South Africans looking to protect their retirement funds from the volatile rand and an uncertain economy have an array of offshore investment options available to them – but with pitfalls awaiting the impulsive investor, it’s vital to choose the right investment vehicle that delivers the necessary security, tax benefits and succession planning.
That was the overarching theme to emerge from Sovereign Trust SA’s sixth annual International Retirement Seminar, held in Johannesburg and in Cape Town last week. The seminar brought together a range of experts in the field of offshore retirement planning, including financial advisors and family trust lawyers who counsel clients on international pension planning and pension structures.
Keynote speaker Daniel Silke said South Africa remained in a tough economic and political position, with ‘huge hurdles’ facing President Ramaphosa – not least of which are major factions opposed to a reforming president. This was a major contributor to the increasing outflow of funds from a clearly worried South African middle class.
However, growth is hard to come by globally, as a combination of factors drives down the global economy, said Joanne Baynham, director and head of investment strategy at MitonOptimal SA. The inversion of the US yield curve has bond investors worried about the real prospect of a recession in the US, which would have global repercussions.
“So what should I be doing with my money? Despite a tough market, people are too negative, and there are opportunities coming our way. There’s good value in the stock market – in fact, we’re better off buying equities than bonds right now. We also see opportunities in gold, even if it is slightly overbought now,” said Baynham.
With the long-term outlook for the rand remaining bleak, South Africans are getting poorer in real terms, said Andrew Rissik, managing director of the Sable International Group. “A lot of taxpayers are talking about having a ‘Plan B’, and the common themes we’re seeing with people looking to invest offshore are tax efficiency, currency stability, accessibility to funds, security, succession planning and growth,” he said.
In spite of the ongoing turmoil around Brexit, UK property remains a popular retirement planning option, said Tim Mertens, the chairman of Sovereign Trust SA. However, it’s critical to structure this type of investment correctly in the face of stringent UK tax legislation, using vehicles like Qualifying Non-UK Pension Schemes (QNUPS).
Further complicating any retirement planning at the moment is the controversial ‘Expat Tax’ which comes into effect in 2020, which will impact South Africans living and working in low-tax geographies around the world. A partial solution could be for employers to set up international employer-funded pensions, said Sovereign Trust SA director Richard Neal – but this will ultimately only lessen the blow, as all pension contributions earned by expats will still be taxed as a fringe benefit.
Although tax remains top of mind, South Africans’ approach to retirement structuring has not changed much in the three years since the recommendations of the Davis Tax Committee, which highlighted the need for further investigation of the use of offshore retirement funds. Sean Gillease, the business development manager for Sovereign Trust in the Channel Islands, said international retirement plans by South Africans are continuing – but it’s prudent to ensure there are clear reasons and justifications for doing so, and to ensure that members take some benefits after the maximum retirement age of 75.
For people not employed full-time, well-structured trusts offer some relief from onerous tax burdens, said trust specialist Jose Delgado, who maintains that trusts still have an important role to play in estate and retirement planning.
Additional speakers highlighted the benefits of jurisdictions like Guernsey for pension structuring, and the need for diversification in implementing effective offshore retirement plans.