Liberty goes offshore

By Janice Roberts


Economic uncertainty and the political tumult have driven demand for offshore investment products to an all-time high. Concerns around currency volatility and the local market limitations, in terms of size and exposure to wider global industry, have also contributed to a reluctance to take on risk.

As a great potential growth driver for local financial product providers, competition is heating up, but as the playing field has levelled over the last few years, and the fact that returns are driven by those markets, winning new clients has come down to nothing but cost.

“Equity and bond yields are facing similar growth challenges all over the world,” says David Lloyd, Managing Director of Innovation at Liberty. “Added to that, low interest rates don’t make the money markets in other countries that attractive either. So with the prospect of relatively subdued returns from all offshore asset classes, local products that levy high fees will struggle to outperform inflation.”

Finding cheaper ways to access those markets is the only way to currently add value and differentiate oneself in the local industry, and this has driven the South African market to find innovative ways to achieve just that.

Through Liberty one can now invest in foreign equity, bond, and cash tracker funds, with the introduction of its latest endowment wrapper.

“By definition, index trackers are much cheaper to invest into compared to active managed funds,” continues Lloyd, “but our Offshore Investment Plan is designed with the added benefit of providing access to some of the world’s best active asset managers at a very low cost.”

Through its asset manager STANLIB, and its global partnership network, investors are now able to access household names like Brandywine Global, Columbia Threadneedle and Fidelity Worldwide, and the breadth of expertise that goes along with it, via one single investment platform.

Opportunity and convenience cost of utilising a life wrapper aside, other investment avenues like unit trusts will most definitely make the process more expensive in terms of taxes and estate duties. Also consider that endowment policies issued by a South African life assurer are taxed at a much lower rate (30%) than individuals who are subject to a marginal tax rate of 41%.

“Relative to other offshore endowments available in the local market, the administration fee of the Liberty offering is very well priced. After Liberty has paid all taxes, no further levies will be payable in the hand of the taxpayer at withdrawal or maturity,” adds Lloyd.

From an estate planning perspective, the endowment allows one to directly nominate beneficiaries that will receive the policy directly should the principle member pass away and Lloyd points that the estate will thus avoid paying executor’s fees on the proceeds.

Lloyd adds that another benefit of using the new Liberty offering is that it allows for unlimited switches between underlying funds at no cost, and that the same applies to exiting the investment before maturity, although capital gains taxes may be applicable to such switches and early withdrawal.

The minimum initial investment value for the new wrapper is $15000. One can add more to the investment over time, however, legislative restrictions on how much that can be over the five year period are in play. South African residents also have an investment allowance of R10 million per calendar year to invest abroad. Should you want to use this allowance you need to provide the bank with a tax clearance certificate issued by SARS.

Speak to your financial adviser today to diversify your portfolio, and start earning dollars.

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