By Hayley Brown, Executive of Business Development at PPS Investments.
Money matters for women
People approach things differently, especially when it comes to money matters. Various factors influence this, from your income to your upbringing. However, could this difference in approach be due to other factors such as age and gender? Theories suggest that the gender pay gap is a key factor driving not only the disparity in salaries, but could be one of the underlying reasons that women spend, save, invest and borrow differently.
Mind the (income) gap
Research by Giraffe online recruitment shows that South African women earn on average 25% less than their male counterparts. And the gap is even larger for women with children, who earn up to 35% less than men in similar positions in some countries, according to the American Association of University Women. So, what does this mean for the saving and investment culture of women? And specifically, for the professional market, where women are juggling careers and other responsibilities?
Female doctors are top savers
Around 40% of the PPS Investments client base is female, with the majority (47%) in the medical profession, including medical doctors. Professionals in private practice are often sandwiched between their personal and business financial needs, which requires far more discipline and planning than receiving a monthly salary from an employer each month.
Further analysis shows that women are 10% more likely to have a financial adviser than men, of which 25% make use of female advisers. In addition, an encouraging observation is that women are generally saving towards retirement.
Women live longer
Even retirement planning requires unique considerations for women. Overall, life expectancy is increasing for South Africans, and the probability of living to the age of 90 and beyond is higher for females (38%) than for males (27%). PPS research suggests that the professional market has a longer life expectancy than the average South African. Ultimately, this means that the longevity risk of outliving your retirement savings increases. As such, women will need to ensure that their retirement savings will fund even many years, and so they will need to save more per month.
Freedom to do more with your money
Whether you are at the start of your financial journey, or looking at ways to supplement your retirement savings, tax free investments allow you the freedom to do that, without having to pay tax.
Investing tax free means that you can contribute up to R33 000 per tax year and up to R500 000 during your lifetime, across one or more tax-free account(s) with unrestricted access to your investment at any time. Keep in mind that any withdrawals cannot be replenished, and unused limits fall away. There are no initial fees, exit penalties or administration fees with tax free investment accounts.
South Africans of all ages are eligible to invest tax free. For many, one of the disadvantages of tax-free investing is the annual limit of R33 000 per individual per tax year. One way to maximise the allowance is to look at the approach from a consolidated view, in that a family of four could invest up to R2 million (4 x R500 000) during their lifetime, or R132 000 for the year. However, it is important to weigh up the cost benefit of utilising your child’s tax-free allowance during the years when they are not liable to pay tax. Once breached, your child will not be able to replenish his/her lifetime contribution limit.
Like discretionary investments, tax free investments are not required to adhere to Regulation 28. This allows you to invest in unit trusts that invest offshore, as well as having a high exposure to growth assets. This can be used as a tax-efficient way of mitigating the restrictions of Regulation 28 within your retirement annuity.
A further tax benefit can be derived by using your tax-free investment to supplement your income once retired. Withdrawals from your tax-free investment are not taxed and thus can lower your overall tax burden when combined with your living annuity income.
A financial adviser is best placed to provide you with appropriate advice that is tailored to your unique needs and approach to money. A tax-free investment provides you with the options that will help augment your overall financial portfolio.
Visit www.pps.co.za for more information.