NFB Sensible Finance Magazine Issue 14

NFB

issue 14 March 2010

a FREE publication distributed by NFB Private Wealth Mangement

Eastern Cape's Community...

PERSONAL FINANCE Magazine

DEFLATION : not all doom and gloom “Getting more bang for your buck”

BE ACTIVE, BE WEALTHY the benefits of having your portfolio actively managed

THE CRYSTAL BALL what does 2010 hold for us?

WIN A WEEKEND AWAY TO THE THUNZI BUSH LODGE see inside for details private wealth management

“The best way of preparing for the future is to take good care of the present, because we know that if the present is made up of the past, then the future will be made up of the present.

Only the present is within our reach. To care for the present is to care for the future.�

- Buddha

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private wealth management

Providing quality retirement, investment and risk planning advice for 25 years. fortune favours the well-advised contact one of NFB's financial advisors: East London tel no: (043) 735-2000 or e-mail: nfb@nfbel.co.za Port Elizabeth tel no: (041) 582-3990 or email: nfb@nfbpe.co.za Johannesburg tel no: (011) 895-8000 or email: nfb@nfb.co.za web: www.nfb.co.za NFB is an authorised Financial Services Provider

sensible finance

ED’SLETTER

editor Brendan Connellan bconnellan@nfbel.co.za

contributors Duncan Wilson (NFB), Travis McClure (NFB), Philip Bartlett (NFB), Chris Lemmon (NVest), Shaun

a sensible read

Murphy (Klinkradt & Assoc.), Grant Berndt (Abdo & Abdo), Leona Trollip (NFB), Claire Broedelet (Travel Experience), Natalie Dillon (Old Mutual), Tamas Kulcsar (Glacier by Sanlam), Robyne Moore (NFB), Iona Minton (for IE&T).

advertising Robyne Moore rmoore@nfbel.co.za

layout and design Jacky Horn Design jacky@e-mailer.co.za

address NFB Private Wealth Management East London Office NFB House, 42 Beach Road Nahoon, East London, 5241 Tel: (043) 735-2000 Fax: (043) 735-2001 E-mail: nfb@nfbel.co.za Web: 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

F

ebruary saw Pravin Gordhan delivering his first official budget speech, and quite an ordinary one really; which I think is probably a sign of an economically stable country. A particularly scary statistic was that about 900,000 people have lost their jobs in the last year. And in a country that, in December 2008 (according to Stats SA's Labour Surveys), only had 13.8 million employed people, that translates to 6.5% of the employed population! So although many of us may not have noticed the severity of the recession, it really had a major impact on our economy. Out of interest, at the same date, we had a total (potential) labour force of 17.7 million, of which 3.8 million were already unemployed. However, there is good news on the horizon with 2.3% growth expectations for South Africa for 2010, rising to 3.6% by 2012, and interesting government subsidy plans for new inexperienced entrants into the workplace. I just hope that this gets coupled with improving the quality of school leavers. It's very sad to see the standard of the vast majority of job applicants that we see, and before inequities in the workplace can be remedied, that needs to be a crucial focus of the government. Furthermore on the positive front, South Africa is officially out of recession and it appears as though the world economy has entered a recovery, rebuilding and expansionary phase. We can all optimistically breathe a sigh of relief and hopefully our investment portfolios can do the same!

Finally, it was brought to our attention that we have not adequately been sourcing some of our articles and have made errors in terms of incorrectly listing the authors for some articles. We apologise for the oversight, misleading information and specifically the editing from my perspective and will ensure that much more attention is put into these details in future. We assure readers of our commitment to providing quality and relevant information as professionally and accurately as possible.

Best of luck to underdogs, Bafana Bafana, in the up and coming World Cup! Get your vuvuzelas out and let's give them our support!

editor or the NFB Private Wealth Management. Š2010 All Rights Reserved.

No part of this publication may be reproduced in any form or

Brendan Connellan - Editor and Director of NFB Email your full name to nfb@nfbel.co.za to subscribe to NFB's free economic electronic newsletters. another aspect of our comprehensive service

medium without prior written consent from the Editor.

sensible finance March10

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SENSIBLE CONTENTS

nfb sensible finance

March 2010

3 NFB TOUCHING LIVES IN OUR COMMUNITY You too can make a difference! The Loaves and Fishes Network and the CANSA Relay for Life

4 2010 BUDGET HIGHLIGHTS A snapshot of Pravin Gordhan's budget speech. By Shaun Murphy, CA (SA), Partner Klinkradt & Associates

6 YOU ARE SPENDING YOUR MILLIONS R1 AT A TIME A lesson in the time value of money. By Joshue Kennon - About.com

7 TAX RELIEF FOR HOMES HELD BY COMPANIES, CC'S AND TRUSTS

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A final opportunity to transfer your property tax free into your own name. By Grandt Berndt - Abdo & Abdo

8 WHO RECEIVES MY PENSION BENEFIT WHEN I DIE? An equitable distribution may mean that your nominated beneficiary receives nothing. By Natalie Dillon, Legal Advisor - Old Mutual

9 “TO IMPROVE IS TO CHANGE, TO BE PERFECT IS TO CHANGE OFTEN”

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Are our fund members appropriately invested given their age, proximity to retirement and stage of life cycle? Unfortunately, many are not. By Leona Trollip, Divisional Manager - NFB

10 WHAT YOUR HEIRS NEED TO KNOW Making financial matters easier for those who are left behind. By Iona Minton for Independent Executor & Trust

11 HOMO ECONOMICUS OR HOMO SAPIEN? For an investor seeking a comfortable retirement, the romance is not in the journey, but solely in the destination. Written by Philip Bartlett, Independent Financial Advisor NFB East London

12 DEFLATION: NOT ALL DOOM AND GLOOM

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“Getting more bang for your buck”. By Duncan Wilson, Financial Advisor - NFB

14 BE ACTIVE, BE WEALTHY The benefits of having your portfolio actively managed. By Tamas Kulcsar, Investment Analyst - Glacier by Sanlam

15 Q&A. You ask. We answer. Advice column answering your investment, personal finance, life and/or risk insurance questions with Travis McClure, Financial Advisor - NFB

17 TRAVELLING IN 2010 With the Soccer World Cup upon us, it's time to plan ahead. By Claire Broedelet, Marketing Executive - Harvey World Travel

18 HOW TO MAKE FINANCIAL PLANNING WORK FOR YOU Advice to help you achieve the best results. Source: FPI

20 EXPECT THE UNEXPECTED The major life events which can disrupt your retirement plans. By Robyne Moore - NFB

22 DISCOVERY HEALTH'S SPECIAL UNDERWRITING CONCESSION See the article for details of the offer

23 THE CRYSTAL BALL Photo BigStockPhoto.com

What does 2010 hold for us? By Chris Lemmon, Director/Portfolio Manager - NVest

25 WIN A WEEKEND GETAWAY TO THE THUNZI BUSH LODGE Stand in line to win a weekend away for two, compliments of the Travel Experience, East London

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SENSIBLE RESPONSIBILITY

Loaves & Fishes Network Touching lives in our community.

You too can make a difference!

A

t NFB we are committed to uplifting and

enriching the lives of those less fortunate than ourselves. Through our social responsibility programme we believe we can reach these people and make a positive impact, not only on their everyday lives, but on our community as a whole. By enriching others, we enrich ourselves.

Should you wish to sign a debit order form in order to make a monthly contribution to assist in the sustainability of this very worthwhile organisation, kindly contact Robyne at NFB on 043 735 2000 or rmoore@nfbel.co.za For further reading or information: www.loavesandfishes.co.za LAFN contact details: 9A Dyer Street, Arcadia, 5241 P O Box 19640, Tecoma, 5214 Tel/fax: 043 – 722 0010 Cell: 082 306 5823 E-mail: info@lafn.co.za

you too can make a difference!

O

nce again, in March this year, a group of

intrepid NFB’ers will take to the track at Jan Smuts Stadium to join in East London’s second CANSA Relay for Life event. The various teams raise funds before and during the Relay for CANSA services. This all night event serves “to honour those living with cancer, to remember those who lost the battle and to fight back to save lives”.

People from all walks of life and many businesses take part in the Relay. One of the highlights of the evening includes a candle-light ceremony and an inspirational survivor walk.

Should you wish to purchase a “Hope” or “Life” armband for R10 or make a small donation for a Luminaria bag (decorated any way you please and placed on the field with a lit candle inside) in recognition or support of a loved one, please contact Robyne Moore at NFB on 043 – 735 2000 or rmoore@nfbel.co.za

For more information please go to www.cansa.org.za

in proud association with

private wealth management

sensible finance March10

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Photo BigStockPhoto.com

SENSIBLE TAX

2010 BUDGET HIGHLIGHTS A snapshot of Pravin Gordhan's budget speech. By Shaun Murphy CA (SA), Partner - Klinkradt & Associates

Photo BigStockPhoto.com

RELIEF FOR INDIVIDUALS Personal Income Tax Budget 2010 provides significant tax relief to individuals amounting to R6.5bn, which partially compensates for the effects of inflation.

This means that individuals younger than 65 years of age earning a total amount of– = R80 000 will pay tax at an average rate of 5.2% on earnings and save R504; = R250 000 will pay tax at an average rate of 17.6% on earnings and save R1 614; = R750 000 will pay tax at an average rate of 30.6% on earnings and save R3 534. = The tax threshold for individuals younger than 65 will be R57 000, and for individuals 65 or older R88 528.

Increased exemption for interest and dividend income = The annual exemption on interest earned for individuals younger than 65 years is raised from R21 000 to R22 300. = The exemption for individuals 65 years and older increases from R30 000 to R32 000. = The threshold for the tax-free portion of interest and dividends from foreign investment increases from R3 500 to R3 700.

Medical Expenses From 1 March 2010 the tax deductible portion of monthly contributions to medical schemes is increased for each of the first two beneficiaries from R625 to R670, and for each additional beneficiary from R380 to R410.

Retrenchment Packages The R30 000 exemptions for termination of services has not been adjusted in many years. It is Budget proposed that this exemption be merged into the retirement fund lump sum benefit system and that the qualifying lump sums be taxed by applying the

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sensible finance march10

tax table for retirement fund lump sum benefits. The aggregation principle will apply.

OTHER TAX PROPOSALS AFFECTING INDIVIDUALS Standard income tax on individuals (SITE) SITE was introduced in the late 1980s to limit the number of tax returns filed annually. Administrative modernisation and the fact that the tax threshold for taxpayers younger than 65 years is approaching R60 000 have eliminated the need for this system.

SITE is to be abolished from 1 March 2011.

Administrative relief measures will be considered for low-income taxpayers with multiple sources of income.

Limiting salary structuring = The company car fringe benefit value is to be increased = Deferred compensation and employer-provided group life insurance will be taxed as fringe benefits Voluntary Disclosure Programme In order for taxpayers to disclose their defaults (noncompliance) and regularise their tax affairs a voluntary disclosure programme will be implemented. = The programme is to be effective during a window period from 1 November 2010 until 31 October 2011 = The full amount of tax remains due = Relief with regard to interest and penalties will apply = Relief is to be granted if – ¡ the disclosure is complete ¡ SARS was not aware of the default ¡ a penalty or additional tax would have been imposed had SARS discovered the default in the normal course of business continued on page 24...

Photo BigStockPhoto.com

SENSIBLE LESSONS

YOU ARE SPENDING YOUR MILLIONS R1 AT A TIME A lesson in the time value of money.

Written by Joshua Kennon, About.com Guide

Photo BigStockPhoto.com

O

ne of the fundamental principles of finance is the concept that R1 today is more valuable than R1 a year from now.

The reason for this is two-fold. First, a rand will probably buy less goods and services in the future due to the destructive force of inflation. Second, if I have a rand in my hand today, I can invest it and earn a return in the form of dividends, interest or capital gains.

The best money advice anyone can ever give you is to firmly establish this time value of money concept in your head. The key to financial prosperity is realizing the potential value of every rand that comes into your hands. In fact, I think of cash as a seed – you can either eat it (spend it) or invest it (sow it).

To help illustrate this point, let's assume you find a R20 note on the side of the road. You are faced with two potential uses: you can place the money in an investment account or take yourself out for a burger . “It's only twenty bucks!” you say to yourself and opt for the burger. In reality, you are spending far more. Using one of the time value of money formulas, we can calculate the real economic cost of not investing the cash.

FV = pmt (1+i)n FV = Future Value Pmt = Payment I = Rate of return you expect to earn N = Number of years To perform the calculation, we have to make a few assumptions. First, let's assume you are 30 years old (and hence 35 years away from retiring at 65).

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That means that the R20 can compound for 35 years. We will substitute 35 for “n” in the equation.

Next, we must establish your expected rate of return. In the current low inflation environment, an after tax, after fees rate of return of 10% would be acceptable.

The “pmt”, or payment, is the value of the single amount you want to invest (in this case R20).

Now that we've figured out the variables, the formula looks like this: FV = R20 (1+.10)35 Enter 1.10 into your calculator (this is the sum of 1+.10). Raise this to the 35th power. The result is 28.1024. Multiply the 28.1024 by the pmt of R20. The result (R562 and change) is the true cost of spending the R20 today (if you adjusted the R562 for inflation, it would probably work out to about R140 in today's rand. That means your real purchasing power would increase approximately 7fold).

Clearly, this is enough to buy a meal at one of our more up-market establishments. Armed with this knowledge, you are free to make an economic decision; namely, would you prefer to eat a R20 burger today or a R140 meal in the future. The answer is entirely personal. Once you understand this concept, however, it becomes painfully obvious that the small luxury items you think nothing of are really costing you millions and millions of rand in future wealth.

Contact an NFB Wealth Manager to ensure that your financial plan is in order on email nfb@nfbel.co.za or phone 043 - 735 2000.

SENSIBLY LEGAL

TAX RELIEF for homes held

by Companies, Close Corporations & Trusts A final opportunity to transfer your property tax free into your own name. By Grant Berndt Abdo & Abdo

P

rior to 13 December 2002 one could

compliance with the above requirements, transfer

purchase an interest in a Company or Close Corporation or obtain a beneficial interest in

can be effected into the name of the natural person concerned, without transfer duty being

a trust, which entity was a residential property

Photo BigStockPhoto.com

holding entity, without paying Transfer Duty to the

paid.

The question then raised is whether Capital

South African Revenue Service (SARS).

This tax relief was closed by SARS making such transactions subject to transfer duty. Tax payers were then allowed a 12 month period to transfer their primary residences (their homes) out of Companies, Close Corporations and Trusts into their personal names without paying any Tax. A primary residence is defined as a residence in which a natural person holds an interest and in which he / his spouse ordinarily reside and use it mainly for domestic purposes.

Certain property owners who owned their homes in Companies, Close Corporations or Trusts missed out on this initial opportunity to transfer their property tax free into their name. They have now been given until 31 December 2011 to do so.

To qualify for the exemption, the Company's shareholding or the member's interest in the Close Corporation must be held by the natural persons or his / her spouse, acquiring ownership from 11 February 2009 to the date that registration of transfer is effected into the name of such person. If the property is owned by a Trust, the person who financed the purchase of the property by the Trust must take transfer into his / her name.

Further, the natural person must have personally, and ordinarily, have resided in the property and used it mainly as an ordinary

Gains Tax is now payable upon registration of transfer? The answer is, no. Capital Gains Tax will only become payable upon the sale of the property or death of the registered owner, bearing in mind that the first R1 500 000.00 capital gain on a primary residence registered in the name of a natural person is exempt from Capital Gains Tax. However, the date of acquisition and the acquisition value of this property will be that at which the Company, Close Corporation or Trust bought the property. As Capital Gains Tax came into existence on 1 October 2001, the value of the property bought by any Company, Close Corporation or Trust prior to 1 October 2001 will need to be determined, alternatively for those properties bought after 1 October 2001, the purchase price will be the base cost for Capital Gains Tax purposes.

Payment of Capital Gains Tax is delayed until the sale or death of the natural person. If the property is owned by a Company, the distribution is also exempt from STC (Secondary Tax on Companies).

Thus, whilst this exemption is expected to benefit the majority of people who still have their primary residences registered in the name of a Company, Close Corporation or Trust, there may still be the exceptions. It is, therefore, advisable to

residence for domestic purposes from 11 February 2009. Thus, this relief is not in respect of holiday

get guidance from one's attorney and tax consultant or accountant before making such a

homes or commercial property. Should there be

decision.

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TECHNICALLY SENSIBLE

Who receives my pension benefit when I die?

An equitable distribution may mean that your nominated beneficiary receives nothing.

GETTING TECHNICAL with Natalie Dillon, Senior Legal Advisor - Old Mutual Broker Distribution

W

hen a person takes out a retirement

and have to consider them when making an

annuity or joins their employer's retirement fund, they nominate the

equitable distribution of the deceased's retirement

person(s) whom they want the trustees of their

benefit – whether a beneficiary is nominated or not.

respective fund to pay their retirement benefit to at their death.

Despite this nomination, the Pension Funds Act

Photo BigStockPhoto.com

(PFA) governs who the trustees are obliged to pay the benefit to.

Section 37C of the PFA contains a general rule that provides that if, within 12 months of the death of the member, the fund becomes aware of a dependant(s) of the member, the member's benefit must be paid to such dependant(s) in a manner that the trustees deem equitable (Note: If a retirement fund's rules specify a benefit that pays to a spouse or child, such benefit is not subject to the discretion of the trustees).

A 'dependant' is defined by the PFA and includes a person l whom the member is legally liable to provide maintenance for; l whom the member is not legally obliged to provide maintenance for, but ¡ that person is factually dependant on the deceased member (for example, an elderly parent who is financially supported by their child); ¡ who is the spouse of the member; ¡ who is the child of the member l in respect of whom the member would have become legally liable to maintain had the member not died.

For example: Mr X dies while a member of his employer's retirement fund and is survived by Mrs X, his children, A and B, and granddaughter, C. His wife is his nominated beneficiary. l The board has 12 months to establish whether Mr X is survived by someone who falls within the definition of 'dependant' (Mrs X, A and B do). l The board makes an equitable distribution between Mrs X, A and B. l The distribution must be EQUITABLE (not EQUAL).

They could, for example award everything to B, if A and Mrs X are millionaires, and B is a minor with none of her own assets. l If the board discovers an illegitimate child of the deceased, such child also qualifies as a 'dependant' and will also be considered when the trustees make their distribution.

If the member has nominated a beneficiary, the board of the fund must make an equitable distribution to the nominated beneficiary and the dependants. An equitable distribution may, however, mean that the nominated beneficiary receives nothing.

Why is this important?

When taking care of one's financial planning, it is important to understand the workings of Section

What does this mean?

37C of the PFA, as the discretion that the trustees are obliged to exercise, might mean that people

The trustees of the fund have a 12 month period to

who you intended to benefit from your assets end

find any 'dependants' of the deceased member

up receiving nothing.

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SENSIBLE RETIREMENT

“To improve is to change; to be perfect is to change often.” ~ Winston Churchill The current global financial situation calls for pension and provident funds to challenge their investment strategy. Questions they need to ask are, for example: are our fund members appropriately invested given their age, proximity to retirement and stage of life cycle?

Unfortunately, many are currently not. Written

by Leona Trollip, Divisional Manager Employee Benefits - NFB East London

Photo BigStockPhoto.com

A

dministrators of pension and provident funds have shifted from defined benefit to defined contribution, dealing, along the way, with the tricky issue of surplus apportionments and improving upon their systems to offer member-directed investment choice at competitive costs. Almost 52% of pension/provident funds surveyed in the 2009 Sanlam Employee Benefit Benchmark offer member-directed investment choice, although of these funds 64% of members rely on the default choice, which for 50% of funds are lifestage mandates.

Whilst lifestage mandates are an improvement on the one investment fund for all, the disadvantage of these types of investment funds is that they assume members will retire at the normal retirement age as stated by the employment contract (generally age 65). However, members may retire from employment early, from age 55, or as late as 70 (with the employer's consent) and find that their total asset allocation in their investment portfolio (including their pension/provident fund) is mismatched with their term to retirement.

Personal financial planning, therefore, is imperative otherwise they might find themselves in the same position as the Brazilian, Jorge Guinle, who said “the secret to living well is to die without a cent in your pocket. But I miscalculated and the money ran out too early.” The consensus is that you should be able to retire comfortably provided you save 15% of your gross salary over a 35 year period and preserve your retirement funds throughout.

According to the Survey, there has been an improvement in the average contribution rates as the percentage of salary in Pension Funds to actual retirement provision has increased from 10.9% to 11.3%. However, this equates to 8 years less money

in retirement according to the Benchmark Survey.

Of concern, is that the prevalence of premature withdrawals from retirement funds when changing employment, is still high.

With regard to risk benefits, according to the Survey when compared to 2008, the average death benefits increased from a lump sum of 3.2 to 3.5 x final salary, whilst the average disability benefit remained at 75% of salary per month.

The Survey was across the spectrum of salaried and waged staff, free standing funds and participating employers in umbrella funds. The average total contribution rates to funds indicated the employer contribution increased from 9.5% to 9.9% of salary and employee contributions rates rose from 5.5% to 5.9% of salary (15.8% total contribution). Below is the allocation of contributions: 1.9 1.3 1.3

Death Disability Admin.

11.3

Retirement Fund

To assist employers in reviewing the provision of Pension/Provident Funds and Group Risk Schemes, contact Leona Trollip, Divisional Manager Employee Benefits on 043-735200 or ltrollip@nfbel.co.za

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SENSIBLE PLANNING

WHAT YOUR HEIRS NEED TO KNOW Making financial matters easier for those who are left behind. By Iona Minton for Independent Executor & Trust

Y

ou might know exactly where everything is stored, and have the balances of all your accounts and investments at your fingertips, but those who are left behind in the event of your death may not. This can cause unnecessary delays and heartache for your loved ones at a time of enormous stress and confusion. Little bits of money in dozens of separate accounts doesn't make good financial sense at the best of times, but especially not when your family only finds the savings book when they get around to clearing out your tool box a year later. I was recently told an interesting story by a couple who bought a piece of furniture at an auction of a deceased estate.

When they began to clean up the chest of drawers they peeled off the contact paper and underneath were layers of R200 notes. In all there was R10 000 in a sticky grip. Obviously the person who owned this died unexpectedly and was unable to tell anyone. Don't let this happen to you.

If you don't have a home study or office, or even a particular shelf in the linen cupboard where you keep all your records, at least keep an Estate Diary and let your family know where this is kept. Your Estate Diary provides a simple roadmap to take them to your various hiding places. Here are some of the things your heirs will need to know to make the financial matters easier.

Important documents These include: wills, living wills, trusts, powers of attorney, life insurance policies, health policies, car insurance policy, disability insurance, other insurance policies, safe deposit boxes, deeds, titles, income taxes from previous years, birth certificates, marriage certificate, divorce decrees, identity documents, passport, driver's license etc, title and registration of vehicles, and inventory of home furnishings.

Associate information These include the name, number, and address of your attorney, executor, accountant, financial advisor, broker, insurance agent, trustees, doctor, tax advisor, and employer.

Family and friends List immediate family members, distant relatives, pets, local friends, distant friends, and associates.

Personal information Record driver's license number, organisations, memberships, clubs, fees, secret hiding places, address book, organ donation wishes.

Funeral arrangements State cremation or burial (casket), minister and pallbearers, location, indoor or outdoor services, speakers, flowers or donations to charity, name of mortuary or cemetery, burial plot - if pre-arranged, and obituaries.

Assets (Location, Account Number, Types) State sources of income, cars, boats, house, vacation or rental home, checking accounts, savings accounts, money market accounts, certificates of deposit (CDs), stocks, bonds, unit trusts, valuables, antiques, or jewellery, and precious metals.

Liabilities (Account, Balance, Payments) List personal loans, bond, car loan, credit cards, business loans, clothing accounts, store accounts, other loans, routine bills, and debit orders.

Miscellaneous information Give security system codes, location of firearms and ammunition, and the place where spare keys are stored.

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: debi@iet.co.za

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SENSIBLE JOURNEY

Homo Economicus or Homo Sapien?

For an investor seeking a comfortable retirement, the romance is not in the journey, but solely in the destination.

Written by Philip Bartlett, Independent Financial Advisor - NFB East London

Photo BigStockPhoto.com

T

he Efficient Market Hypothesis has been the central proposition of finance since the 1950's. In a nutshell, the assumption is that investors are always rational, and value assets accordingly. It is deemed that irrational behaviour is random and subject to elimination by rational market arbitrageurs. It asserts that asset prices reflect the unbiased collective beliefs of all rational investors.

The Behavioural Finance approach on the contrary, believes the market over the short-term to be affected by irrational sentiment, postulating that people are strongly steered by emotion when assessing value. Hence pricing is imperfect; giving rise to unsystematic biases that can move prices away from fundamental values. Behavioural Finance sees the investor as complex, often irrational, unpredictable and contradictory, and although the rational side of the investor is recognised, it is proposed that inefficiencies in the market can be attributed to the likes of greed, fear, overconfidence, and investor noise. The conclusion is that market returns, or lack thereof, are in the short-term linked to investors' behaviour as opposed to market performance.

Decision-making is fundamentally based on the way the investor perceives and organises information, the way they feel when they register the information and the social environment in which the decision is made. With so many contributing factors it is no wonder the outcome is subject to bias.

Consider the impact of the representative bias where the investor, in a bid to cut to the chase, focuses on a small data set, matches it up to previous experiences, and hence either writes it off

as a bad idea or takes it on as if being fully informed. Or in an attempt to research the position turns to the most available information source, Google or “Bob”, and hence falls foul of the availability bias, failing to question the objectivity of facts.

Advertisers play to these weaknesses, framing facts in wording specifically catering for our propensity to associate credibility with a product or tweaking our inherent regret aversion button by implying inaction leads to missed opportunities.

Then there is the way we as investors see money: compartmentalising it into money earned or unexpected windfalls; the fore being subject to lock and key and the latter to the whims of something red and fast or bright and bold. Rainy day funds, fun funds, sentimental funds and the likes all fall foul of mental accounting mixed with an unwarranted faith in ones own intuitive reasoning or judgment.

Ultimately the cold and detached investor will be the most successful.

Investing legend Warren Buffett is a prolific advocate of common-sense investing, being quoted as saying “investing is simple, but not easy”, referring of course to the sea of emotions that one needs to detach from.

Contact Philip Bartlett of NFB on 043 735 2000 for more information sensible finance March10

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DEFLATION:

T

Photo BigStockPhoto.com

he Economic definition of deflation is “a decrease in the general price level of goods and services”. Deflation would occur when the annual inflation rate falls below zero percent (negative inflation rate), resulting in an increase in the real value of money – the ability to buy more goods with the same amount of money, or more appropriately phrased at your local bar, as “having more bang for your buck!”. Much of the commentary on deflation is negative, due primarily to talk of a deflationary spiral; a spiral into the abyss, some seem to think. This spiral would entail a decrease in prices, which lead to lower production, which in turn leads to lower wages and demand and so the cycle continues and compounds the problem further. Deflation has always been associated with the Great Depression and other significant economic downturns.

Japan's “lost decade” is cited as a shining example. Yet what many fail to understand is that it was a combination of bad policies, internal rigidities and demographic trends that were primarily to blame for the long-term structural damage after the bursting of the 1980's bubble in Japan. Deflation was a symptom, but certainly not the disease. Having said this, not all historic

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episodes of deflation correspond with poor economic growth. Deflation has always been incorrectly tied too closely to the word depression, so much so, that most think they are actually synonymous, but this is hardly the case.

Advantages of Deflation From 1865 to 1895, the US had persistent deflation.

During that period, industry boomed. While the monetary value of assets declined, businesses produced real output from innovation, capital investment and human resources, without unrealistic gains from currency depreciation. This view was ably summed up as follows:

SENSIBLE INVESTOR

“Rather than a problem to be dreaded and

consumption and penalise savers, if only to a lesser

combated, falling prices through increased production is a wonderful long-run tendency of

extent, by maintaining artificially low interest rates.

This naturally encourages people to borrow more,

capitalism. The trend of the Industrial Revolution

and more significantly, for investors to take more

in the West was falling prices, which spread an

risks.

increased standard of living to every person; falling costs, which maintained general

Vacuum, What Vacuum?

profitability of business; and stable monetary

Yes, deflation would be considered bad in a

wage rates—which reflected steadily increasing real wages in terms of purchasing power. This is

vacuum, but what are the alternatives to deflation? Deflation means a massive slowdown in

a process to be hailed and welcomed rather

consumer spending, which in a vacuum would be

than to be stamped out."

Savings and investment are vital for a dynamic and

destructive. We are, of course, in anything but a vacuous space and global borrowing has reached

well balanced economy. They generally have

unrealistic levels. Deflation is the market's cure for

three sources namely households, businesses and government. When households have little or no

countries' low savings rates. It forces debts to be fire-sold in the near term, and in the longer term, it

incentive to save, investment has to come from the other two. That is where the word “increase” and “taxes” appear in the same sentence. There has, however, already been a significant turnaround in savings rates globally since the fall of Lehman's. In fact, since late last year, we have seen the most significant rise in aggregate savings since the Second World War.

brings down formerly inflated asset prices into the reach of more people. There is a dire need for a significant and permanent change in generational mindsets. It is the idea of enduring the pain now, in order to enjoy the gain later.

We have to bear in mind that inflationist decisions by institutional elites now, mean more deflation later. We will prolong inevitable pain and, if anything, add to its severity. It is one thing for the government to intervene in financial markets to offset an exogenous shock, such as 9/11, but there is no rationale for the government's intervening against an endogenous financial shock. Deflation is a short-term consumption killer, but a long-term cure for the savings rate – it is not all that evil.

Unfortunately, the oversized institutions of the world, some having only grown in the last two years, have a way of never admitting they're wrong. If history is anything to go by, the “credit crunches” will continue, with sporadic central bank Band-aid patching, to temporarily calm credit fears.

It is not surprising that until late, global savings rates were as poor as our President's polygamous ways. Central banks cannot expect people to save if their response is to avert pain now and quietly

40 Years of inflation in the US and UK has, however, led to damaging imbalances that we face at present. Although central banks have been forced to finally tame consumer price inflation, excess money growth has once again created the potential for asset bubbles. Inflation has quite simply stood to encourage debt up until now.

Today's generation have become chronic borrowers. Over the last 15 years it has only been an environment that encourages debt. Despite this,

reinforce an inflationist ideology.

governments and banks still encourage

041 582 3990 for more information

Contact Duncan Wilson of NFB Port Elizabeth on

sensible finance March10

13

ACTIVELY SENSIBLE

Be active, be healthy The benefits of having your portfolio actively managed. By Tamas Kulcsar, Investment Analyst - Glacier by Sanlam

Photo BigStockPhoto.com

M

edical practitioners often emphasise the

cheaper, an index fund sells. This could potentially

importance of staying active to maintain good health. This seemingly

create undesired exposure to market heavyweights like Anglo American and BHP Billiton, which

simple advice can be applied to the investment

accounted for more than half the resources

world too. Odds are that investing in a passive index fund is unlikely to get you as financially healthy as proponents of the strategy would have you believe. For investors to gain and maintain true financial health (i.e. wealth), an investment portfolio needs to be actively managed.

A passive approach – akin to sitting on the sidelines during an exciting football game – has a few underlying problems for investors. It's boring, and it doesn't necessarily reduce portfolio risk as asset allocation – the most important investment

weighting in the All Share Index and had the same impact on index returns as the entire financial sector!

Active managers, on the other hand, can position their portfolios to stocks/sectors that either show better long term value, or that have a lower potential for significant capital loss (e.g. financials/industrials in mid 2008). They are not required to hold stocks based on a weighting in an index and can trim holdings when their stake becomes too high. This approach, while

decision – primarily drives returns (and risk). Investors are also faced with having to decide which index they want to use. Like active funds, index trackers

dependant on the skill of the portfolio manager, often leads to more diversified, lower risk portfolios with higher potential returns.

can differ widely and investors need to understand the benefits and limitations of these products. Satrix ETF's provide exposure to a variety of equity indices at a reasonable cost, while funds using fundamental indexation (or price indifferent indexation) rely on a number of fundamental factors to make investment decisions – not unlike active equity managers.

The main problem with a pure index fund lies in the benchmark itself, or more specifically, the method used to determine the constituents of the index used as the benchmark. Most indices in South Africa are market-cap weighted, meaning the weighting to securities increases as their price (and market cap) increases. As securities get more

In South Africa over the past ten years, all active equity funds currently available generated returns at lower levels of risk than the All Share Index and, by inference, index tracker funds. And almost half of all active managers outperformed the market over the same period by protecting capital better than the index during market crashes. This is a direct result of superior portfolio construction methods, more diversified portfolios and efficient trading practices. This lower risk, combined with potential index-beating returns over time, will ensure that actively managed equity funds remain the core of a South African investor's portfolio.

expensive, an index fund buys more; as they get

14

sensible finance march10

SENSIBLE FINANCE QUESTIONS & ANSWERS “Sensible Finance - Questions and Answers” is an advice column that will allow our readers the opportunity to write to a professional and experienced financial advisor for advice regarding investments, personal finance, life and/or risk cover.

Q: With the high rate of divorce in South Africa we get a lot of questions around how pension and retirement funds are treated on divorce. How are the funds paid out and what are the options for the non-member of the pension/retirement fund and how is the tax treated?

A: In the last two years, there has been much legislation dealing with the early payment of divorce awards to a non-member spouse from retirement funds.

The legislation has been in the form of amendments to the Pension Funds Act and to the Income Tax Act. Unfortunately, the Divorce Act which also needs to be amended remains unchanged.

The Current Position 1. An amendment to the Pension Funds Act effective 13 September 2007 allows a retirement fund, pursuant to an order of divorce, to deduct a portion of the member's pension interest from the member's retirement fund and pay it to the nonmember spouse or another fund on his/her behalf immediately on divorce. The non-member spouse no longer has to await the member's exit from the fund.

2. The non-member spouse has to submit the order to the fund and initiate the claim.

3. On 1 November 2008 legislation was passed to allow the early payment mechanism to apply to divorce orders which are binding on funds and made before 13 September 2007.

The Tax Position 1. An important part of the process was ensuring that the tax legislation was able to accommodate the early payment of such orders.

2. A policy decision was made for divorce awards to be taxed in the hands of the non-member spouse in respect of divorce awards which accrue in the future. However, divorce awards in terms of divorce agreements which were concluded in the past and which were negotiated based on the law

as it existed in the past would continue to be taxed in the hands of the member.

3. The tax situation which will apply with effect from 1 March 2009 is summarized as follows: Divorce orders made on or after 1 March 2009 The Revenue Laws Amendment Act of 2008 which came into effect on 8 January 2009 provides for the non-member spouse to be the taxpayer. This is confirmed in the Taxation Laws Amendment Bill of 2009.

If the non-member spouse elects to take the amount in cash, he/she will pay the tax at the rates set out in the new retirement fund lump sum withdrawal benefit tax table.

If he/she chooses to preserve the benefit by transferring it to another approved fund, he/she will be able to delay the tax payable until they withdraw or retire from that fund.

Divorce orders made between 13 September 2007 and 28 February 2009 The non-member spouse is obliged to submit the order to the fund and to elect whether he/she wants the benefit paid to them in cash or paid to another fund. The taxability of this will depend on when the divorce award accrues to the nonmember spouse.

The date the non-member spouse makes the election is the date on which the fund must deduct the assigned amount from the member's minimum individual reserve. It is also the date on which the amount accrues for tax purposes.

If the date of accrual falls in the 2008/09 tax year (up to 28 February 2009) the member remains the taxpayer. Even if tax has not yet been paid over, tax is payable at the member's average rate of tax. Two tax directives will have to be sought because a “tax on tax” liability has to be paid too.

Unless the divorce agreement excludes it, the member has a right to recover the tax directly from the non-member spouse (excluding tax on tax).

However, if the election is only made after 1 March 2009, the tax accrual will fall into the 2009/10 tax year. As previously stated divorce continued on page 24...

sensible finance March10

15

SENSIBLE TRAVEL

Travelling in 2010

With the Soccer World Cup upon us, it's time to plan ahead. By Claire Broedelet, Marketing Executive - Travel Experience

T

he 2010 Soccer World Cup is going to bring a

whole host of travellers to South Africa. We would all naturally think that because the international airlines will increase their number of planes and frequency flying into SA, that there would be a whole host of empty and cheap flights flying back to their origin. This, however, is not the case; we must keep in mind that many of these planes will be staying in SA to assist with the domestic flights that will be quite full.

Many people would like to plan a getaway for the long school holiday in June/July - my advice is that you should look at it as soon as possible and be quite flexible in the dates on which you would like to travel, as well as be open to available destinations.

If you are heading out of our borders you will need a passport and you will need to visit Home Affairs in order to do this. Your passport must be valid for six months after your return back to South Africa and have a minimum of two blank pages inside. When you book your flights, make sure your name is correct as per your passport. If this is not identical you will have problems at the airport and may not be allowed to check in and fly. The ticket may have to be cancelled and a new one issued which may cost you a lot more money, or worse, you may lose your seats!

If you are driving into Africa, please give us a

Photo BigStockPhoto.com

call or pop in at 45 Devereux Avenue as we can give you a list of requirements for most African countries. When travelling to Zimbabwe or

Mozambique, by car in particular, you will need a third party insurance which we can issue for you in store. You may also need an International Drivers Licence (IDP) which we can issue immediately for you.

Remember the restrictions on Liquids, Aerosols and Gels (LAGs) in your carry on luggage for International flights. You may only take LAGs onto the plane if they are in containers smaller than 100ml each. You may have a maximum of one litre's worth of 100ml containers and they must be in a transparent, resealable bag.

If you would like to travel and you have a limited budget plan, look around in advance for great deals. For airline tickets the cheaper seats are generally sold out first so you would need to ask your travel consultant to shop around on the different airlines for you.

Don't forget to buy travel insurance; if you pay for your trip by credit card your bank may offer insurance to you. Your travel consultant will also have comprehensive insurance options for you, including a credit card top-up.

Most importantly, remember to relax and enjoy your holiday!

Clair Broedelet is the Marketing and Operations Director of Travel Experience East London and Port Elizabeth (previously Harvey World Travel EL). Contact Clair on clair@travel-experience.co.za

sensible finance March10

17

SENSIBLE ADVICE

HOW TO MAKE FINANCIAL PLANNING WORK FOR YOU

Advice to help you achieve the best results.

Source: Financial Planning Institute – www.fpi.co.za

Y

ou are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are those of the planner.

To achieve the best results from your financial planning engagement, you will need to consider the following advice: Set measurable financial goals Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be "comfortable" when you retire or that you want your children to attend "good" schools, you need to quantify what "comfortable" and "good" mean so that you'll know when you've reached your goals.

Photo BigStockPhoto.com

Understand the effect of each financial decision Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.

Re-evaluate your financial situation periodically Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these

18

sensible finance march10

changes so that you stay on track with your financial goals.

Start planning as soon as you can Don't delay your financial planning. People who save or invest small amounts of money early, and often, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.

Be realistic in your expectations Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results.

Realise that you are in charge If you're working with a financial planner, be sure you understand the financial planning process and what the planner should be doing. Provide the planner with all of the relevant information on your financial situation. Ask questions about the recommendations offered to you and play an active role in decision-making.

Contact an NFB Wealth Manager to ensure that your financial plan is in order on email nfb@nfbel.co.za or phone 043 - 735 2000.

SENSIBLE SENSIBLESOLUTIONS INVESTOR

SENSIBLE EXPECTATIONS

Expect the unexpected The life events which can disrupt your retirement plans. By Robyne Moore - NFB

W

hen planning your retirement, you envision days spent in your garden, making that long-awaited round-theworld trip or afternoons with your book and pot of tea. Initially, you set your goals with your specific objectives in mind: where will you live, how much money will you need – to live and/or to do things you want to do? Most of your working life is spent endeavouring to achieve these goals in order to realise your retirement dreams. However, even the best thought out retirement plan can be destroyed if you have not planned for certain unexpected (or expected) life events. Will you be ready?

set objectives, and then draw up a financial plan.

Should either, or both, partners have life policies, your spouse should be named as the beneficiary.

Consideration should be given to how you will handle your finances once you are living in one home. Will you combine your salaries or each keep separate accounts?

Children

Money is a very big part of a marriage and when deciding to tie the knot, it is important that you and your prospective spouse be on the same page when it comes to your retirement goals. You have decided to grow old together, but how will this be possible when you each have completely separate ideas of how you will spend your “golden years” (or how you will get there)? If you are young and in love, retirement will be far from your mind,

You have now been married for a few years and the thought of tiny pitter-pattering feet is a distant, foreign idea no more. The daily cost alone of having children will take a sizeable chunk out of your monthly disposable income and the financial decisions you make now may hugely impact on your original retirement goals. Every parent wants the best for their child, and will in all probability plan for them to study further after school.

A good education is precious and starting to save early towards this goal is vital, so as not to negatively influence your retirement savings. There is no need to neglect your life-long goals while saving for your children's university education. As

however, there will come a time in your relationship when your future together will be discussed. If you each handle money differently, now is the time to

your children get older, encourage them to share their own career and study goals with you. Discuss what you and your spouse want for yourselves and

Marriage

Photo BigStockPhoto.com

talk: to create an understanding of expectations,

20

sensible finance march10

for your children. As a family you can prioritize and

spouse can have a major impact on your

formulate a financial roadmap in order that you may each reach your goals. If you feel that your

retirement plan and current living standards, it is wise at some stage to look at the scenario should

children may have to help pay for their own studies

either you or your spouse pass away. Make sure

or wedding, tell them, so that they in turn can

that when setting up your retirement plan, the

make their own plans.

surviving spouse has access to certain funds should the other spouse pass away, as it may take some

Loss of income

time before the entire Estate is wound up.

You could lose your income due to a number of reasons: loss of your job, an accident or illness. Even

Coping with the loss of a loved one can be emotional and painful, and adding the burden of

though this may only be for a short period of time,

dealing with financial matters can make a difficult

loss of income can wreak havoc on your retirement savings unless you have another source of income.

time even more stressful. At this time, you would not want to add the worry of loss of income and

To prevent digging into your retirement savings,

additional expenses, and you would certainly not

it is best to have some sort of emergency savings to tide you over this period. As a rule of thumb, it is

want to resort to dipping into your retirement fund.

Losing a family member can happen at any

suggested that you have six months worth of your salary stashed away, to be used should he need arise. An important decision at this time, which may impact greatly on your eventual retirement lifestyle, will be whether to take a lump sum from your provident fund to help cover expenses (beware of tax implications), or to reinvest the full amount.

stage of your life and although you never know when this may occur, there are ways of making the difficult time a bit easier for the surviving spouse. It is always a good idea to be prepared by having a valid will in place, drawing up an estate plan and also having all your other vital papers in order in the event of a death.

The above events are the major ones which could affect your retirement plan, although there are a number of other unexpected occurrences which may veer you off course a bit from your ultimate financial retirement goal. Be sure to cover all your bases so that in the eventuality that something untoward should happen, it will not destroy your goals.

No matter what your life stage should be, or what your financial needs are, a financial plan and a budget are vital to helping you keep on track and focused. However, the unexpected and unpleasant do happen and you also need to be flexible as these will change as your life circumstances change. With a bit of planning and some forethought you can protect yourself, your loved ones and those retirement plans you made when you were just starting out.

Divorce When first getting married, divorce is certainly not something which is contemplated. However, divorces unfortunately do happen, and the financial ramifications can be devastating. Your entire financial plan may have to be restructured, but by educating yourself and with proper planning the financial implications of a divorce can somewhat be minimised.

When divorcing, a spouse could be entitled to half of the other's retirement fund with immediate effect, due to new legislation and the introduction of the “clean break principle�. It would be a good idea to consult an impartial financial advisor who is focused on your best interests and can advise you with regards all the legalities and tax implications on the splitting of your assets when considering divorce.

Death of a spouse

Contact an NFB Wealth Manager to ensure that your financial plan is in order on email

Nobody wants to think of death, and especially not

nfb@nfbel.co.za or phone 043 - 735 2000.

losing a loved one. However, as the death of a

sensible finance March10

21

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Photo BigStockPhoto.com

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sensible finance march10

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SENSIBLE MEANINGS

THE CRYSTAL BALL What does 2010 hold for us?

By Chris Lemmon, Director/Portfolio Manager NVest Securities iven recent market movements since late 2007 one could be forgiven for dusting off the old crystal ball to help make sense of it all. After the exuberance of falling risk premiums, ever rising asset prices and an increasingly strong appetite for commodities, came the constrictor-like squeeze on credit, crimping demand and forcing global households and businesses alike to deleverage aggressively. From the heady heights of 33000 came the depths of 17000 on the JSE, a difficult pill for investors to swallow. As governments coordinated a global response to the credit crisis and impending depression, we have seen a return to risk assets as investors have taken comfort from the trillions of dollars that have flooded the global financial system. What has followed has been an impressive rebound in global equities, with the JSE enjoying a 58% bounce on the back of close to R80 billion in foreign investor inflows in 2009.

So given that back drop, what does 2010 hold for us? I think this may well be a year of counting the cost. There is always a price to be paid; I've yet to see the elusive free lunch. The massive expansion of global money supply cannot

Photo BigStockPhoto.com

G

continue unabated for too long. Just like each of us, governments have to balance their budgets in the end. Tough choices need to be made in the coming years, with the PIGS (a rather derogatory acronym for Portugal, Italy, Greece and Spain) a key case in point. These EU countries find themselves in a difficult position. Typically, in instances where a country's spending outstrips its income over several years, you see pressure in two areas of importance (among others): the currency devalues and government bond yields move higher – sometimes sharply so. In Greece's instance, the sharp yield move on government backed debt has started to gain momentum. This yield move is facilitated by a rapid fall in prices, creating capital pressure. Who wants to be a holder of guarantees from a government who doesn't have the finances to pay? What we've seen in the past is that these distressed assets have a habit of finding themselves on balance sheets all over the world. It will be interesting to see who'll be left holding the old maid. And what of the currency? Being a member of the European Union and part of the common monetary area puts Greece (and the rest of the EU members) in a difficult position as the currency cannot accommodate a move weaker.

How will the voting population of the remaining members of the EU (the likes of Germany, France etc) feel about a rescue package for Greece when they themselves are still in the midst of the largest credit crisis ever experienced? As I mentioned, tough choices have to be made.

With markets no longer at the bargain basement prices of March 2009, investors need to be a little more circumspect in where they place their money. Sovereign debt risk is the key area of concern in the market at the moment, but after such a strong recovery last year questions will continue to be asked of the sustainability of current valuations. While caution is the watchword for now, the structural outlook for equities over the next 10 years remains good with a compelling investment case for the long term investor. With a bit of patience the astute investor with money on hand may well be presented with an opportunity to pick up attractively priced assets that will allow them to participate in a global recovery in the years to come.

Contact Chris Lemmon on 043 735 1270 for more information

sensible finance March10

23

SENSIBLE FINANCE

2010

2010 BUDGET HIGHLIGHTS Effect on Businesses No change is proposed to corporate tax rates Sophisticated tax avoidance schemes It is proposed that legislative amendments be introduced to address a number of aggressive tax schemes, for example– = Interest cost allocation for financial institutions = Offshore protected cell companies = Schemes channelling deductible amounts to residents in the form of tax free foreign dividends = restricting the interest exemption for non-residents investing in financial instruments other than South African bonds, unit trusts or publicly available interest bearing instruments.

Headquarter companies Relief from exchange control and taxation will be considered for various types of headquarter companies located in South Africa.

Adjustments to Excise Duties Excise duties are increased = Malt beer - increased by 6 cents to 85 cents per 340ml can

continued from page 4...

= Unfortified

and fortified wine - increased to R2.14 per litre and R4.03 per litre, respectively = Spirits - increased to R27.27 per 750ml = Cigarettes - increased by R1.24 to R8.94 per packet of 20 Fuel levies increased On 7 April 2010– = the general fuel levy on petrol and diesel increases by 10 cents per litre as well as an additional 7.5 cent per litre for the funding of the new petroleum pipeline between Durban and Gauteng = The Road Accident Fund levy on petrol and diesel increases by 8 cents per litre to 72 cents per litre Excise duties focusing on the Environment A flat rate carbon emissions tax is to be introduced on new passenger vehicles from 1 September 2010.

Should you have any queries please feel free to e-mail me on shaun@kliwal.co.za

continued from page 15...

awards which accrue after 1 March 2009 will be taxed in the hands of the non-member spouse under the new withdrawal tax table.

So in respect of divorce orders made after 13 September 2009, the taxpayer will change depending on when the deduction from the member's minimum individual reserve takes place, which in turn depends on when the non-member spouse makes his/her election.

As mentioned, the non-member spouse can delay the payment of tax if they elect to transfer to another approved fund.

Divorce orders made pre 13 September 2007 A policy decision was made for the member to remain the taxpayer on the payment of divorce awards which were made prior to 13 September 2007. Divorce agreements were made in contemplation of the law as it existed then and parties to the divorce are entitled to have new

24

sensible finance march10

laws applied prospectively and not retrospectively.

GEPF The GEPF does not fall under the Pension Funds Act. Non-member spouses still have to wait until the member exits the fund prior to receiving payment.

Paragraph 2B still taxes those awards.

Seek advice Both the member and the non-member are in need of advice in this process. The non-member needs to be encouraged to preserve and grow the lump sum. The member needs to supplement and compensate for the depleted retirement capital.

Source – Old Mutual Legal.

Please address all Questions to: Travis McClure, NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210 or email: nfb@nfbel.co.za

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TO ENTER SIMPLY… Send your first name, surname, email address and contact telephone number to nfb@nfbel.co.za with “NFB Sensible Finance Weekend Giveaway” as the subject line.

Please specify in the email if you would like an NFB financial advisor to contact you for a free investment portfolio evaluation or financial advice.

TERMS AND CONDITIONS • All entrants will be added to NFB's electronic mailing list (recipients may then manually unsubscribe). • The contact telephone number is simply to contact the winner telephonically. Unless NFB are specifically authorised to do so, entrants will not be contacted directly in an attempt to solicit business. • The give-away is valid from 01 May 2010 to 30 November 2010 (not valid over world cup 2010 – June & July 2010), is not transferable and cannot be exchanged for cash. • The draw will take place on 31st March 2010 and the winner will be contacted telephonically. • No employees or direct family of employees of NFB or Travel Experience will be eligible to win the prize.

NFB have a STRONG, REPUTABLE TEAM OF ADVISORS with a WEALTH OF EXPERIENCE between them: Anthony Godwin (RFP, MIFM) - Managing Director and financial advisor, 22 years experience; Gavin Ramsay (BCom, MIFM) - Executive Director and financial advisor, 16 years experience; Andrew Kent (MIFM) - Executive Director and Share Portfolio Manager, 17 years experience; Walter Lowrie - Financial Advisor, 24 years experience; Robert Masters (AFP, MIFM) - Financial Advisor, 23 years experience; Bryan Lones (AFP, MIFM) - Financial Advisor, 19 years experience; Travis McClure (BCom, CFP) - Financial Advisor, 12 years experience;

Marc Schroeder (BCom Hons(Ecos), CFP) Financial Advisor, 6 years experience; Phillip Bartlett (BA LLB, CFP) - Financial Advisor, 9 years experience; Duncan Wilson (BCom Hons, CFP) – Financial Advisor, 5 years experience; Stuart Coates (BCom, CFP) – Financial Advisor, 1 year experience ; Leona Trollip (RFP) - Employee Benefits Divisional Manager and Advisor, 33 years experience; Leonie Schoeman - Healthcare Divisional Manager and Advisor, 12 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. sensible finance March10

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“It requires a great deal of boldness and a great deal of caution to make a great fortune...but when you have got it, it requires 10 times as much wit to keep it” Nathan Rothschild, 1834

You’ve worked hard for your money... now let NFB make your money work for you. fortune favours the well advised contact one of NFB’s financial advisors East London • tel no: (043) 735-2000 or e-mail: nfb@nfbel.co.za Port Elizabeth • tel no: (041) 582 3990 or e-mail: nfb@nfbpe.co.za Johannesburg • tel no: (011) 895-8000 or e-mail: nfb@nfb.co.za web: www.nfb.co.za

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