My favourite to despise financial commentator, MH for anonymity reasons, was up to his old tricks this week with another article trashing SA in favour of offshore investing.
He is confident and outspoken in his view, which reminds me of the following quote, “it is not those who don’t know, but those who don’t know that they don’t know, who are the scary ones”. But rather than start a mud-slinging contest, which I am sure to lose, I would like to question one of his recommendations.
MH is critical of the regulations governing retirement funds (Reg 28) and more specifically the 30% limit placed on offshore investments. He fails to tell readers Reg 28 allows for a further 10% invested in Africa and the fact that the average Reg 28 fund has closer to 55% offshore, on a look through basis, when you include the rand hedge exposure by investing in the many large global companies who just happen to be listed on the JSE. There is a Reg 28 fund that claims to have 90% invested offshore, so much for the offshore cap, but this is not what I am questioning.
MH recommends clients retire from their pre-retirement funds governed by Reg 28 (RA’s, Preservation, Pension) and purchase a Living Annuity with the compulsory 2/3rds portion of their retirement funds to invest 100% offshore, this is allowed within a post-retirement Living Annuity.
He makes a convincing argument using hindsight to his benefit by comparing historic 10 year offshore vs. local returns to make his point. Of course, if you go back another 10 years the story was the exact opposite with SA the winner and I would argue the next 10 years could prove to be the same, but that is also not what I am questioning.
I am questioning the advice to purchase a living annuity for someone who is that pessimistic on SA that they may also be considering emigration. Important to understand that once you have retired and purchased a living annuity those funds are now stuck in SA for the rest of your life.
You can emigrate or simply live abroad and have the pension paid offshore, but you can never access the capital. Whereas pre-retirement funds can be accessed on withdrawal and the funds transferred offshore as a lumpsum. This is not a recommendation or a decision to be taken lightly considering the punitive tax implications of a withdrawal.
My advice for anyone considering emigration or who has any ideas of retiring in another country, should postpone their formal retirement date until they have made up their minds.
Mark Williams
Mcomm, CFP®, HdipTax
T. 021-205 1133
Email. service@mwwealth.co.za
