On the 20th of February 2015 in line with the South African Government’s initiative to incentivise and promote savings in South Africa, National Treasury announced the final details with regards to the Tax-Free Savings Accounts (TFSA). Since then, RBS Health & Wealth has been monitoring the various product offerings that have emerged with a view to providing our clients with an overview of what factors to consider before investing in a TFSA.

Regulatory Requirements

All Natural persons may invest in this account.

Both recurring and lump sum investments are permitted.

An annual investment limit of R30 000.

A lifetime investment limit of R500 000.

Transfers between TFSA’s will not be allowed until 1 March 2016.

Where the investor is a minor, any withdrawals may only be paid into the minor’s bank account and not the guardian’s bank account.

No fund performance fees will be allowed on any of the underlying funds. (Performance fees drag down and greatly impact on investment returns).

ATM withdrawals may not be made.

No transfers from the TFSA to another person.

No risk cover (for example:  Life and Disability assurance) may apply to the TFSA.

Existing accounts may not be converted into a TFSA.

A TFSA may not be used as an account from which payments may be made with a debit or credit card.

Tax Benefits

A TFSA provides investors with the opportunity of investing without having to pay Capital Gains, Income and Dividends tax. All of which contribute to the reduction in yield of other investment vehicles such as endowments and unit trusts (flexible Investments), to name a few.

By adding a TFSA to your investment portfolio one can effectively extend and enhance the existing annual interest exception available to an investor by an additional R30 000 per annum. Persons under 65 – R23 800 (interest exemption) + R30 000 (TFSA) = R53 800.

Persons 65 years and older – R34 500 (interest exemption) + R30 000 (TFSA) = R64 500.

Factors to consider

RBS Health and Wealth has highlighted 2 fundamental factors that we feel are critical when considering a Tax-Free Saving Account.

Fees

We have scanned a number of TFSA products that have come in the South African finance market and have deduced three possible areas where fees could be levied.

1. A standard fixed percentage, annual management fee.

2. A moving annual management fee, dependent on the accumulated investment value.

3. Complete waiver of the annual management fee. But an increase in the fund management fees to the standard unit trust offering.

In order to establish the most cost-effective option from the above, quotations and assumptive returns will need to be done by a financial advisor.

Funds

Fund choice is always an important consideration when investing, but even more so when it comes to the TFSA. Fund selection for an investor should always be driven by the findings of a complete risk tolerance analysis by their financial advisor.

There are a handful of TFSA providers that RBS has identified, which provides an investor with an extensive range of funds across all asset classes, both local and offshore. This will therefore enable the investor greater flexibility going forward, in terms of risk tolerance and personal circumstances.

If you would like to find out more about the Tax-Free Savings Account please contact:

RBS Health and Wealth (Johannesburg)

Tel: +27 (0)86 000 1122
Email: Murray Clack – murray@rbs.co.za

RBS Health and Wealth (Cape Town)

Tel: +27 (0)21 443 4400 Email: Reg Pitcher – reg@rbs.co.za