PERSONALFINANCE2 SATURDAY STAR April 25 2015

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YOUR QUESTIONS ANSWERED

I went to Canada in 2001 and planned tostay for about six months. Almost 15 yearslater, I am still in Canada. I did not emigrate,and I hold dual citizenship.

My retirement annuity (RA) will mature ina few months. Since I have been in Canada,I have contributed about R2 million to theRA. I did not submit tax returns to the SouthAfrican Revenue Service (SARS) and did notclaim any tax deductions. The RA wasstarted 10 years before I left for Canada, andI claimed those contributions against tax.

Can I use the contributions that I did notclaim since 2001 as part of my tax-free lumpsum (R500 000) and invest the difference ina living annuity? What is the tax scale if Idecide to take everything to Canada?

Name withheld on request

Marius Cornelissen, a financial adviser atPSG Wealth in Menlyn, Pretoria, responds:Your situation is complicated because youare a non-resident and did not claim thetax deductions from SARS.

An option is to emigrate formally, inwhich case you will have to obtainapproval from the South African ReserveBank to access the funds in the RA. Thiswill be regarded as a withdrawal, which willbe taxed according to the retirement lumpsum withdrawal table. The first R25 000will not be taxed, if you did not receive anyprevious benefits in the form a lump sum.Any amount between R25 001 andR660 000 will be taxed at 18 percent; anyamount between R660 001 and R990 000will be taxed at 27 percent; and anyamount from R990 001 or more will betaxed at 36 percent.

If you decide to buy a living annuity, youcan take up to one-third of the benefit incash, while the balance will be invested inthe living annuity, or you can use the entireamount to purchase a living annuity.

If you decide to take one-third as acash lump sum, it will be taxed accordingto the retirement lump sum table. The firstR500 000 will not be taxed, if you have not

taken lump sums previously.Unfortunately, in your case, you cannot

use a portion of the contributions that youdid not claim from SARS as part of yourtax-free lump sum.

SARS allows taxpayers to deduct fromthe lump sum the contributions that SARSdid not previously allow as a deduction.This has the effect of reducing the actuallump sum that is taxable, because anycontributions that were not allowed as adeduction are deducted from the lumpsum before it is taxed.

However, you did not claim thesecontributions as a tax deduction, asopposed to SARS not allowing thecontributions to be deducted against tax.Therefore, SARS may disallow you fromdeducting the contributions you did notclaim from the lump sum.

I would advise you to consult a SouthAfrican-based auditor, tax consultant orfinancial adviser for advice on the bestway to proceed.

I have a retirement annuity (RA) that willmature in 2022. Its current value isR781 416. I contribute R4 268 a month. Theannual premium escalation is 15 percent.The illustrated maturity values areR1 737 132 at growth of four percent andR2 492 870 at growth of 10 percent. Can Irely on these targets for financial planningpurposes? Should the growth not be in linewith market conditions – about 12 percent?

Kevin Martin

Pierre Puren, a financial adviser at PSGWealth in Jeffreys Bay, responds: Theproduct provider uses the illustratedmaturity values merely as a guideline toindicate the future value of yourinvestment if you pay the contractedpremium and certain growth rates prevail.The actual return will not depend on theprovider’s illustrations or assumptions, butwill depend on the performance of the

underlying fund, or funds, you chose.Your financial adviser can help you to

calculate the future value. If you adhere to the contracted

contributions to maturity, the following canbe used as a guideline with your requestedgrowth rate of 12 percent a year:

◆Growth of underlying fund less costs:12 percent a year compounded monthly

◆Premiums compounded monthlywith annual growth of 15 percent

◆ Term to maturity: Seven years (or84 months)

◆ Future value of premiums paidtherefore amount to R968 749.61

◆Plus growth in current capital ofR1 802 510.06

◆ Total illustrative value at maturity:R2 771 259.67

You should be cautious of assumingthat past performance is an indication offuture returns. Most financial productshave ongoing costs – management fees,administration fees or adviser fees. Thegrowth rate that is assumed musttherefore be net of these fees whenprojections are made.

Ensure you are familiar with the relevantcosts associated with your RA and thatyour underlying investment is allocated tofunds that suit your appetite for risk.

Who can I contact to establish whether myemployer has the right unilaterally to convertmy pension fund from a defined-benefit (DB)fund to a defined-contribution (DC) fund?

Name withheld

Anton Prinsloo, a financial adviser at PSGWealth in Silver Lakes, Pretoria, responds:Legislation does allow an employerunilaterally to change from a DB to a DCfund, as long as the employer has receivedprior approval from the Financial ServicesBoard (FSB). Legislation does, however,protect members against unfair andunlawful acts by employers. If you have

any concerns in this regard, you cancontact the FSB to ensure that approvalwas granted.

In Personal Finance on February 28, 2015, itwas stated that, for over-65s, credits formedical scheme contributions must betaken into account when Pay-As-You-Earntax is deducted. When I queried this with theadministrator of my pension, I was advisedthat it is still awaiting an official instruction toimplement the change. When will theenabling legislation be passed?

Peter North

Franz Tomasek, the group executive forlegislative research and development atthe South African Revenue Service,responds: The change will be included inthe legislative proposals to be introducedin Parliament later this year. It is likely thatthe final legislation will be promulgated latethis year or early next year.

My debt counsellor issued me with aclearance certificate in December 2014. ButI have subsequently been refused credit,apparently because my credit report statesthat I am still in debt review. How can thatbe, and where can I go for help?

Name withheld

Angelique Ardé, Personal Finance’sreporter who writes about debt, responds:You have the right to lodge a dispute with acredit bureau that is carrying inaccurateinformation about you. Credit bureaus aremerely the hosts of information receivedfrom various sources; they are notresponsible for listing the information. Theinformation about you is listed by your

creditors and other data sources, such asdebt counsellors and debt collectors. Thedata supplier is ultimately responsible forlisting accurate information.

When a dispute is lodged with a creditbureau, the bureau must investigate andreport back to you within 20 businessdays. If the information is found to beincorrect, the bureau must remove it.When you are in debt counselling, this isnoted on your profile, and you will berefused credit until you have been issuedwith a clearance certificate.

Personal Finance asked the NationalCredit Regulator (NCR) and the CreditBureau Association (CBA) who isresponsible for reporting to the creditbureaus when a consumer has“graduated” from debt counselling.

According to Lesiba Mashapa, thecompany secretary at the NCR, when adebt counsellor issues a clearancecertificate to a consumer, the debtcounsellor must notify the NCR and all thecredit bureaus. The regulator must benotified online, on the NCR’s Debt HelpSystem (DHS), which is a portal for debtcounsellors to share information with theregulator about consumers in debt review.The credit bureaus must be notified viaemail and be sent the consumer’sclearance certificate. These actions shouldbe done at the same time.

Jeannine Naudé Viljoen, the executivemanager of the CBA, says the bureauremoves the debt review flag from theconsumer’s profile on receipt of theclearance code from the NCR (via the DHSportal). Once the bureau has received theclearance certificate from the debtcounsellor, all relevant negativeinformation is removed from theconsumer’s profile.

In this case, once the consumer haslodged a dispute with the bureauconcerned, the bureau will check the DHSfor a clearance code from the NCR. If onehas been issued, the flag will be removed.

We ask experts to answer your financial queries. Email queries to perfin@inl.co.za or fax to 021 488 4119. Feature sponsored by PSG Wealth

RSA RETAIL BONDS: APRIL 2015FIXED-RATE BOND*Two years . . . . . . . . . . . 7.25%Three years . . . . . . . . . . 7.75%Five years . . . . . . . . . . . 8.00%* Rates are set every month.

INFLATION-LINKED BOND*Three years . . . . . . . . . .1.25%Five years . . . . . . . . . . .1.75%Ten years . . . . . . . . . . . .2.00%* Rates are in addition to capitaladjusted for CPI twice a year.

Source: National Treasury.Website: www.rsaretailbonds.gov.zaTelephone: 012 315 5888. Email: queries@rsaretailbonds.gov.za

INTEREST RATES TO 24/4/2015MONTHS

1* 3 6 9 12 24 Absa Bank 4.74 4.76 5.75 5.25 6.10 6.25African Bank – 6.07 6.50 – 7.34 8.12Bidvest Bank 6.13 6.24 6.84 7.00 7.25 –Capitec Bank – – 6.00 – 6.45 7.20F N B – 5.10 5.90 – 6.30 6.50GBS Mutual Bank – – 5.40 5.61 7.23 7.50Grindrod Bank 5.80 5.95 6.55 6.85 7.10 –Mercantile Bank 5.80 5.90 6.35 6.50 6.60 –Nedbank 5.10 5.30 5.95 5.95 6.75 7.25Sasfin 5.10 5.30 5.85 – 6.75 7.00Standard Bank 5.00 5.10 6.03 – 6.10 6.35

*One-month rate applies to fixed deposits only and not to noticedeposits. Senior citizens may qualify for an extra 0.5 percent onsome 12-month investments. All the rates quoted are for interestpaid monthly, apply to investments from R50 000 to R100 000and are correct at the time of going to press.

Source: Personal Trust (independent agents fordeposit-taking institutions). Telephone 021 689 8975

EXCHANGE RATES TO 24/4/2015

These rates are subject to market fluctuations and are applicable foramounts up to R160 000.These rates are for indication purposes only, andneither Nedbank nor Personal Finance accepts any responsibility for anydecisions based thereon. Source: Nedbank. Quoted at 7.20am

USA 11.9700 11.9497 11.9411 12.3200UK 17.9658 17.9305 17.9188 18.5724Euro 12.8773 12.8495 12.8379 13.3512Australia 9.1743 9.1241 9.0580 9.7371Canada 9.7466 9.7087 9.6899 10.2354China 1.9019 – – 2.0222Denmark 1.7138 – 1.7088 1.8008Hong Kong 1.5270 – 1.5225 1.6103India 0.1865 – – 0.1968Israel 3.0048 – – 3.1898Malawi 0.0265 – – 0.0287Mauritius 0.3270 – 0.3236 0.3537New Zealand 8.8731 8.8339 8.7951 9.5329Norway 1.4988 – 1.4941 1.5967Seychelles – – – 0.9667Singapore 8.7413 8.7108 8.6957 9.3721Sweden 1.3697 – 1.3657 1.4374Switzerland 12.3001 12.2699 12.2399 13.0719Thailand 0.3451 0.3431 0.3413 0.4068

COUNTRY BUYING RATES SELLINGTelegraphic Traveller’s Bank

transfer cheques notes

ANNUITY RATES TO 24/4/2015These rates for a level annuity are based on a compulsorypurchase price of R100 000 for people born on 01/01/1954payable monthly in arrears, guaranteed for 10 years.

These rates for a level annuity are based on a voluntarypurchase price of R100 000 for people born on 01/01/1955payable monthly in arrears, guaranteed for 10 years.

These rates are valid on a daily basis. E&OESource: Computerised Pension Bureau. Telephone 011 482 3625

MaleDiscovery . . . . . . . R691.43Liberty Life . . . . . . R743.70Metropolitan . . . . . R781.70Momentum . . . . . . R759.31Old Mutual. . . . . . . R761.13Sanlam . . . . . . . . . R770.44

FemaleDiscovery . . . . . . . R660.56Liberty Life . . . . . . R692.55Metropolitan . . . . . R717.12Momentum . . . . . . R716.74Old Mutual. . . . . . . R708.48Sanlam . . . . . . . . . R723.31

MaleDiscovery . . . . . . . R691.43Liberty Life . . . . . . R743.70Metropolitan . . . . . R735.55Momentum . . . . . . R749.20Old Mutual. . . . . . . R761.13Sanlam . . . . . . . . . R770.44

FemaleDiscovery . . . . . . . R660.56Liberty Life . . . . . . R692.55Metropolitan . . . . . R681.16Momentum . . . . . . R708.50Old Mutual. . . . . . . R708.48Sanlam . . . . . . . . . R723.31

Note: Letter writers will be sent the unabridgedresponse that Personal Finance obtains on theirbehalf. However, published letters and responseswill be edited for length and clarity.

RA tax options ifone lives abroad

Can I rely onillustrated values?

Incorrectly listedin debt review

Medical taxcredits and PAYE

Conversion fromDB to DC fund

The best defence against the threatof rising interest rates in the UnitedStates and locally is to invest in qual-ity companies – and the demand forthese companies’ shares has neverbeen higher, asset managers say.

Rising interest rates in the UScould result in the sale of foreigninvestment holdings in SouthAfrican equities, listed property andbonds, which is likely to result inprices in these sectors falling.

William Fraser, a director atFoord Asset Management, says thatwhen valuations are high, as theyare in the local share market, youshould be in quality companies withstrong balance sheets that can with-stand a change in the liquidity in themarket and can produce goodsand/or services at low cost.

If the factors that are buoyingthe market unwind when the USFederal Reserve starts to increaseinterest rates, these companies willcontinue to make a profit, and theymay take market share from com-panies that produce at higher cost.

Foord continues to focus onfuture company earnings whenanalysing investment opportunities.

Fraser says if the share price ofa company that has strong and con-sistent earnings falls because ofexternal factors, such as a change ininvestor sentiment, the price will

eventually correct to follow the com-pany’s earnings.

Clyde Rossouw, the multi-assetportfolio manager at Investec AssetManagement (IAM), says Investecalso prefers high-quality businessesthat have strong cash flows andtrade at reasonable price-to-earn-ings (PE) multiples. These busi-nesses are relatively defensive (theycan maintain profitability despitetough economic conditions), andIAM believes they will protectinvestors if there is a correction inequity markets, he says.

Paul Bosman, a multi-asset fundmanager at PSG, says PSG likesquality companies that are mis-priced (the share is priced below theintrinsic value of the company),because it gives the manager a mar-gin of safety when it invests.

PSG bought shares in Steinhoff(which makes, sources and sells fur-niture and household goods inEurope, Africa and Australasia)when it was undervalued. It alsoheld AVI (owner of a number of foodand beverage brands), which regu-larly pays out almost 100 percent ofits earnings and still grows its earn-ings at 20 percent a year.

However, opportunities are morelimited than they were in the past,because many industrial shares areexpensive, as evidenced by the

FTSE/JSE Industrial Index, whichis very expensive relative to itsexpected future earnings (it is trad-ing on a very high PE ratio), and thecompanies in the index have beenreporting high profits. There is arisk that these companies’ profitsand share prices could come down,he says.

In the absence of sufficientopportunities in the market, PSGwill hold high cash reserves andwait for a market correction todeliver shares that are mispriced.

Bosman says PSG has started tobuy “unloved” resource and con-struction shares, but only those thatit believes will be able to make aprofit even if the global demand forresources stays low and weak eco-nomic growth depresses the demandfor construction.

If you buy the right companies,with diverse business activities and

good management, you can do well,but PSG will not have a blanket buyon construction and resourceshares, because not all of them aregood quality, Bosman says.

He says that, in the fixed-interestsector, PSG’s multi-asset fundsbought Capitec bonds when thesewere sold down as a result of nega-tive sentiment during the demise ofAfrican Bank.

PSG has also invested in cashinstruments, such as NCDs withlonger durations, because these areoffering real (after-inflation) yieldsof two to three percent a year.

Bosman says, as typically hap-pens when prices in a sector are ris-ing steadily, there have been a num-ber of new listings in the listedproperty sector. However, the sharesin the FTSE/JSE SA Listed Pro-perty Index are now, on average,trading at a premium of about

40 percent to their net asset value.Like PSG, Foord has trimmed its

exposure to local equities and is alsostashing cash to buy quality com-panies when share markets fall dur-ing periods of volatility.

Fraser says Foord started toinvest in local bonds last year, whenyields were higher, but when the oilprice resulted in lower inflationexpectations, bond yields fell toofar, and real return expectationsbecame unattractive.

Fraser says Foord is patient andwill gradually increase the alloca-tion to bonds. He believes a combi-nation of higher interest rates onUS Treasuries (government bonds)and higher domestic short-terminterest rates will result in higheryields on local longer-dated bonds.

Fraser says that when you con-sider the out-performance of listedproperty relative to other asset

classes, it is clear that asset man-agers made the wrong calls on thissector over the past year.

However, the fall in listed prop-erty yields does not reflect the futureoutlook for growth in distributions;instead, it is driven by very lowglobal interest rates. The sector hasalso benefited from foreign inflows,and prices are not realistic.

Listed property shares may con-tinue to do well as long as offshoremoney is looking for higher yields,but there is a huge risk in investingin this sector now, because shareprices are out of kilter with the com-panies’ net asset values.

Offshore equities have done well,because company earnings havereflected the improvement in eco-nomic conditions, Fraser says. Theend of the upward economic cycle isnot close and there is room for moreeconomic expansion, because no

central banks have started to raiseinterest rates, he says.

The improvement in economicconditions in the US and a sharplyweaker euro have resulted inexporters in Europe showing signif-icantly better earnings.

What may change the outlook forequity markets is a prolonged rise inglobal interest rates. Although theupward cycle may continue, therewill be much greater volatility inequity markets, Fraser says.

He says Foord is not overly con-cerned by the slowdown in thegrowth rates of emerging marketeconomies; instead, it will focus onlong-term themes in sectors thatwill grow at a faster pace than over-all economic activity. For example,Foord will seek companies that willbenefit from ageing populations inboth emerging markets and devel-oped markets.

Interest ratejitters sparkflight to qualityEfficient companies with robust balance sheets will keepgrowing their profits when a rise in interest rates sees investorsentiment turn against equities. Laura du Preez reports