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“Don’t touch!” - encourage your client to step away from their savings account

Encouraging your client to save in a long-term investment account, where early and frequent access is discouraged, is a really good idea for a bunch of reasons. In South Africa, our government thinks so too. Hence, in a bid to encourage long-term, disciplined saving, National Treasury, in 2015, introduced and defined tax-free investments to be savings products where “all returns from such products will be tax-free in the hands of the individual who owns (it)”, provided those products meet the criteria as set out in legislation. With respect to the tax-free savings and investment limitations, an individual may currently contribute up to R33 000 per year with a lifetime contribution limit of R500 000. There are no age limits for the owner of the tax-free account, so it could be a favourable option for parents wanting to start a nest-egg for their minor children.

Roenica Tyson, investment product manager at Glacier by Sanlam, believes that tax-free savings and investment accounts tick many positive boxes, as part of a diversified financial plan. She would encourage every investor to consider including one in their portfolio, and take advantage of the opportunity to grow their savings without paying any tax on the interest, dividends or capital gains they earn. At Glacier we offer access to a wide range of investment funds, catering for all investor risk profiles and a wide selection of top funds in South Africa.

Add-on to retirement savings

Perhaps consider tax-free investment plans as complementary savings for your client’s retirement investment. “A tax-free investment plan is a great add-on to a retirement plan”, Roenica points out.

The table below demonstrates the sample values (including the tax savings relative to a normal investment plan) based on a monthly investment of R2 750 over a period of 2, 4, 6, 8 and 10 years, for an aggressive investor, and with intermediary fees of 0.50%. The noteworthy point is that over a 10-year period, total contributions of R330 000 can grow to R536 048, which is R29 222 more than a similar plan without the tax savings.

 

Assumptions: Return of 11% per annum and marginal tax rate of 35% on investment plan returns.

The benefits are self-evident. Tax-free investments are a viable long-term option as part of a diversified portfolio. Talk to Glacier by Sanlam about the Glacier Tax-Free Investment Plan. Investment income earned within the plan, as well as capital gains are tax-free; and you can adjust your client’s portfolio when their needs and risk appetite change.​

Glacier Financial Solutions (PTY)LTD is a licensed financial services provider.
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