NFB Sensible Finance Magazine Issue 20

Eastern Cape's Community...

PERSONAL FINANCE

A FREE publicationdistributed by NFB Private Wealth Management

p r i v a t e w e a l t h m a n a g e m e n t

Issue 20March 2012

NFB

PERSONAL FINANCEMagazine

Eastern Cape's Community...

How much do I need toretire in comfort?

A SNAPSHOT OFTHE 2012/2013BUDGET SPEECHHow will thisimpact you?

GAMBLERS BEWARE!A tax on gambling

winnings is imminent

RETIREMENTRETIREMENT

“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.

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

- Buddha


East London tel no: (043) 735-2000 or e-mail: [email protected]

Port Elizabeth tel no: (041) 582-3990 or email: [email protected]

Johannesburg tel no: (011) 895-8000 or email: [email protected]

Web: www.nfbec.co.za

NFB is an authorised Financial Services Provider

contact one of NFB's private wealth managers:

fortune favours the well-advised

Providing quality retirement,

investment and risk planning

advice since 1985.

a sensible read

The Greek debt crisis is an all too familiar topic right now as

decisions are being made on Greece's future in the Eurozone

and austerity measures to try keep the country from defaulting

and the problem as contained to Greece as possible. But what is

important to understand is what led to the problem escalating to

such a degree and how can we, as individuals, learn from this

expensive lesson.

Essentially the reason for the crisis was decades of over-

spending and poor fiscal management, coupled with failing to

record billions of Dollars of expenditure to appear compliant with

budget deficit requirements of the Maastricht Treaty. In addition,

Greece then manipulated the EU into lending them money for years

and instead of using the funds to generate real returns back into the

world economy, they used the funds to ensure that Greeks lived well

beyond their means, confident that the IMF or EU would rescue

them if need be when time came to repay.

And some of the results of such irresponsible governance are

forced cuts in wages, losses of jobs, reductions in pensions and bond

holders taking huge losses on government bonds. Furthermore,

Greece will need to spend many years repaying the EU for the

bailout amount borrowed and is unlikely to see any economic

growth for around the next decade, deepening an already five

year old recession.

And that is the crux of it. Just as a country cannot live beyond its

means for any extended length of time, neither can individuals! And

if one does try to do so, the results can be devastating and take

years to recover from. It is simply not worth the gamble. So if you are

someone with a heavy bond that you are still trying to pay off or if

you have various accounts that are adding up, think twice before

you decide to upgrade your car or redo your house! And even if

you do have some extra disposable income at hand, you may want

to consider investing it for that rainy day – something that I am sure

most Greeks wish they'd done when they had the opportunity!

Brendan Connellan - Editor and Director of NFB

editor

Advertising

layout and design

Address

Contributors

Brendan Connellan

[email protected]

Laurie Wiid (NFB Gauteng), Travis

McClure (NFB East London),

Emmanuella Fernandez (NFB

Gauteng), Shaun Murphy

(Klinkradt & Assoc.), Grant Berndt

(Abdo & Abdo), Sheldon

Holdsworth (OMI), Cilma Heyns

(Glacier by Sanlam), Michelle

Wolmarans (NFB Insurance

Brokers), Natalie Dillion (Old

Mutual), Robert McIntyre (NVest

Securities), Evan Walker

(Momentum Investments).

Robyne Moore

[email protected]

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 the NFB Private Wealth

Management.

©2012 All Rights Reserved.

No part of this publication may be

reproduced in any form or

medium without prior written

consent from the Editor.

Jacky Horn TA Willow Design

[email protected]

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: [email protected]


a sensible read

sensible finance ED’SLETTER

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Email your full name to [email protected] to subscribe to

NFB's free economic electronic newsletters.

another aspect of our comprehensive service

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SENSIBLE CONTENTSPhoto BigStockPhoto.com

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GAMBLERS BEWARE!

PROTECTION THAT PAYS - DIRECTORS AND OFFICERSLIABILITY COVER

INTRODUCING OLD MUTUAL INTERNATIONALINVESTMENT PORTFOLIO

IS YOUR FINANCIAL PLANNING IN ORDER?

RETIREMENT - HOW MUCH DO I NEED TO RETIRE INCOMFORT?

DEFERRED COMPENSATION SCHEMES AND THE NEWTAX LAWS

SOUTH AFRICANS NEED DISABILITY COVER

2012 TAX RELATED BUDGET PROPOSALS

THE PRICE OF BEING TOO CONSERVATIVE

MOMENTUM SMALL/MID-CAP FUND WINS A TOPOUTRIGHT PERFORMER AWARD FOR THE FOURTHCONSECUTIVE YEAR AT THE 2012 RAGING BULL AWARDS

YOUR RA HAS MORE ADVANTAGES THAN YOU THINK

SASOL MAKES FOR A GREAT INVESTMENT

Q &A

A tax on all gambling winnings is imminent.

Minimize your company's risk by ensuring you have the correct policies in place.

A checklist to ensure you're on the right track.

The answer seems to be a moving target.

The changes are effective March 2012.

Has your cover been appropriately tailored for your needs?

A summary of the tax related budget proposals announced by the Minister ofFinance on 22 February 2012.

Be wary of the “safe” cash option.

More than just an opportunity to add to your retirement.

A further look at the core holdings in NVest's general equity portfolios.

You ask. We answer. Advice column answering your investment, personal finance,life and/or risk insurance questions

By Grandt Berndt, Abdo & Abdo.

By Michelle Wolmarans, Manager - NFB Insurance Brokers (Border).

By Sheldon Holdsworth, Regional Manager – Offshore Distribution, Old MutualInternational.

By Julie McDonald, Paraplanner -NFB Private Wealth Management.

By Laurie Wiid, Director / Private WealthManager - NFB Gauteng.

By Natalie Dillon, Senior Legal Advisor - OldMutual Broker Division.

By EmmanuellaFernandez, Paraplanner - NFB Gauteng.

By Shaun Murphy, CA (SA), Partner - Klinkradt &Associates.

By Henry van Deventer, financial planningcoach at acsis. Source: www.fanews.co.za.

By Evan Walker, Portfolio Manager - Momentum Investments.

By Cilma Heyns, BusinessDevelopment Officer - Glacier by Sanlam.

By RobMcIntyre, Portfolio Manager - NVest Securities.

with Travis McClure, Private Wealth Manager -NFB East London.

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A tax on all gambling

winnings is imminent. By

Grandt Berndt - Abdo & Abdo

GAMBLER'SBEWARE!

SENSIBLY LEGAL

The threat of a tax on all gambling winnings,

whether at a Casino, through the lottery or at

the horses appears to be imminent.

In the 2011 budget speech, the Minister of

Finance stated that as from April 2012 all winnings

above R25 000.00 will become liable to a final 15%

withholding tax. Needless to say the gaming

industry is none too pleased with this proposed tax.

A withholding tax, by definition, means that an

amount of money must be deducted from the

income and paid directly to SARS. The difference

between the proposed gaming tax and other

withholding taxes is the use of the word "final" by

the Minister of Finance. Most withholding taxes are

imposed on non-residents to obtain taxes from

them. For instance, if a non-South African resident

sells immovable property of a value exceeding R2

000 000.00 then the purchaser, the estate agent

and conveyancing attorney must ensure that a

percentage of the sales price is withheld from the

seller until such time as SARS have calculated the

Capital Gains Tax due. The seller is then refunded

any excess amount withheld.

However, with the proposed gaming tax, it is

imposed on all winnings in South Africa, whether of

South African residents or not and is a final tax. In

other words, irrespective of whether the gaming

winner is a recreational or a professional gambler

or whether the recreational gambler pays an

average income tax of 10% or pays income tax at

the marginal rate of 40%, they will all pay a "final"

tax of 15%.

When Capital Gains Tax ("CGT") was

introduced on 1 October 2001, the calculated

capital gain was added to ones taxable income

for the year of sale of that asset. For example, if

the capital gain was R500 000.00, 25% of this gain is

added to the taxable income for the individual in

the year of sale. So if the individual is paying an

average rate of 20% income tax, the effective CGT

payable would be calculated as follows:

R500 000.00 x 25% = R125 000.00 x 20% = R25

000.00 (or 5% of the full capital gain)

However, if the individual was paying an

average income tax of 40%, the effective CGT

payable would be:

R500 000.00 x 25% = R125 000.00 x 40% = R50

000.00 (or 10% of the full capital gain)

Our tax system initially only taxed gross income

being what was commonly known as "income" or

"revenue". However, with the introduction of CGT,

certain accruals of a capital nature also became

taxable. With CGT the tax payer can, however,

offset certain expenses such as the cost of the

asset and any improvements effected, thus

ensuring that he pays a maximum of 10% of the

actual capital gain (if the tax payer is at the

marginal rate of tax). With the proposed final

withholding gaming tax, there is no differentiation

between the professional and recreational

gambler, nor as between recreational gamblers,

their levels of income, as there is with CGT. The

gaming winner also cannot offset the losses

incurred in trying to hit the jackpot from any

winnings. The further question arises whether the

professional gambler will now no longer have to

submit a tax return to SARS.

The implementation of this tax will place

onerous obligations on gaming institutions who are

consulting with government in this regard and it is

thus anticipated that the implementation of this tax

will be delayed, but the one thing we can be

certain of, is that it is coming.

4 sensible finance march12

i n s u r a n c e b r o k e r s ( b o r d e r ) ( p t y ) l t d .

Governments worldwide are implementing

and developing new legislation pertaining

to the regulation of companies in order to

prevent the reckless corporate behaviour that we

have witnessed in recent years. A director, board

committee member or any person who controls or

manages a significant portion of a company can

be sued for any perceived breach of duty by

shareholders, employees, customers, competitors,

creditors, investors, suppliers and regulators. In

South Africa the new Companies Act, The

Consumer Protection Act and the King III Code of

Governance have resulted in the codification of

directors' common law fiduciary duties and

responsibilities and introduced statutory liability for

these individuals in their personal capacity.

The general public's heighted awareness of

their rights and the recourse they have against

negligent parties has significantly increased the risk

of litigation. A judgement against a director could

result in huge financial losses, and in the event that

judgement is not made, the legal cost of defence

can in itself be crippling. In order to manage and

minimise this risk it is imperative that both private

and public companies have a Directors and

Officers Liability Policy.

The policy pays for defence costs and financial

losses in the event of a claim. It also extends to

cover costs incurred in the course of investigations

by regulators and public relations expenses.

The policy provides cover for past, present and

future directors, officers of a company and

employees in a managerial or supervisory

capacity. In addition the policy extends to protect

spouses, administrators and executors of an

insured's estate.

The policy will not pay for defence costs or

compensate for financial losses resulting from

dishonest and fraudulent acts, illegal remuneration

or personal profit, existing or known claims or

circumstances, property damage and/or bodily

injury.

A small shareholder in a

private company took action against the directors

alleging that over a period of several years, the

directors had abused their positions by paying

themselves excessive salaries, but paying low

dividends to the shareholders. The shareholder

applied to the High Court for a review of the

directors' actions and demanded that they repay

over R11 million to the company.

A female employee accused

her superior of sexual harassment and denial of

promotion. The employee sued the superior and

the company and sought millions in compensation.

Directors were prosecuted

by local authorities after persistently failing to

comply with fire regulations.

An action of

breach was brought against a director following

the release of an employee's medical records.

The plaintiff filed a complaint

against the directors of a company alleging that

they conspired to use the plaintiff's services to

furnish, install and repair company equipment

knowing it was insolvent and were planning to file

for bankruptcy protection.

Getting the appropriate advice from your short

term insurance advisor and putting in place a

Directors and Officers Liability Policy will ensure

access to quality attorneys whilst protecting a

company's cash flow. Defence costs are covered

by the policy, protecting a director's personal

wealth, and allowing management to focus on

running the business effectively rather than

managing protracted litigation which is not only

costly in monetary terms, but is also mentally taxing

and takes up a huge amount of time that could be

invested in the company.

If you are a director of any company, do not

delay in contacting Richard Clarke or Steven Pope

to arrange an appointment to discuss putting a

Directors and Officers Liability Policy in place for

your business.

Shareholder claim:

Employee claim:

Regulatory claim:

Breach of Companies Act:

Creditor claim:

What does this policy cover?

Who does the policy cover?

What are key exclusions in the policy?

Examples of claims

Minimize your company's risk by ensuring you have the correct policies in

place. By , NFB Insurance Brokers, ManagerMichelle Wolmarans

PROTECTION THAT PAYSDIRECTORS AND OFFICERS LIABILITY COVER

Sources of information:Cover magazine November 2011; Chartis Insurance Company

Old Mutual International has launched a

new investment product for the

sophisticated investor which can

accommodate their R4 million direct offshore

investment and R1 million discretionary offshore

investment allowance and also allows investors to

transfer their existing offshore assets (including

asset swaps) into their Investment Portfolio at the

outset, subject to certain acceptance criteria.

The Old Mutual International Investment

Portfolio is issued by Old Mutual Isle of Man, a

branch of Old Mutual Life Assurance Company

(South Africa) Limited, a registered long-term

insurer and licensed Financial Services Provider.

Designed specifically to allow you, the investor,

to hold, consolidate and manage your

international investment holdings in one place, the

Old Mutual International Investment Portfolio,

provides you with access to a range of

international assets via a tax-efficient life wrapper.

Due to the relationship between Old Mutual

Life Assurance Company (South Africa) (Pty) Ltd

and our Reinsurance company, there is no tax in

South Africa in respect of returns earned. In

essence, any returns on the Investment Portfolio

accumulate tax free.

It is possible that withholding tax may be

deducted from some of the dividends at their

country of origin. However, once the dividend is

received, its reinvestment can accumulate tax free

inside the Investment Portfolio.

Buying and selling assets within the Investment

Portfolio will attract no liability to capital gains tax.

The Investment Portfolio provides you freedom

of choice through access to an array of

international assets. These include collective

investments, bank accounts and stocks and shares

quoted on recognised stock exchanges, fixed-

interest securities, multi-currency deposits, hedge

fund of funds, structured notes, exchange-traded

funds and other alternative investments.

Specifically excluded are investments in any Old

Mutual or Skandia Group Company.

The Investment Portfolio may be denominated

in euros, UK pounds, Australian dollars, Swiss francs

and US dollars, in recognition that investors may

hold existing funds in a variety of currencies. The

minimum initial investment is £100 000 or 150,000 in

other currencies.

The Investment Portfolio is structured in such a

way that the underlying assets are held in safe

custody by an authorised custodian. Initially, Old

Mutual International has agreed to terms with

Savoy International Investment Service, amongst

others. We will continue to add to the list of

custodians/offshore stockbrokers, such as Investec,

Fairbairn Private Bank etc.

In the event of death, you can choose to have

the contract transferred to a nominated

beneficiary rather than to your estate, subject to

there being no surviving contract holders. This

avoids probate, reduces delay and costs, and

gives you the reassurance of knowing what will

happen to the Investment Portfolio after death.

You may also appoint secondary beneficiaries in

the event that the appointed beneficiaries

predecease you.

For more information, please contact Sheldon

Holdsworth on 041 5024244, or 0824544836 or

visit www.oldmutualinternational.com

By , Regional

Manager – Offshore Distribution,

Old Mutual International

Sheldon Holdsworth

IntroducingOld Mutual

InternationalInvestment Portfolio

SENSIBLE INVESTMENT

7sensible finance march12

10

“Yes”, you may say, “I have a provident fund at

work for my retirement savings, some life cover and

a small investment portfolio”. But is that all that

needs to be considered?

Life cover

Lump sum Disability & Income protection

Severe Illness

Buy and Sell Agreements

Do you have your own business? Are you

protected against loss of your income due to

disability? Do you have children and need to

provide for their future educational needs? Is your

will in order?

All of these need to be considered when

checking through your financial plan.

Go through the items below and see if you

have considered these to make sure your financial

planning is on the right track.

This makes provision for dependants who will be

responsible to settle outstanding debt, estate duty

and many other expenses and liabilities on behalf

of the deceased, as well as enables those that are

left behind to maintain a similar lifestyle to that

which they have become accustomed. This is the

most important risk to be covered against,

especially for asset owners. The costs arising from a

deceased estate, assuming the estate to be

greater than R3.5 million, may be significant and

there may be liquidity issues.

In the event that you become disabled through an

accident or illness, would you need a lump sum to

make adjustments to your lifestyle? Would your

income decrease due to an inability to work or

your capacity to work becoming limited? If any of

the above applies to you, then you would need to

review your disability cover and determine whether

it would be sufficient to provide for the above

needs.

This cover compensates for lifestyle adjustments,

the cost of treatment and possible loss of income

as a result of a severe illness such as a heart attack,

cancer or a stroke.

In addition, most employed people have a

medical aid nowadays, but your medical scheme

may not cover all the costs associated with a

severe illness. You will, therefore, need money to

pay for additional medical accounts, treatment in

a recuperation clinic or professional medical care

at home. Other basic expenses such as a home or

car loan repayments, childcare expenses or the

cost of having to take long leave or possibly travel

for treatment will also need to be covered. Severe

illness cover is meant to help account for such

additional expenses.

Are you a partner in a business? Have you

considered if you have enough funds to purchase

the shares of the other partners in the business

should they die? Would you be happy if the person

who inherited your business partner's shares

decides that they want a say in the business? You

Risk Planning:

Business Assurance Planning:

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A checklist to ensure

you're on the right track.

By ,

Paraplanner - NFB

Private Wealth

Management.

Julie McDonald

Is your

in order?Financial Plan

SENSIBLE PLAN

continued on page 15...sensible finance march12

12

By Laurie Wiid, NFB Gauteng,

Director/Private Wealth Manager

How much do I needto retire in comfort?

How much do I needto retire in comfort?

This question is asked by all of us, many times

over and the answer seems to be a moving

target. The problem, of course, largely due

to the influence of a 1% or 2% change in the

variables used by the financial model to determine

this magical capital amount that you require. A

few other reasons that will influence the capital

required at retirement, include:

The real inflation that you and I experience in

our budgets is greater than expected.

The inflation rate used in the scenario cannot

be the official CPI statistic as we typically

experience higher increases in electricity, fuel,

medical aid contributions and food.

The real growth that we achieve can be lower

than forecasted.

Be careful not to be over optimistic with your

return forecast.

Higher returns normally require higher risk

investments.

A major stock market collapse can take several

years to recover the losses sustained and makeup

the returns that should have been achieved over

this period.

This is evident from the equity market collapse

of 2008; resulting in the average equity fund only

yielding 7% p.a. over the past 5 years.

The longer you are invested in the stock

market, the less vulnerable you are to such volatility

or under-performance.

New expenses arise that were not budgeted for,

for example:

More and more families have loved ones that

have emigrated and as a pensioner the cost of

international travel can be significant.

A spouse suffers from a severe illness and

requires specialised care that is not fully covered

by the medical aid.

A financial setback.

Retrenchment or early retirement can affect

your ability to save the required monthly amount

for your retirement.

You may lose a large capital sum due to a

poor investment decision or being forced to help a

family member.

Your business fails to realise the capital sum

that you expected or you file for bankruptcy.

A collapse in your marriage requiring the division

of your assets.

With the high divorce rate in South Africa, the

division of assets can destroy significant wealth for

both parties who must now rebuild their financial

security.

Three friends start work at the age of 25 and earn a

salary of R7,500 p.m. Their career paths are similar

with similar earning patterns. The following

scenarios unfold:

Salary increases at 6% p.a. with promotion

increases along the way resulting in an average

salary increase of 9.20% p.a.

A savings rate of 15% of their salary is

recommended by their financial advisors

John follows this advice and his portfolio

performs at 12% p.a. average for the 40 years

Simon follows this advice and his portfolio

performs at 10% p.a. average for the 40 years

Justin only starts to save at age 41 and his

portfolio performs at 12% p.a. for the remaining 25

years

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Three Retirement Scenarios

RETIREMENTRETIREMENT


At age 65 the three friends turn to their financial

advisor to structure an income for their retirement.

The requirement is to provide an income of 75% of

their final salary (i.e. R190,560 p.m.) with an inflation

increase of 8% p.a. on the basis that the investment

return will be 10% p.a. In other words a real growth

of 2% is attained.

John's capital base will provide this income

with ease and continue to grow to age 93 before

the capital starts to decline. Simon's capital will be

depleted at the age of 87 while Justin's capital will

be depleted at the age of 81. The graph below

illustrates the capital values of these three

scenarios.

Given longevity and modern medical care, let

us assume that each of the friends project their life

expectancy to be age 90. What is the maximum

monthly income that they can expect to draw

when they retire?

John R 190,560 p.m.

Simon R 164,207 p.m. (14% less than John)

Justin R 126,036 p.m. (34% less than John)

Because John was a disciplined saver, he had

amassed a capital sum of R1,490,474 by

the time Justin started saving at the age

of 41. The compound effect on this

capital sum is what gives John 34% more

income in his retirement years.

We all have different earnings

capacities, monthly budgets and

circumstances that will influence our

ability to save. So, is there a general Rule

of Thumb? In the days of higher returns,

investors were said to require 10 times

their annual pension as a capital base. Given lower

investment returns and higher inflation figures, this

multiple has risen to 15 times the annual pension

required – only to secure income for just over 20

years. Unfortunately this is still not adequate for

comfortable retirement with today's longevity. The

multiple is now closer to 19 times the annual

pension required.

1. Start saving as soon as possible

2. Save 15% of your earnings

3. Don't use long term savings for short

term needs

4. Constantly review your retirement

plan – actual vs target

5. Ensure that under-performing assets

are identified early

6. Protect your capital from “scamsters”

7. Take advantage of tax breaks

afforded by Retirement Annuities

8. Diversify your investments across

investment classes and a variety of

products

Those of us that are formally

employed normally have the luxury of a

company Pension or Provident Fund. The

combined savings rate can vary between 10% -

20% of pensionable salary. Provided this is well

managed and you avoid early withdrawal or

retrenchment, this will go a long way in securing

your financial independence in your retirement

years. Further voluntary savings and the benefit of a

husband and wife both saving for retirement should

secure you an adequate retirement.

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The Rule of Thumb

Steps to secure yourretirement plan

SENSIBLE INVESTOR

13

John Simon Justin

12% return 10% return 12% return

Age Salary Savings Capital Capital Capital

25 R7,500 R1,125 R14,268 R14,136 R -

30 R13,224 R1,984 R153,365 R144,725 R -

35 R27,980 R4,197 R538,610 R485,925 R -

40 R59,200 R8,880 R1,490,474 R1,287,826 R -

45 R79,223 R11,884 R3,562,495 R2,931,188 R854,757

50 R106,019 R15,903 R7,615,830 R5,909,771 R2,696,691

55 R141,877 R21,282 R15,366,393 R11,178,133 R6,429,808

60 R189,863 R28,480 R29,964,549 R20,338,244 R13,729,486

65 R254,080 R38,112 R57,177,817 R36,067,901 R27,683,631


may need to consider a Buy and Sell policy.

Is there someone in your business that is vital to the

running of the business? If they had to pass away,

would the business and the future of the business

be affected? Do you have the additional funds to

recruit a new person for the position? Can you

cope with the loss of revenue due to loss of a key

person? If you answered yes to any of these, key

person insurance is probably suitable to your

business.

Are you contributing enough to a

pension fund, provident fund or a retirement

annuity to make sure you have enough to retire

on? Are you taking full advantage of the tax

deductibility of retirement fund contributions? Will

you have sufficient funds saved to maintain your

standard of living when you retire? Be careful with

this answer - most people are very unpleasantly

surprised when they properly investigate the

correct answer here.

Is your income level on your living

annuity sustainable or are you depleting capital

and running the risk of exhausting your funds during

your lifetime?

Do you have an investment set up to save for your

children's future educational needs? Have you

invested in a little 'nest egg' either by investing into

direct shares or unit trusts locally or offshore? Are

your investments appropriately risk profiled?

Do you have a Will? Do you know

where it is kept? Is it up to date with

your correct beneficiaries? Was it

drafted specifically with you in mind

or was it a generic one that may

result in complications or unnecessary

Estate Duty at a later stage? Have

you nominated an executor and is

that executor capable and aware of the

complexities and drawn out time-frames

surrounding his or her responsibility? Have you

considered appointing an independent executor

who has experience in that regard?

Do you have a medical aid? Do you know if it is

totally appropriate for you and your needs? Do you

understand the limits and exclusions of your

medical plan or your scheme's pay-out rate?

Employee benefits:

Do you have a business and would you like to

provide your employees with a provident or

pension fund or look at options for Group cover to

help improve their sense of security?

Are you covered for your short term insurance

needs? Have you ever had a detailed assessment

done on your car, business, household or building

insurances? Do you understand excesses and

various options that are available to you?

NFB and its affiliated group companies are able to

assist you regarding all of the above issues. We all

need a little guidance sometimes and NFB would

be pleased to help point you in the right direction.

� Keyperson assurance

Pre-retirement:

Post –retirement:

Retirement Planning:

Investment Planning:

Your Will:

Medical Schemes:

Short term insurance:

Contact us on 043 735 2000 or [email protected] and

we will put you in touch with the appropriate

person or persons in our company to assist you.

15

SENSIBLE PLAN


continued from page 10...

Is your financialplan in order?

16

Early last year, I wrote about how changes to

Income Tax legislation were brought into

effect since SARS had for a long time

frowned on the use of Deferred Compensation

(DC) schemes as a way for employees to benefit

from not paying tax /receiving preferential tax

treatment on a benefit that they were receiving

from their employer.

The new legislation caused much confusion

and it extended unintended restrictions to all

company owned policies such as Keyman and

Contingent liability policies. It also created

confusion for employers and employees regarding

whether to continue with their existing DC schemes.

The recently enacted Taxation Laws

Amendment Act of 2011 provides us with clarity on

how the premiums and the proceeds of DC

policies will be taxed. The 'new' changes come into

effect from 1 March 2012 and are briefly explained

below. For the tax regime that came into effect on

1 January 2011 and applied until 10 January 2012,

please refer to my previous article.

To recap on the DC structure: the employer

takes out a policy on the employee's life and

contributes a premium to the policy which

accumulates in value over time. The employer and

employee enter into a service agreement in terms

of which the employer is obligated to pay the

policy proceeds to the employee at a determined

future date. The purpose of the scheme is to

incentivise the employee to remain employed at

the company until that future date.

With effect from 1 March 2012, any employer

paid premiums in respect of a policy where the

proceeds are for the benefit of the employee /

his/her spouse /dependants is subject to fringe

benefits tax in the employee's hands.

The proceeds of the employer owned policies

will be taxed in the hands of the ultimate recipient.

Where the employer is the ultimate recipient, the

employer will be taxed, and where the

employee/his estate is the ultimate recipient, the

employee/his estate will be taxed.

If the employer elects to terminate the DC

scheme, the employee can elect to take cession

of the policy (i.e. the employee becomes owner of

the policy) in which case the cession will attract

income tax in the employee's hands. The ultimate

proceeds, however, will pay out tax-free.

Where the employer's pension /provident fund

allows it, the employee may elect to have the DC

policy ceded to the pension/provident fund. In this

case, the cession will attract income tax in the

employee's hands and when the proceeds pay

out, the proceeds will be taxed according to the

lump sum retirement tables.

After a year of much confusion regarding the

options available to members of a DC scheme,

there is now clarity on the tax implications of either

continuing or terminating the scheme.

Remember that DC schemes, in most

instances, formed part of the employee's

retirement planning. It is as such, still necessary to

seek expert advice from your financial advisor as to

whether one continues with or terminates the

scheme; the impact on the member's retirement

planning must also be reviewed.

The changes are effective

March 2012. By Natalie Dillon,

Senior Legal Advisor -

Old Mutual

Broker Division.

DeferredCompensationSchemes and

the NEW tax laws

SENSIBLE ADVICE


17

The Life Insurance Industry provides us with two

solutions: a) Monthly Income Replacement

Cover or b) Lumpsum Disability Cover. In

determining a solution your financial planner

will compare the appropriateness of these two

benefits, taking into account the following:

Premium affordability

Waiting periods for Income replacement

Permanent vs Temporary Disability Cover

Industry maximums for Income replacement –

limited to 75% of Income

Consideration to existing Group Life Benefits

Specified occupation

Smoker status and other risk factors

Own Occupation vs reasonable alternative

occupation

Comprehensive Disability cover vs Functional

Impairment cover

A comprehensive analysis is required to

determine the most appropriately tailored solution.

The solution normally would include a combination

of these two products.

Clients that are seeking a guaranteed Income

solution who don't wish to manage the capital

lumpsum will elect the Income Replacement

option for all or part of their income needs. Income

Replacement benefits are designed to replace any

loss of income an individual suffers due to disability

such that they are unable to perform their

occupation. Income Replacement benefits can be

paid for both temporary and permanent disability.

It is imperative to ensure that your income is

reviewed and that the benefits are regularly

updated. Similarly, you need to ensure that an “in

claim” escalation is selected on your policy. These

payments are guaranteed up until retirement age

or your selected term. Certain Life Companies

have “top up” products that can increase your

benefit to 100% of your salary in the event of

permanent disability.

The premiums for Permanent Income

Replacement Cover are tax deductible and the

Income received will be taxable. Temporary

Income Replacement Benefits or Sickness Benefits

are usually tax free for a limited period and these

premiums are not tax deductible.

Clients that prefer a lumpsum payment in the event

of a disability have the freedom to invest the

proceeds to generate an income. The impacts of

inflation, the ability to achieve the required return,

the capital and market risk of the investment will all

have a major impact in determining the adequacy

of the required lumpsum amount. Poor investment

performance or loss of capital could imply that the

income does not increase with inflation, or worse –

it could decrease.

The premiums on lumpsum disability cover are

not tax deductible and therefore the proceeds are

tax free.

Let's take a look at the following Income

Replacement Quote:

Client Mr Smith

Age 40

Salary R80,000 p.m. (before tax)

Insured salary R60,000 p.m. (75% of salary)

Net Payment after an

aver. tax rate of 30% R42,000 p.m.

Claims escalation CPI (estimated at 6%)

Term of cover Age 65

Monthly premium R1,300 (approximately) Tax

deductible

For the same premium of R1,300 p.m. we can

purchase a Lumpsum Disability Amount of

R4,850,000. This amount would be further reduced if

you utilised the after tax premium on the Income

replacement product. Should Mr Smith be disabled

after one month and the proceeds were invested

at a 9% average yield, a monthly income of

approximately R22,000 (escalating at 6%) will be

generated for a period of 25 years. This illustration

assumes a tax efficient investment and therefore a

low tax base. Clearly this income would increase

should Mr Smith become disabled at a later stage.

The suitability of these two products would need to

be reviewed by your NFB Financial Advisor in

determining your optimal solution.

When the primary need for insurance is to

compensate for loss of income, Income

Replacement benefits are likely to be the most

effective solution. Where the individual requires a

cash lump sum, Lump Sum Disability benefits are

better suited.

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Income Replacement Cover

Lumpsum Disability Cover

Example

South Africans, unfortunately, live in a very violent

society and have one of the highest disability

claim statistics. It is therefore vital that our clients

review the adequacy of their disability cover.

By NFB Gauteng,

Paraplanner

Emmanuella Fernandes,

DISABILITY COVERSOUTH AFRICANS NEEDDISABILITY COVER


2012 TAX RELATED BUDGET PROPOSALSA summary of the tax related budget proposals announced by theMinister of Finance on 22 February 2012. By Shaun Murphy, CA (SA)

Partner - Klinkradt & Associates

BUDGET HIGHLIGHTS

INDIVIDUALS

COMPANIES

The main tax proposals for 2012 include:

Increase effective capital gains tax rates to 13.3%

for individuals, 18.6% for companies and 26.7% for trusts

from 1 March 2012.

Dividends tax becomes effective from 1 April 2012

at a rate of 15%.

Conversion of remaining medical tax deductions to

tax credits from March 2014.

From March 2014 an employer's contribution to

retirement funds on behalf of an employee will be

treated as a taxable fringe benefit in the hands of the

employee. Individuals will from that date be allowed to

deduct up to 22.5% of the higher of taxable income or

employment income for contributions to pension,

provident and retirement annuity funds with a minimum

annual deduction of R20 000 and an annual maximum

of R250 000. For individuals at least 45 years of age the

deductible amounts will be up to 27.5% with a

minimum annual deduction of R20 000 and an annual

maximum of R300 000.

Tax preferred savings and investment vehicles for

individuals are to be introduced from March 2014.

Reduction in the rates of tax on small business

corporations.

Reduction in the compliance burden of micro

businesses.

Additional tax on gambling from 1 April 2013 at 1%

on a uniform provincial gambling tax base.

Discussion paper on carbon emissions tax to be

published in 2012.

The 2012 Budget proposes direct personal income tax

relief to individuals amounting to R9.5 billion.

The tax threshold for individuals younger than 65

will be R63 556 and for individuals 65 up to 75 will be

R99 056 and older than 75 will be R110 889.

(no updates from the Pocket Guide)

The annual exemption on interest earned for

individuals younger than 65 years is raised from R22 300

to R22 800.

The exemption for individuals 65 years and older

increases from R32 000 to R33 000.

The threshold for the tax-free portion of interest and

dividends from foreign investment stays unchanged at

R3 700 from the 2010 budget.

As announced in the 2011 Budget, income tax

deductions for medical scheme contributions for

taxpayers below 65 years will be converted into credits.

Monthly tax credits will be increased from R216 to R230

for the first two beneficiaries and from R144 to R154 for

each additional beneficiary with effect from 1 March

2012.

The dividend withholding tax will come into effect on

1 April 2012, bringing an end to the secondary tax on

companies. For equity reasons it is proposed that the

dividend withholding tax come into effect at 15% – five

percentage points higher than the previous secondary

tax on companies' rate. Income from capital can be

derived as interest income, dividends or capital gains, all

of which should be taxed equitably.

To enhance equity, effective capital gains tax rates will

be increased. The inclusion rate for individuals and

special trusts will increase to 33.3%, shifting their maximum

effective capital gains tax rate to 13.3%. The inclusion

rate for other entities (companies and other trusts) will

increase to 66.6%, raising the effective rate for

companies to 18.6% and for other trusts to 26.7%. These

changes will come into effect for the disposal of assets

from 1 March 2012.

The following exemptions for individual capital gains

are increased from 1 March 2012:

The annual exclusion from R20 000 to R30 000

The exclusion amount on death from R200 000 to

R300 000

The primary residence exclusion from R1.5 million to

R2 million

The exclusion amount on the disposal of a small

business when a person is over age 55 from R900 000 to

R1.8 million

The maximum market value of assets allowed for a

small business disposal for business owners over 55 years

increases from R5 million to R10 million.

No change is proposed to corporate tax rates.

Several reforms of the turnover tax for micro businesses

(with annual turnover below R1 million) were announced

in 2011. Building on these reforms, micro businesses will be

given the option of making payments for turnover tax,

VAT and employees' tax at twice-yearly intervals from

1 March 2012. It is further envisaged that a single

combined return will be filed on a twice-yearly basis from

1 March 2013.

To encourage the growth of small incorporated

businesses, government proposes to increase the tax-free

threshold for such firms from R59 750 to R63 556. Taxable

income up to R300 000 is taxed at 10%; this threshold is

now increased to R350 000 and the applicable rate

reduced to 7%. For taxable income above R350 000, the

normal corporate tax rate of 28% applies. These

amendments will come into effect for years of

assessment ending on or after 1 April 2012.

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Relief for Individuals

Personal Income Tax

Exemption for interest and dividend income remains

the same

Medical Expenses

Other Tax Proposals Affecting Individuals:

Dividend Withholding Tax

Increase in Effective Capital Gains Tax Rates

Turnover tax for micro businesses

Small business corporations

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20

Be wary of the “safe” cash option. By

Henry van Deventer, financial planning

coach at acsis. Source:

www.fanews.co.za.

The price of beingtoo conservative

While the volatile markets that

characterised most of 2011 are most

likely to continue into this year,

retirement fund investors should be wary of opting

for the 'safe', cash investment options, as this is

often one of the greatest mistakes investors make.

after

Henry van Deventer, financial planning coach

at acsis says that the closer investors get to

retirement, the more stressful the decision becomes

because the consequences of making the 'wrong'

decision could seriously affect their quality of life in

retirement. “Because of this concern, the natural

instinct before retirement is to put money where it is

'safe'. This often means a more conservative

investment strategy, and in most cases, it entails

being heavily invested in cash. The reasoning is that

if the market falls during the year that an individual

retires, he or she should be safe. If it does not, the

individual will still be able to sleep at night.”

Van Deventer says that this mistake is often

made by investors who do not understand what

they are potentially sacrificing by seeking safety in

cash. “As a starting point, consider that, as a rule of

thumb, investors can draw a monthly income of

about R5 000 before tax for every million rand

invested at retirement. They therefore need to give

themselves the best possible chance to

accumulate as much as possible before retirement

with as much certainty as possible. The five years

prior to retirement are especially crucial in

achieving this.”

He says that investors need to know how to

grow their funds before retirement age and what

to expect. “For the best possible growth, investors

should mainly be exposed to shares. Between 1925

and 2011, the average annual return on South

African shares was approximately 14.4%. This means

that a responsibly managed, share-focused

strategy would have doubled roughly every five

years. In cash, over the same period, the average

return was approximately 6.7% per annum.

“Therefore, by applying the above, investors

with R1 million five years before retirement, a share

portfolio could, on average, result in about R1.96m

at retirement. A cash portfolio on the other hand

could result in just over R1.38m – about two-thirds

less. In terms of difference to monthly standard of

living, a share portfolio would have produced

about R3 000 more per month. If we apply the

same argument to ten years before retirement

instead of five, the difference becomes quite

staggering - an additional R10 000 per month.”

Van Deventer says that one concern with the

above argument is that share market returns are

not guaranteed. “Investors will most probably lose

some money during one of the five years before

retirement, as historically, South African shares

produce a negative return 32% of the time, or

roughly once every three years. However, over a

five-year period, they have a 95% chance of

achieving a positive return.

“Over longer terms, chances of a positive

return become even better. By investing in a

responsibly managed and diversified share

portfolio, the chances of getting a high positive

return become better yet. We also need to

remember that the investment term does not stop

when one retires. It stops when the investors stops –

which should be more than 25 years

retirement age.

He says that investors should consider that the

more time they have available and the more

responsible they are by not gambling on the share

market (it is best to stick to a fund that will

consistently follow the markets), the less the risk

becomes and the better their retirement lifestyles

could be. “However, investors need to remember

that an objective, expert financial planner needs

to play a vital role this regard. Do not be afraid to

pay a fee to get sound advice – it may well turn

out to be the most valuable item ever bought,”

concludes Van Deventer.

SENSIBLE GROWTH


21

Small/mid-cap funds are currently providing higher-

quality listings and Evan Walker, portfolio manager

at Momentum Asset Management, gives us an

overview of the company's award-winning fund.

The fund invests in small- or mid-cap shares falling

outside of the ALSI 40 and has a strict structure that

assists in limiting fund risk. The fund has a 50%

(approximate) low risk 'blue chip' share allocation

that is defensive and offers high dividend yields.

Twenty percent is allocated to medium risk funds

with less earnings visibility, lower earnings and

dividend yields.

Another 20% is invested in high risk counters,

which include very illiquid small-cap shares, with

the balance (10%) in cash. These splits vary

conservatively as the manager identifies

opportunities and deploys cash holdings. A

significant focus on stocks that offer a margin of

safety through high dividend yields also

compliments the conservative bias.

The more aggressive investor as the fund has a low

diversification to the market and general equity

funds providing diversification benefits when

included in a portfolio of equity unit trusts. Less risk

averse investors can consider smaller portfolio

allocations.

Performance over 1, 3 and 5 years

Fund 21.62%

Sector average 3.12%

All Share 2.57%

Small Cap Index 1.10%

The fund has an annual fee structure of 1.5%.

The fund will retain its defensive portfolio of high

dividend-yielding shares. The portfolio has,

however, been diversified to include smaller

holdings in order to take advantage of market

mispricing and lessen overall fund risk.

The fund has outperformed its peers, and the

market, consistently over time and continues to be

ranked as one of the top five overall unit trusts in

the market. It has also ranked as best performing

unit trust in South Africa for over 10 years and won

four consecutive Raging Bull Awards.

While investing in only small- and mid-cap

portfolios, the fund's risk may not be as high as

perceived given its conservative investment

philosophy. The fund also declined less than the

global bear market in 2008/09.

Fund investment strategy

Investors most suited to thefund

Fund fee structure

Fund positioning for 2012

Why choose this fund?

1 year 3 years 5 years

29.66% 12.95%

17.17% 4.79%

17.27% 8.09%

17.36% 8.31%

Momentum Small/Mid-Cap Fundwins a top outright performer award for the fourthconsecutive year at the 2012 Raging Bull Awards

By Evan Walker, Portfolio Manager - Momentum Investments.

SENSIBLE PORTFOLIO


Momentum Investments is a full-service investment

house offering clients more choice. Exceeding R320

billion assets under management it holds some of

the country's most respected investments players –

Momentum Asset Management, Momentum

Alternative Investments, Momentum Manager of

Managers, Momentum Collective Investments,

Momentum Investment Consulting, Momentum

Global Investment Management, Momentum

Properties, Momentum Wealth and Momentum

Wealth International.

Evan Walker (BCompt (Hons), MBA)

joined Momentum Asset Management

in 2007, bringing with him extensive

knowledge of industrial stocks from his

previous role as head of industrial

research at Credit Suisse Standard

Securities. Evan has managed the

Momentum Small/Mid-Cap Fund for

five years.

22

More than just an opportunity to add to your

retirement. By , Business

Development Officer - Glacier by Sanlam.

Cilma Heyns

Your RA hasmore advantages

than you think

Your RA hasmore advantages

than you think

Retirement Annuities (RA's) offer more than

just the opportunity to make additional

provision for retirement: they also offer the

potential for tax and estate duty savings.

People are living longer and retiring earlier and

therefore preserving and also growing capital well

into retirement is a requirement in order to maintain

your standard of living. Even if you are contributing

the maximum amount allowed to your company

pension fund, you will in all likelihood still

experience a shortfall. To retire with 75% of your

final salary you will need to make additional

savings. If you do not need immediate access to

your savings, i.e. you have an emergency fund in

place, then an RA is an ideal vehicle. With an RA

you will not be able to access the funds before age

55 and the funds may also be protected from

creditors.

RA's offer transparency, as well as a wide

underlying fund choice. There are currently over

900 collective investment funds available to South

African investors. More adventurous investors with

a longer time horizon may even include a share

portfolio as part of their underlying investment

within the RA.

Younger investors who want to invest as

aggressively as possible may view the Regulation

28 legislation as a hindrance. This stipulates that no

more than 75% of the RA investment may be in

equities and no more than 25% in funds with foreign

exposure. Your equity exposure can be maximised

by combining pure equity funds with property

equity funds. This is an optimal way of structuring

the underlying funds while allowing for maximum

growth.

New generation RA's also permit investors to

make ad hoc contributions, and even to stop or

reduce premiums at any time, with no penalties.

RA investors can enjoy tax relief on their

contributions of up to 15% of the non-retirement

funding income. Non-retirement funding income is

that portion of your income that is not taken into

account when calculating your retirement fund

contributions. Because retirement contributions are

done before tax, investors can afford to invest

more funds before tax than after. For example, if

you have R1 000 a month available to invest after

tax and a 30% marginal tax rate, you would be

able to invest a larger amount (R1 428-57) in an

RA before tax, than you'd be able to invest in a

savings plan after tax – without altering your net

salary. Investing a larger amount each month,

coupled with compound interest over time, will see

RA investors reap rewards in years to come. In

addition, returns within the RA's underlying funds

are tax free.

On retirement, when the RA is transferred to an

annuity (either guaranteed or investment-linked),

tax will be paid on the lump sum portion taken as

cash (based on a retirement sliding scale) as well

as on the monthly income drawn, but not on the

investment returns.

RA's can also provide opportunities for clever

and efficient estate planning. All funds within the

RA fall outside of the investor's personal estate for

estate duty purposes. The investor, therefore, does

not pay estate duty (currently 20%) on the value of

the RA. There is also a saving in executor's fees.

Whether an RA is your primary retirement

savings vehicle, or a supplement to your employer's

pension fund, it remains an excellent way to grow

your money to ensure a successful retirement.

SENSIBLE SAVINGS


23

In this article we continue discussing the core

holdings in the general equity portfolios that we

manage and today's turn is Sasol.

South African Coal, Oil and Gas Corporation

(Sasol) was formed in 1950 by the previous

government as an attempt to bolster the country's

self reliance and was listed in 1979 under its current

guise of Sasol Limited (with the ticker SOL) on the

JSE. Sasol also trades on the NYSE. The company's

first MD, Etienne Rousseau, wanted to name the

company South African Synthetic Oil Limited

(Sasol). The name wasn't adopted, but the

acronym stuck. Sasol has an interesting history

closely linked to the industrial development of

South Africa and its people; towns are even

named after it. It pioneered the synthetic fuel

industry (synthetic fuel is produced by taking coal

and speeding up the natural process of creating oil

from the coal by a couple of million years) and is a

major contributor to the GDP of South Africa by

producing oil and thereby saving the country

billions in foreign exchange by limiting the need to

import the oil that it produces.

Whilst the synthetic fuels business is still a

dominant component of the business, Sasol today

operates chemical plants across the world and is

involved in Greenfield projects to convert gas and

coal to liquid in some exotic countries and has

recently purchased coal shale fields in Canada.

Many of the chemicals are by-products of the

synthetic oil process, but there is also a genuine

chemicals business that has a negative correlation

to oil prices and is driven by industrial demand.

Whilst it may be hard to believe, Sasol is actually an

alternative energy multinational and not a

traditional oil company. This is to its great

advantage as, unlike the oil majors, it is not

extracting crude oil from the earth which is being

depleted and needs to be replaced through

expensive exploration and development. Rather,

Sasol turns gas and coal to fuel.

The success of Sasol depends largely on its

ability to attract and retain highly talented

scientists, engineers and technical managers. Sasol

therefore represents the best of South Africa and

we were particularly encouraged when Sasol on 1

July 2011, in keeping with its ethos of appointing

people on merit only, appointed a foreigner, David

Constable, as the new CEO based in Rosebank.

The closing price of Sasol on 14 February 2012

(Valentine's day) was R401.02, which puts a market

capitalisation of R258bn on the company. This puts

Sasol firmly in the top ten shares on the JSE.

Avior Research estimates that Sasol will earn

R48.73 per share and pay a dividend of R17.77 over

the coming year. This places Sasol on a forward PE

of 8.2 times and a dividend yield of 4.4%. Despite

the recent rise in Sasol's share price, this is not a

demanding multiple and quite an attractive

dividend yield in any market.

As you would expect, Sasol's earnings are

highly geared to the oil price, and with oil prices

trading at elevated levels, Sasol's earnings should

be well supported. The Rand/Dollar exchange rate

also has a great impact on reported earnings in

Rand. Even the company itself has trouble getting

a grip on its earnings outlook. On 2 February 2012

the company advised that its earnings for the year

ended 31 December 2011 would be 80% - 90%

better than the previous six months, having advised

the market on 23 November 2011 of an increase of

at least 45%! We expect good results to be

reported next month.

It is clear that buying Sasol depends on your

view of the growth in South Africa's economy

(which drives the consumption of oil), the price of

oil itself and the Rand/Dollar exchange rate.

Despite an uncertain outlook for all of these

factors, given where we are in the global recovery,

we believe that Sasol represents decent value and

we include Sasol at a weighting of 7% to 8% in any

general equity portfolio that we manage.

SASOLGREAT INVESTMENT

MAKES FOR A

A further look at the core holdings in NVest's

general equity portfolios. By ,

Portfolio Manager - NVest Securities.

Rob McIntyre

SENSIBLE EQUITY


24

Q:

A:

A Financial Plan is all good and well, but how

does one protect against the unknown factors in

your financial plan? What and how much should I

be protecting and what do the statistics say?

Too often people plan their investments and

retirements based on the assumption that they are

going to reach these goals without any health risks

along the way. Risk or life and disability needs form

a very important part of the financial planning

process.

Most people list their assets as their house, or

business or investments. Few list their own income

earning ability or their intellectual capital that pays

for these assets as their main asset. Without income

it would be impossible to amass the material

wealth and tangible assets we desire now and into

the future. So your greatest asset is actually your

ability to earn an income and your future earnings

potential.

Like all assets, your future potential income,

needs to be protected. Premature death, disability

or severe illness may prevent you from realising the

full value of your earning potential.

The way to protect this asset is to have a life

assurance policy that covers you against these

risks, be they an accident or a debilitating disease.

The life companies offer a range of products that

can ensure that your full potential can be reached

no matter what may befall you along the way.

One should consider the impact on one's

family should a death or disability occur. Events are

random and insurance is a great way to hedge

your future potential income and make it safe so

that you can invest to achieve your life's goals

successfully.

50% of a particular life companies death

claims were from policyholders younger than 50 yrs

and 75% were from people under the age of 60 yrs.

This is in a period of one's life where you are still

trying to consolidate and grow your wealth. Debt is

still quite high and earnings potential still on the up.

40% of income disability payments are made

for claimants between the ages of 31 and 40. The

probability that a 45 yr old male claimant is

permanently disabled is 23%. 70% of all lumpsum

disability claims were between the ages of 31 and

50 yrs. Remember that in the disability space it is

not just the medical impairment that is taken into

account, but also the ability to perform one's

nominated occupation that counts.

The two leading causes of claims in the severe

illness category were cancer and heart and artery

disease, accounting for more than 70%.

In order to establish how much cover is enough

we use financial needs analysis tools that give us a

guideline as to what amount of cover you should

have. It does, however, depend on each

individual's requirements and what amount they

want to protect or what sort of income they would

want to replace and leave for their family. One

also needs to understand that it is a dynamic thing,

because as you accumulate more assets over time

and your needs and liabilities reduce or increase,

your risk cover will need to be adjusted.

The products offered by the leading life

assurance companies are very comprehensive

and competitively priced. They cover just about

any event and often try and reward clients for

being healthier and therefore less of a risk. Benefits

such as income protection are also tax deductible

so it makes the “grudge” payment a less bitter pill

to swallow.

Risk cover is an important part of the financial

planning process and we would encourage

people to review their cover levels and consult a

professional financial planner to ensure that they

know what they are paying for and realise the

consequences to themselves and their families of

being under insured.

“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.

Travis McClure will be answering any questions that you may have.

Travis McClure

SENSIBLE FINANCE QUESTIONS & ANSWERS

Please address all Questions to: Travis McClure,

NFB Sensible Finance Q&A, Box 8132, Nahoon,

5210 or email: [email protected]


Anthony Godwin

Gavin Ramsay

Andrew Kent

Walter Lowrie

Robert Masters

Bryan Lones

Travis McClure

Marc Schroeder

Phillip Bartlett

Duncan Wilson

Glen Wattrus

Leona Trollip

Leonie Schoeman

(RFP™, MIFM) - ManagingDirector and Private Wealth Manager, 23 yearsexperience;

(BCom, MIFM) - ExecutiveDirector and , 18 yearsexperience;

(MIFM) - Executive Director andShare Portfolio Manager, 16 years experience;

- , 26years experience;

(AFP , MIFM) -, 26 years experience;

(AFP , MIFM) -, 20 years experience;

(BCom, CFP ) -, 12 years experience;

(BCom Hons(Ecos), CFP ) -

, 7 years experience;

(BA LLB, -, 9 years experience;

(BCom Hons, CFP ), 4 years experience;

(B.Juris LL.B CFP ) – Private WealthManager, 14 years experience;

(RFP ) - Employee BenefitsDivisional Manager and Advisor, 35 yearsexperience;

- Healthcare DivisionalManager and Advisor, 14 years experience;

NFB has a separate specialist Short TermInsurance Division, as well as now offeringspecialist group companies in the fields of stockbroking, wills and the administration ofdeceased estates.

®

Private Wealth Manager


™ Private WealthManager

™ Private WealthManager

Private WealthManager


CFP ) Private WealthManager

– PrivateWealth Manager

™

(RFP™)

®

®

®

®

NFB have a

with a between them:

STRONG, REPUTABLE TEAM OF ADVISORSWEALTH OF EXPERIENCE

25

NVest Securities (Pty) Ltd

NFB House, 42 Beach Road,

Nahoon East London 5241

PO Box 8041, Nahoon 5210

(043) 735-1270,

(043) 735-1337

[email protected]

Tel:

Fax:

Email:

www.nvestsecurities.co.za

The Eastern Cape's first home-grown

STOCK BROKERAGE


fortune favours the well advised

You’ve worked hardfor your money...

“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

contact one of NFB’s financial advisors

East London

Port Elizabeth

Johannesburg

• tel no: (043) 735-2000 or e-mail: [email protected]

• tel no: (011) 895-8000 or e-mail: [email protected]

• tel no: (041) 582 3990 or e-mail: [email protected]

NFB is an authorised Financial Services Provider



now let NFBmake your money

work for you.

Documents

NFB Sensible Finance Magazine Issue 20