Tax Incentivized Savings

South African law makers want to encourage us to save. Retirement savings have had a favourable tax treatment for many years. From 1 March 2015 certain non-retirement investments will have similar tax benefits. Like retirement savings there is an initial tax break when making the investment. Taxable income will be reduced by the tax incentivised investments you make up to an annual maximum of R30 000. The current proposed life-time maximum investment is limited to R500 000.

For investors the bigger gain is in the long-term as these investments do not attract Capital Gains Tax, Dividends Tax or Income Tax. The tax savings and the impact of compounding means that over long periods the tax incentivised investments will significantly outperform non-tax incentivised investments as the investor is not paying away any of the gains made. An important feature is that you will be able to access the investment at any time as opposed to retirement savings which you can only access from age 55.

Collective investment scheme products (unit trusts) and life insurance investment products have been earmarked as suitable for tax incentivised investments. However, the proposed regulations exclude any investment products that charge performance fees – this will result in the exclusion of some very popular unit trusts. 27four unit trusts do not charge performance fees and so are suitable for tax incentivised investments. We understand that every Rand saved by investors is an additional gain.

Employers should look at introducing tax incentivised investment arrangements as part of their employee benefits programme. The employer’s bulk bargaining power will assist employees in accessing investments at lower costs by designing options that require little or no advice and possibly even reduced investment management costs. 27four’s extensive institutional investment expertise allows us to see the potential benefit of such arrangements for all stakeholders and we look forward to engaging with employers and employees on how we can assist in broadening employee benefits programmes that encourage and assist employer sponsored wealth management programmes.

We look forward to helping our investors capitalise on these tax incentives to grow their wealth.