Citi's World Government Bond Index (WGBI). If all the rating agencies downgrade South Africa below investment grade, South Africa will lose its place in the WGBI and the estimated result is that we will see outflows of $8 billion. If this materialises it is very likely to produce a depreciating rand which could require an increase in interest rates to keep the currency from significant depreciation. All of this would lead to volatility and further economic slowdown. South Africa's current position with the rating agencies is as follows: Agency

Rating

Outlook

Moody’s

Baa3

Negative

S&P

BB+

Negative

Fitch

BB+

Stable

The following table is a scale of ratings across the big three CRAs. The highest debt rating achievable is AAA for S&P and Fitch and Aaa at Moody's. Any rating below BBB- (Baa3) is considered sub-investment grade or junk, which means that many investors will be prohibited by their mandates from holding these securities.

In terms of currency, it is potentially more attractive to invest offshore now with a stronger rand compared to levels from a year or two ago. Investors should not invest offshore for a short-term currency gain, but instead adopt a long-term investment strategy, a strategy that relies on asset allocation where your currency exposure is part of a strategic allocation. Opportunity cost of being overweight JSE We can see in the diagram below that South Africa makes up around 0.56% of the world economy. The JSE Top 40 is a narrow-based index as opposed to a broadbased index. A broad-based index is designed to reflect the entire movement of the market. Apart from Naspers, the vast constituents of the JSE Top 40 are mining resources, consumer goods and financials. When adopting a home bias, we risk not having exposures to sectors that are available elsewhere in the world. Investment opportunities that are scarce or absent in SA are in sectors such as IT, Pharmaceuticals and Biotechnology. When analysing trends, we find that the retail industry continued on page 28 SENSIBLE FINANCE NOV17 15

SENSIBLE EVOLUTION

NFB'S NEW BRAND A NEW PAGE IN OUR HISTORY BOOK NATIONAL FINANCE BROKERS

NFB BRAND EVOLUTION

1986

The company has had its fair share of excitement, shake-ups and change in its history since inception in April 1985 in Port Elizabeth. The Company was originally named National Finance Brokers and used burgundy and black as its corporate colours. An existing national player in the investment market inspired the logo's design.

investment & insurance brokers

1990

NFB INVESTMENT & INSURANCE BROKERS The black changed to white and the company name changed to NFB Investment & Insurance Brokers in 1990, with a subtle adaptation of the logo. The reason for the change was to clear the misperception that the business of the company was to provide ďŹ nancing.

1994

NFB FINANCIAL SERVICES GROUP The Company's name changed again to NFB Finance Brokers (Pty) Ltd in June 1994, when the Fedsure Group acquired a 49% stake in NFB's equity. This was later reďŹ ned to NFB Financial Services Group. The logo was again adapted slightly, still keeping elements of the old logo such as the slanted lines in the lettering (but with a more modern look) and the burgundy and black colours.

2001

NFB FINANCIAL SERVICES GROUP After 16 years, however, we had reached the point where a new starting line was needed, a new level where we could take the lead within a new set of challenges. The opportunity was ripe for a corporate re-brand and the re-establishment of a new identity. On 1 April 2001, coinciding with our 16th anniversary, we launched a new Corporate Identity, complete with a new logo and new colours, being a deep blue and grey/silver and the pointers signifying direction and guidance.

2015

2017

NFB PRIVATE WEALTH MANAGEMENT 2016 witnessed the reunion of the Independent NFB Divisions under the listed company of NVest Financial Holdings. This has led to an NFB-wide rebrand, incorporating aspects of the Johannesburg logo, the NVest logo and linkage and the 2001 logo. The theme of direction and guidance has been retained, but using a more contemporary slant. 16

NFB Financial Services Group celebrated their 30th birthday and the Johannesburg based company embarked on an entirely new journey with their identity. The logo was completely recreated with a clean and modern design representing timeless sophistication and elegance.

SENSIBLE TEACHING

IN THE BEGINNING…. Tips for helping your child to save. By Bryan Ridley, Private Wealth Manager NFB East London.

y nearly 7-year-old daughter has taken a liking to money of late. So much so, that she sent a WhatsApp voice message to her granny saying “I love money, money, money!” over and over again. She also spends time in her tree house and draws pictures in order to sell the pictures to family members at exorbitant prices. Of course, Granny is willing to part with her hardearned bucks without haggling too much, but mom and dad on the other hand… We have taken this opportunity to start teaching her the value of money and how one should start saving no matter how old you are. We are busy teaching her what to do with the proceeds from her pictures and the importance of saving.

HERE ARE SOME TIPS FOR HELPING YOUR CHILD TO SAVE

Help them set goals and track their progress. Once you have a goal in mind you can do some simple math to ﬁnd out how much you need to save regularly in order to achieve this goal. In my daughter's case her goal is usually a Lego set.

Exercise patience - for you and for them. Teach them that some goals take time to achieve.

3 4 5

Provide a safe place for them to keep their money, such as a purse in the safe or a bank account. Most banks have an option for a youth account that can be opened in the child's name. This allows ease of access to deposit or withdraw small amounts of money.

6 7 8

Encourage entrepreneurship. The reward is always better when you work for it. Make it fun. Use sticker charts or oﬀer incentives to help keep it interesting and fun. Set a good example by saving yourself. Don't neglect your own savings. You can even use the below system to help yourself with your own savings.

When you start your journey with your child consider using a system such as a 3 Envelope system: Envelope 1 is for the immediate goal and set aside 80% of any savings for this. Envelope 2 is to set aside 10% of any savings towards a longer-term goal. Envelope 3 is to set aside 10% for charity. It can be a very rewarding experience for the child to give a sum of money they have saved to a charity.

Once their goals have evolved and become greater, such as saving for their ﬁrst car or that dream wedding, then you can talk to a ﬁnancial advisor about the options available. There are many products that will suit their needs such as a Unit Trust or Tax-Free Savings Account and others. So, whilst my daughter shouts “I love money, money, money!” Dad is going to shout “I love saving, saving, saving!”

Discuss with them the diﬀerence between wants and needs. A want is something you can live without. A need is something you can't.

In my next article I will talk more about the parents’ role in saving for their children.

Explain the value of the items they purchase with them. At some point they are going to want to spend their money on a pointless toy that you know is poor quality. Let them do so and then explain when the toy doesn't last, why it is better to save for better quality to get better value.

Should you require assistance in guiding your child onto the correct ﬁnancial path, please do not hesitate to contact one of our ﬁnancial advisors on one of the following numbers: EL (043) 735-2000 PE (041) 582-3990 CT (021) 202-0001 JHB (011) 895-8000. SENSIBLE FINANCE NOV17 17

SENSIBLE PRACTICES

CODES OF GOOD PRACTICE AND AMENDED CODES OF GOOD PRACTICE By Tiaan Van Greunen, Head of Veriﬁcation - Bee Biz Compliance.

he Codes of Good Practice were gazetted on the 9th of February 2007 by then Minister of Trade and Industry, Mandisa Mpahlwa.

Sector Codes and the Repealing of Sector Codes

All entities were rated under this general set of rules until such time as the various Sector Codes were gazetted.

The Sector Codes established under the Codes of Good Practice (2007) were to be aligned to the Amended Codes of Good Practice (2013) by October 2015, in order to avoid being repealed.

The Codes of Good Practice had two sets of targets namely: 0-5 Years (applicable for a Financial Year End Prior to February 2012), and 6-10 Years (applicable for a Financial Year End post February 2012).

The following two Sector Codes were repealed on the 17th of February 2016, following clariﬁcation issued by the Department of Trade and Industry on the 22nd of February 2016:

The Department of Trade and Industry released the Amended Codes of Good Practice for Generic Enterprises on the 11th of October 2013, and thereafter, the Amended Codes of Good Practice for Qualifying Small Enterprises and Specialised Scorecards on the 6th of May 2015.

Construction Chartered Accountancy

The following Sector Codes have been gazetted as Section 9(1) Amended Sector Codes:

Signiﬁcant changes to the Targets and Weightings were made as well as merging elements, from seven (7) under the old codes, to ﬁve (5) under the amended codes.

Under the Management Control and Skills Development elements, greater emphasis was placed on the Geographical Population breakdown of South Africa as a whole, or where applicable, the Provincial Breakdown. The Weighting Points and the Targets are calculated based on these demographics.

The following Sector Codes have been issued as Draft Sector Codes under Section 9(5), and therefore the old Sector Codes are still applied until such time as the draft codes are issued as a Section 9(1):

Under the Enterprise and Supplier Development element, greater emphasis is placed on procuring from 51% Black Owned Suppliers as the Weighting Points and Targets have been greatly increased. Focus is now placed on Empowering Black Owned EME's or QSE's within your Supply Chain (Supplier Development), as well as outside of your Supply Chain (Enterprise Development). The weighting points for Supplier Development is 10 Points, with a target of 2% of Net Proﬁt after Tax, and the weighting points for Enterprise Development is 5 Points, with a target of 1% of Net Proﬁt After Tax. 18 SENSIBLE FINANCE NOV17

Tourism Marketing, Advertising and Communication (MAC) Information and Communication Technology (ICT) Forestry Property

AgriBEE Integrated Transport Financial Services Construction Defense

Veriﬁcation under the Codes of Good Practice (2007), Amended Codes of Good Practice (2013) and Sector Codes Codes of Good Practice (2007): All entities (excluding those belonging to a speciﬁc Sector Code) with a Financial year End prior to the 30th continued on page 28

“Managing success into the future” Our services include: Accounting • Auditing • Taxation Planning Estate Planning • All Statutory Registration • Business Structuring Concessions • Due Diligence • Business Succession Planning

SANAS Accredited BBBEE Verification Agency, Number BVA 040 Our verification methodologies are in accordance with SANAS R-47 Quality Management Systems, Gazetted Codes of Good Practice, 2007, 2013, Methodologies, 2008, Sectoral Charters, and Scorecards We provide the following services:

Information Workshops & Training BBBEE EME affidavits & certificates BBBEE QSE affidavits Verification & Certification Special Evaluations BBBEE consolidated certificates

CONTACT INFO BLOCK B 165 MAIN ROAD WALMER, PORT ELIZABETH 041-581-3031 INFO@BEEBIZ.CO.ZA

SENSIBLE PLAN

THE DOLLAR LIFE PLAN A simple and secure way of creating a dollar-based legacy. By Laurie Wiid, Director/Private Wealth Manager - NFB Gauteng.

s investors we are constantly reminded of the effects and influences that the exchange rate has on our investments. Most of the South African blue-chip companies are multinational businesses with dual listings and foreign earnings. In addition to these rand-hedge equities, the Annual Offshore Allowance (R10 million limit) and the Annual Discretionary Allowance (R1 million limit) affords investors the ability to externalise their asset base. However, this does not apply to our risk cover. More than 20 years ago, a limited number of foreign life companies would underwrite South Africans in dollars or pounds. Sadly, these companies withdrew doing business from the African Continent. The innovation by Discovery Life saw the birth of a dollar-based risk product in November 2014. Unfortunately, with the rand reaching all-time lows of R16.93 to the dollar in January 2016 and ranging between R14.50 and R15.50 for most of last year, the product did not receive much attention. At current exchange rate levels (and with the Limited Special Offer), the product is very well priced.

THE KEY FEATURES OF THE PRODUCT ARE: = The policy is issued by Discovery Life International, a

Guernsey branch of Discovery Life Limited. = The policy can insure policy holders for Severe Illness

Benefits, Disability Cover or Life Cover. = The policy does not meet the definition of a Domestic

African Estate (saving your heirs 20% Estate Duty on Death Claims). = The premiums are paid utilising your Discretionary

Allowance (or your Capital Allowance if required) and must be paid from a South African bank account. = Disability and Severe Illness Claims will be paid to a

foreign bank account of the Life Assured. = At inception, you can select the proceeds to be paid

to a beneficiary's foreign bank account (Company, Trust or Individual). A South African beneficiary need not currently have a foreign bank account to receive the funds abroad. = Discovery integration benefits and Cashback benefits

will apply to this policy. The Cash paybacks are payable abroad. = The cover will escalate by US Inflation. = The minimum monthly premium is $50.

The Dollar Life Plan is a simple and secure way of creating a dollar-based legacy for your spouse, children or grandchildren. Protect against the rand weakness and insure part of your risk cover in US dollars. Speak to your financial advisor or to our Life Specialists should you wish to find out more about the Discovery Dollar Life Plan. Our contact telephone numbers are: EL (043) 735-2000 PE (041) 582-3990 CT 021-202 0001 JHB 011-895 8000.

policy, and therefore falls outside of your South

Examples of actual policies issued â&#x20AC;&#x201C; Life Cover portion (all Non-Smokers) Premium at R10.90 and Benefits at R13.00 / $US1 Sex Female Female Male Male Male

Age 34 39 41 42 49

20 SENSIBLE FINANCE NOV17

$ Premium $50.34 $50.67 $95.05 $55.58 $157.64

$ Cover $675,000 $450,000 $500,000 $350,000 $554,236

ZAR Premium R548.71 R552.30 R1,036.05 R605.82 R1,718.28

ZAR Cover R8,775,000 R5,850,000 R6,500,000 R4,550,000 R7,205,068

SENSIBLE SAVINGS

THE CASE FOR ENDOWMENTS Listing the advantages. By Roenica Tyson, Investment Product Manager - Glacier by Sanlam.

uch of the hype around the February 2017 Budget Speech had to do with the introduction of a new personal income tax bracket of 45%, which is expected to add R4.4bn to Treasury’s earnings in the 2017/2018 tax year. For individuals, this new rate will only be applicable on income in excess of R1.5m, but for trusts (where the trust itself is taxed) the impact is even more significant with the flat income tax rate increasing from 41% to 45%. With these changes, the value of the endowment as a discretionary savings vehicle increases significantly for high income earners and trusts.

How will an investor be taxed in an endowment? The Glacier Vantage Life Plan is available to individuals, as well as trusts with individuals as beneficiaries. Tax is deducted within the investment at the following rates: tax on income at 30% and effective tax on capital gains at 12%. Compared to the tax rates for investments in other discretionary savings vehicles, the endowment offers significant tax savings for high income earners. For trusts, the taxability of income would depend on the circumstances of the trust. For trusts where the trust itself is taxed (and not the beneficiaries), the new 45% income tax rate will apply. Capital gains on such trusts’ discretionary savings not invested in an endowment can now be taxed at 36% (45% at 80% inclusion) - three times more than when investing via an endowment. This does not apply to special trusts, where tax rates are aligned with that of an individual.

Tax payable on discretionary savings Endowment Individuals and special trusts Income 30% Capital gains 12% Trusts, other than special trusts Income 30% Capital gains 12%

In line with a discretionary savings plan, dividend tax at 20% will also be withheld in the endowment.

Access to Glacier’s flexible investment options The Glacier Vantage Life Plan offers a wide range of investment options to allow you and your financial adviser to customise a portfolio best suited to your objectives. The choice of collective investments ranges from single to multi-manager, large to boutique managers as well as actively and passively managed funds. Given the longer-term nature (minimum term of five years) of this product, investors often choose to invest in growth assets. A very popular way to get access to such assets is via a personal share portfolio, with various mandates available from NVest Securities and other leading stockbrokers. Alternatively, if downside protection is a top priority, the Cumulus Endowment under the Glacier Life offering becomes an attractive option. The range of Sanlam Escalating funds offers unlimited upside, but has a builtin guarantee of 80% of the highest unit price ever reached. This feature makes these funds particularly attractive for investors looking for some protection, but still wanting to invest in equities and bonds.

More reasons to consider an endowment In addition to tax savings, the Glacier Vantage Life Plan oﬀers the following advantages:

Investment Plan Up to 45% (was 41%) Up to 18% (was 13.67%)

45% (was 41%) 36% (was 27.34%)

Simplified tax administration as tax is recovered within the endowment and taken care of on behalf of the investor. Insolvency protection – the entire value of the policy will be protected against creditors after three years. This protection will continue until five years after the termination of the policy. No restriction on maximum levels of equities and offshore investments, as in the case of retirement savings products. Ability to draw income upon retirement after the fiveyear restricted period has ended. This can be done on an ad-hoc basis, without the investor being forced to draw income at specific intervals.

For more information, please contact your ﬁnancial adviser or NFB representative. SENSIBLE FINANCE NOV17 21

SENSIBLE ADVICE

WHEN YOUR FAMILY GET MORE THAN THEY BARGAINED FOR Consider the potential impact of your wishes - when your will has highly unusual requests. By Debi Godwin, Managing Director Independent Executor & Trust.

n South Africa you can leave your estate to whomever you like. You can also include unusual provisions in your will, for example, leave legacies to pets, make eccentric last requests or give unconventional funeral instructions. However, this freedom can come at a price. You should also be aware that the way in which you leave your assets and use unusual will clauses can sometimes prompt family disputes or claims being made against an estate. When making a will, it is therefore vital to consider the potential impact of your wishes. For example, when the late fashion designer, Alexander McQueen, left a £50,000 trust fund for the benefit of his dogs, this might have caused a dispute. However, the majority of his estimated £16 million estate was left to good causes and family members and therefore the gift to his pets was proportionate. And think about the practicalities of fulfilling Sir Francis Drake’s and Napoleon Bonaparte’s last requests. The former asked that his two favourite ships be sunk near to where he was buried at sea and the latter asked that his head was shaved after his death, and made into bracelets and shared amongst his family and friends. Quirky funeral wishes may not always be well received by grieving family members, and not all families may either be willing or able to accommodate unconventional requests at what is an already difficult time. In the US, when Fredric Baur (the founder of the famous Pringles

crisps brand) died in 2008, he left instructions with his family to bury his ashes in a Pringles can. They duly obliged, but not every family might be as understanding. It is also important to remember that not all unusual will clauses carry harmless messages. Indeed, some may be designed to deliberately cause distress. Consider the potential impact of the will of Anthony Scott which stated: ‘To my first wife Sue, whom I always promised to mention in my will. Hello, Sue!”. The poet, Henrich Heine’s will left his entire estate to his wife, on the condition that she remarried, because “then there will be at least one man to regret my death.” Some of these clauses may appear amusing, but it is vital to bear in mind that, firstly, those involved will be dealing with bereavement and also that wills may later become public documents, which can then be accessed by anyone for a small fee. Whilst leaving a derisory comment in your will or seeking revenge may appear tempting, would you want it to cause a legal dispute, damage family relationships, make personal disputes public, or incur unnecessary costs to your estate? Another potential problem is when wills fail to make sufficient provision for family members. If you are considering excluding a close relative or financial dependant from your will or including an unusual or contentious will clause, you should also consider obtaining specialist legal advice.

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. 49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210 Telephone: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 | e-mail: info@iet.co.za

Port Elizabeth clients can call 041-582 3990 and you will be re-directed accordingly 22 SENSIBLE FINANCE NOV17

SENSIBLE PROTECTION

CO-HABITATION AND THE LAW The implications you should be aware of. By Lonwabo Simbi, Financial Paraplanner - NFB East London. long way to protect the rights and responsibilities of children in unmarried families that co-habit. The responsibilities towards the upbringing of the minor child are viewed in isolation with those of the co-habitant couple.

o-habitation has occurred in times long past in parts of America and the European regions. However, in South Africa it has become more popular in the past decade and a half as many see it as a step towards marriage, moving slightly away from the more Calvinistic approach. Sharing comes naturally in any relationship and the owner of those assets is not of real importance, up until the relationship comes to an end due to separation or death. The need for assets to be divided gives rise to the importance of the legal form of the relationship for the surviving partner or the partner who may have any ongoing obligation to the other. Most people in South Africa (young and old) have this misconception that when you live with your partner for a certain number of months or years consecutively, legislation will automatically consider you married, also known as a “common law” marriage. However, no piece of legislation in the republic recognizes such as a legally binding relationship. If you are not legally married to one another you will not automatically enjoy the rights that married individuals enjoy. If you are planning to “shack-up” or ﬁnd yourself in a cohabitation relationship there are a few implications associated therewith you should be aware of. Cohabitation is generally two people living together as a couple, much like a marriage, but without getting married.

First and foremost, co-habitant relationships are not recognized as legal relationships in South African Law. Due to this fact many problems arise when trying to determine the rights of the parties in terms of property and maintenance.

Thirdly, the fact that a co-habitation relationship is not a recognized legal relationship does not mean that the cohabiting partners cannot claim assets from each other. Applicants have successfully made claims against former co-habitant spouses by proving a Universal Partnership existed between the two, and the agreement need not necessarily be in writing. This is by no means an easy task as all the legal requirements set must be met, especially in the case of a tacit universal partnership. Fourthly, some pieces of legislation still apply to parties in a co-habitation relationship. Section 21(13) of the Insolvency Act which deals with the sequestration of an individual. In terms of the act a “spouse” is also defined as “a woman living with a man as his wife or a man living with a woman as her husband although they are not married to one another”, therefore the sheriff has the power to seize the solvent partner’s assets. Lastly, the best way to protect yourself when in, or planning to enter into, a co-habitant relationship is to get a co-habitation agreement. It will deal with assets (moveable & immoveable), liabilities of both parties, living expenses, aspects related to life insurance & pension funds if the parties have nominated themselves as beneficiaries on policies and steps to take to vacate the common home in the event the co-habitation relationship comes to an end. One simpler way to protect yourself and your partner is by having an up-to-date Will to ensure he/she is looked after upon your death. Our private wealth manager details are EL (043) 7352000 PE (041) 582-3990 CT (021) 202-0001 JHB (011) 895-8000. References: http://www.divorcelaws.co.za/the-law-on-cohabitation.html http://www.vermeulenlaw.co.za/five-things-to-consider-before-

Secondly, when a child is involved the lines are not as blurred as many may have thought. Legislation goes a

shacking-up-cohabitation-in-south-africa/ BANKRUPTCY & SPOUSES | Chante Jardim | July 14, 2016

SENSIBLE FINANCE NOV17 23

SENSIBLE ANALYSIS

GOVERNMENT EMPLOYEES PENSION FUND AND DIVORCE

Explaining the options. By Zukiswa Sonjica, Financial Paraplanner - NFB East London.

he “clean-break” principle was introduced through the Pension Funds Amendment Act in 2007. This amendment act instructs the divorcing member’s retirement fund to pay out the pension interest awarded to the non-member spouse after the divorce decree is issued. The non-member spouse can thereafter elect to either transfer the funds to another fund, or receive the amount awarded to them in cash. Tax may be applied to the benefit. Previously, the payout only had to happen at the retirement of the member spouse, which could be several years after the actual divorce. Retirement funds governed by the Pension Funds Act simply deduct the pension interest due to the nonmember spouse against the member spouse’s fund benefit leaving the member with a reduced benefit. The Government Employees Pension Fund (GEPF) treats the pay out differently. Upon divorce, the resignation benefit of the member is calculated. The member then has two options: One option is to reduce the member’s pensionable years-of-service, which is one of the variables in the calculation of the actuarial interest due to the member upon exiting the fund at resignation or retirement. This adjustment to the years-of-service variable effectively reduces the benefit due to the member. The percentage due to the non-member spouse can be paid out from the GEPF reserves (leaving the GEPF member’s benefit untouched), creating a liability termed the “Divorce Debt” as directed by the GEP Law and rules. So in effect, the GEPF is seen to have paid out the funds to the non-member spouse and becomes a creditor of the divorced GEPF member. The divorcing member spouse is obligated to pay the 24 SENSIBLE FINANCE NOV17

“Divorce Debt” back to the GEPF with interest. With regards to the “Divorce Debt” option created by the Fund rules, members are given the option to pay back the debt by way of instalments or a lump sum with extra funds they may have, to prevent the accumulation of a large debt balance at retirement/resignation. Any remaining “Divorce Debt” will be deducted from the member’s fund benefit when they exit the fund as stated in Rule 14.10.9.1 of the GEPF Rules. The Rules go on further to state that “if the amount of the divorce debt exceeds the amount of the gratuity and there is an annuity payable to the member, then the divorce debt must be recovered from the gratuity and annuity and the gratuity and annuity be reduced pro-rata”. Here’s an example to roughly illustrate the effect: A member with a retirement benefit of R2,500,000 retires from the GEPF after the court awards R770,000 to her former spouse upon their divorce. Assuming the interest accumulated on the divorce debt of R770,000 amounts to R135,250, the GEPF member’s benefit will be reduced to a total amount of R1,594,750 (R2,500,000 less R770,000 less R135,250). If this amount is taken in cash, tax will be deducted. Should the member have no other investment capital and retirement investments to make up for the shortfall created by the “Divorce Debt”, the GEPF member’s retirement plans will undoubtedly be compromised. Should you find yourself having to revisit your retirement plan due to a divorce pay out, please feel free to contact one of our financial advisors on one of the following numbers to do a needs analysis for you to assist you in developing a plan to get you back on track. EL (043) 735-2000 PE (041) 582-3990 CT (021) 2020001 JHB (011) 895-8000.

SENSIBLE READ

MUNICIPAL CERTAINTY A charge on property lapses on transfer. By Grant Berndt - Abdo & Abdo .

e have over the past year or so written a number of articles about the Municipality’s right to recover outstanding charges and that such charges are a charge against the property. This is in terms of Section 118(3) of the Local Government: Municipal Systems Act, which states that this right enjoys preference over a mortgage bond registered against the property. The previous Court decisions have been that this right does not lapse upon the transfer of the property to a new owner, even if the Municipality fails to recover the debt from the previous owner prior to transfer into the new owner’s name. The Constitutional Court has now handed down Judgment on this section. In the matter before it, the City of Tshwane and Ekurhuleni Municipalities had suspended the supply of services to properties due to the outstanding debt of the previous owners. The new owners brought an application for the Municipal services to be reconnected. The Municipalities claimed that they were entitled to disconnect services and their right to proceed with the sale of the properties in question was not extinguished by the transfer of the property to the new owner. Amongst others, the Banking Association of South Africa joined in the matter due to their concern that should the Municipalities be successful in their claim that they could sell the property for the previous owner’s debt, that the bank’s rights as a bond holder would be negatively aﬀected. What would happen if a bank held a bond over a property which was sold at auction by a Municipality for the debt of a previous owner? The bank would lose their security, being the property itself, fundamentally eroding a bank’s security on which it had given the loan.

Another aspect the Constitutional Court looked at was the right in terms of Section 25 of the Constitution which prohibits the arbitrary deprivation of property. This would occur if the Municipality could still sell the property after transfer to a new owner had taken place. Fortunately, and correctly, the Court found that to prevent this possible arbitrary deprivation of one’s right to property, the charge on the property in favour of the Municipality lapses on transfer. One of the reasons for this is that the Municipality issues a rates clearance certiﬁcate for transfer and if their debt collection policies and procedures, which amongst others, allows them to interdict or prevent the transfer until such time as the debt is settled, are so defective that they do not recover their outstanding charges at the time of transfer, the new owner or any other person having a right in the property, cannot be expected to endure the uncertainty of a possible deprivation of his ownership or rights or a termination of services by the Municipality at a later stage. The Court held Section 118(3) to be accordingly unconstitutional to the extent only that the security provision of it being a charge upon the property survives the transfer of ownership to a new owner who is not the debtor of the Municipality in respect of the Municipal debts incurred before the transfer. Thus, eventually certainty has been brought, and a new owner cannot now be held liable for the Municipal debt of the previous owner, nor can their property be sold by the Municipality to recover the charges due by the previous owner.

SENSIBLE FINANCE NOV17 25

SENSIBLE SHARES

ANAESTHESIA TO NUMB THE PAIN Discussing Aspen Pharmacare Holdings Limited. By Greg Farland, Stockbroker/Portfolio Manager - NVest Securities.

HERE is a lot of political uncertainty around at the moment which will add to market volatility. As a result, if you are planning on investing, be prepared for some big price movements in the share market. The good news with volatility, however, is that it can create buying opportunities. At NVest Securities we identity shares that we believe will deliver good performance and then make a decision on the right price at which to buy them. A share which we believe has a strong investment case is Aspen. Aspen Pharmacare Holdings Limited is a global supplier and manufacturer of branded and generic pharmaceutical products, as well as infant nutritionals and consumer healthcare products in selected territories. They are well positioned in both developing and developed markets – it is the largest pharmaceutical company in Africa, and has an expanding presence in Latin America, Asia, Europe and the Commonwealth of Independent States, comprising Russia and the former Soviet Republics. Aspen has 26 manufacturing facilities at 18 sites on six continents and manufactures 24 billion tablets annually. Their products are renowned for their quality, eﬃcacy and aﬀordability. This blue-chip multinational is the largest pharmaceutical company listed on the JSE and is one of the top 20 companies listed on this exchange.

More importantly, Aspen’s acquisition of Astra Zeneca and GSK’s global (ex-USA) anaesthetic portfolios gives it access to 20% of the global (ex-USA) anaesthetics market. It also provides a sales force of 300 people in China (in addition to the 350 acquired with the thrombolytic China rights from GSK). The pharmaceutical giant announced it would be acquiring the intellectual property and manufacturing rights, in addition to the commercialisation rights it acquired last year, from Astra Zeneca. To this end, Aspen has planned projects for its South African, German and French manufacturing facilities to create capacity for future anaesthetic manufacture. In the meantime, Astra Zeneca will continue to supply anaesthetics for the next ﬁve years. This deal will have a positive impact on margins, plus future synergy beneﬁts.

Aspen Holdings - Annual Results Presentation for the year ended 30 June 2017

One of the risks to the Aspen investment case has been government legislation and pressure on pricing in all geographies. Aspen’s much publicised litigation issues with regards to alleged excessive drug pricing has been a headwind for its share price. However, it is our belief that these issues may fade as investors realise it is merely the nature of the industry in which pharmaceuticals operate in.

www.aspenpharma.com

In their latest reported results for FY2017 Aspen delivered on their promise of a strong second half performance with double digit growth in both revenue and earnings for the year in spite of a challenging global pharmaceutical environment. Had it not been for unfavourable relative movements in exchange rates, the growth reported would have been even higher (Revenue +22%, NEBITDA +18% and NHEPS +21%). 26 SENSIBLE FINANCE NOV17

Our investment thesis for Aspen is that they remain a good quality, defensive company with decent growth avenues. Aspen trades on a one year forward PE of 16.4x and still looks attractive from a valuation perspective at a price around R320 per share*. This is without factoring in any further acquisitions or expansions into new territories (in spite of management’s track record of doing so). NVest continue to hold and buy Aspen where appropriate. *price at time of writing R 319.97 (20 Oct 2017)

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SENSIBLE INSURANCE

INSURANCE FRAUD: A VICTIMLESS CRIME? continued from page 10

this kind of thing. With every claim made, a person is tasked with a great deal of paperwork and subjected to intense scrutiny because the insurance sector has had to adapt to this situation. Insurers employ the brightest and the best to help beat this. Combatting fraud requires a wide range of methods, including smart systems, vigilant people and strong control mechanisms. Fraud continually evolves and fraudsters change tactics to avoid detection and the industry therefore needs to continually adapt its approach to keep them at bay.

The SAIA estimates that, in line with international norms, fraudulent claims amount to about one third of all claims submitted annually. So, should you ever suspect insurance fraud taking place, make it your duty to contact the SAICB's whistle-blowing hotline so that we, as policyholders & consumers with integrity, can be part of the solution and not the problem. Even while chatting around a braai or in conversation with colleagues, friends or acquaintances & someone is bragging about how he came out on top by inflating his burglary claim or how she scored the latest smart phone after submitting an insurance claim for a “lost” antique model, have the courage of your convictions to stand up & say, “THAT'S FRAUD!!!”

SENSIBLE MIX

HOME COUNTRY BIAS AND HAVING THE CORRECT MIX continued from page 15

has taken a massive dip, with US retail stores such as Macy's closing down. Some analysts refer to it as a concept known as “retail-mageddon”. This can be linked to the success of the e-commerce giant Amazon and other smaller online stores. We see this happening in the domestic space too, where we have seen the end of Stuttafords. Adopting a home bias may limit us from investing in large e-commerce companies such as Alibaba and Amazon.

CONCLUSION The modern era has introduced additional risks due to technological advancements that were not present even 10 years ago. These advancements have also increased opportunities and provided easier access to worldwide markets. Having a portfolio that is overweight domestically is not necessarily a bad thing, but rather a situation that requires consideration. At NFB, our philosophy revolves

around long term investing even in times of tough markets where growth is slow. We do, however, feel that the world's best rugby team will not only have South African players in it, but in fact a mix of superstars from all around the globe. The same concept can be adopted when selecting an appropriate investment strategy. It's not about being invested 100 percent offshore or 100 percent locally. There is no “golden rule” or a “one size fits all strategy”, but it is more about finding a suitable balance for each client and this will depend on numerous factors, such as our clients', needs, aspirations, risk profile, age and asset mix. Once we understand our clients' goals, a suitable investment portfolio can be built around it. Speak to your financial advisor should you require more information about diversifying your portfolio. Our contact telephone numbers are: JHB 011-895 8000 EL 043-735 2000 PE 041-582 3990 CT 021-202 0001.

SENSIBLE PRACTICES

CODES OF GOOD PRACTICE AND AMENDED CODES OF GOOD PRACTICE continued from page 18

April 2015 can still be rated under this Codes of Good Practice. Amended Codes of Good Practice (2013): All entities (excluding those that belong to a speciﬁc Sector Code) with a Financial year End post the 30th April 2015 must be rated under the Amended Codes of 28 SENSIBLE FINANCE NOV17

Good Practice. Old Sector Codes: Sectors (excluding Construction and Chartered Accountancy) can be rated under the Sector Codes until such time as the Amended Sector Codes are gazetted as a Section 9(1) Sector Code.

SENSIBLE TEAM

NFB have a STRONG, REPUTABLE TEAM OF ADVISORS with a WEALTH OF EXPERIENCE between them: EAST LONDON OFFICE: Anthony Godwin RFP™ | MIFM – Executive Director and Private Wealth Manager, 28 years experience; Bryan Lones AFP™ | PGDFP, MIFM - Private Wealth Manager, 25 years experience;

Benefits, 40 years experience; Leonie Schoeman RFP™ | Divisional Manager – Healthcare Advisory Services, 19 years experience;

Gavin Ramsay | B.Com, MIFM - Managing Director EL and Private Wealth Manager, 23 years experience;

Phillip Bartlett CFP® | BA LLB, PGDFP, MIFM - Executive Director and Private Wealth Manager, 15 years experience;

Glen Wattrus CFP® | B.Juris, LLB, PGDFP – Private Wealth Manager, 19 years experience;

Robert Masters AFP™ | MIFM - Private Wealth Manager, 31 years experience;

Jaco de Beer RFP™ | National Certificate: Financial Services Wealth Management, Private Wealth Manager, 21 years experience;

Travis McClure CFP® | B.Com, PGDFP, MIFM – Executive Director and Private Wealth Manager, 18 years experience;

Juanita Niemand | National Certificate in Wealth Management – Healthcare Consultant, 2 years experience;

Walter Lowrie | Private Wealth Manager, 31 years experience;

Julie McDonald CFP® | B.Com, PGDFP – Financial Advisor (Risk Assurance Specialist), 5 years experience; Leona Trollip RFP™ | Divisional Manager – Employee

Bryan Ridley CFP® | PGDFP – Private Wealth Manager, 4 years experience; Bonisa Ngcongca CA(SA) | B.Com (Acc) – Private Wealth Manager, 1 year experience;

PORT ELIZABETH OFFICE: Alex Grunewald CFP® | PGDFP – Managing Director PE and Private Wealth Manager, 10 years experience; Marco Van Zyl CFP® | PGDFP – Director/Private Wealth

Manager, 14 years experience; Nicky Sass | National Certificate in Wealth Management – Healthcare Consultant, 1 year experience.

JOHANNESBURG OFFICE: Andrew Duvenage CFP® | B.Com (Hons), PGDFP Advanced Investments – Managing Director NFB Gauteng and Private Wealth Manager, 12 years experience; Grant Magid CFP® | B.Com, PGDFP - Executive Director Gauteng and Private Wealth Manager, 15 years experience; Jeremy Diviani CFP® | B.Com, PGDFP Advanced Investments - Private Wealth Manager, 11 years experience; Laurie Wiid | B.Com, ILPA - Executive Director Gauteng and Private Wealth Manager, 23 years experience; Mike Estment CFP® | BA – CEO Gauteng and Private Wealth Manager, 31 years experience;

Paul Jennings CFP® | B.Com (Hons), PGDFP - Private Wealth Manager, 44 years experience; Philip Shapiro CFP® | B.Acc, H.Dip Tax, Admin of Estates, PGDFP – Financial Director Gauteng and Private Wealth Manager, 22 years experience; Stephen Katzenellenbogen CFP® | B.Com (Hons), PGDFP Advanced Investments – Director and Private Wealth Manager, 13 years experience; Terrance Janse Van Rensburg | B.Econ - Director and Private Wealth Manager, 22 years experience; Xintol Schoeman | Higher Certificate in Wealth Management - Financial Advisor (Life Specialist), 4 years experience.

NFB has a separate specialist Short Term Insurance Division, as well as now oﬀering specialist group companies in the ﬁelds of stock broking, wills and the administration of deceased estates. 29

RAGING BULL AWARD Winner: Best South African Multi-Asset Equity Fund: NFB CI Cautious Fund of Funds RAGING BULL CERTIFICATE Winner: South African Multi-Asset Low-Equity Fund: NFB CI Cautious Fund of Funds

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