Tuesday, 10 February 2015 - 20:00
Seed Weekly - Endowment Policies?
Using endowment policies as an investment vehicle is usually one of my most difficult “sells” as a Wealth Manager. The moment a client hears the word “endowment”, the hairs on the back of his neck tend to rise and the fight or flight syndrome kicks in. Unfortunately, this reaction is not totally unjustified. Endowment policies have a legacy of high total costs (especially in terms of commission), vague returns and conditions, and front end loading of costs. Quite often in the “good old days” of twenty year endowment policies, the first year of premiums disappeared in costs.
Given all of the above, and the fact that I don’t charge initial fees or use any investment products that charge initial investment fees, why on earth would I be suggesting that clients use endowments? The fact is that things have changed. We now have “endowment wrappers” with no upfront costs and transparent costs and returns. They are mainly housed on the various unit trust platforms. When the investment holder is a Trust and the investment objective is long term growth, the use of an Endowment becomes a “no brainer”.
Endowments are often marketed as tax free investments by unscrupulous or ill-informed advisors, this is incorrect. They are, however, often tax efficient vehicles especially when the investor is a Trust.
Below is a comparison of the current tax treatment of endowments and discretionary investments in a trust, which clearly shows the tax advantages of an endowment:
Below is an illustration in the differences in tax paid by a Trust on a R 25m discretionary investment on the one hand, and through an endowment wrapper on the other. In this case the platform charged no extra fee for housing the investment in the endowment wrapper. Returns are assumed at 10% pa (6% capital + 2% income + 2% net dividend).
As can be seen, the discretionary investment has a much higher tax burden, which results in a much lower after tax return. In this instance the discretionary investor’s net investment after 5 years would be just over R 37m (8.2% pa), while the endowment’s net investment after 5 years would be just over R 39m (9.3% pa).
There are restrictions when using the endowment in that you are only allowed one withdrawal in the first five years and that withdrawal is restricted to the contributions plus 5% per annum growth (some companies also allow an interest free loan). But endowments have the added advantage that the taxes are paid by the wrapper so income does not need to be included in the Trust’s tax return. This means that nasty income tax surprises are avoided.
So when your wealth manager wants to use an endowment wrapper to house your investments hear him out. If, however, returns are opaque and costs are difficult to explain and understand think carefully.
021 914 4966
Tue, 10 Feb 2015
Revenue for the interim period shot up to R262.5 million (2013: R190.9 million). Gross profit jumped to R117.1 million (2013: R80.5 million), profit from operations grew to R37.9 million (2013: R20.5. . .
Revenue for the interim came in at R8.1 billion (2013: R8.1 billion). Gross profit plummeted to a loss of R143 million (2013: profit of R537 million), operating loss came in. . .
Net sales revenue grew to R55.6 billion (R52.4 billion). Operating profit was lower at R843 million (R2 biillion). Profit attributable to owners was at R624 million (loss of R1.4 billion). In. . .
World Markets (Spot Prices)
|JSE Top 40||17:00||45916.40||41.07||0.09%|
|JSE Indust 25||17:00||64868.57||298.37||0.46%|
|Rand / Dollar||19:59||11.6948||0.1188||1.03%|
|Rand / Pound||19:55||17.8143||0.2210||1.26%|
|Rand / Euro||19:55||13.2358||0.1143||0.87%|
|Rand / NZD||19:57||8.6690||8.6690||0.00%|
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|Yen / Dollar||19:59||119.3600||0.7580||0.64%|
|Euro / Dollar||19:55||0.8832||0.0005||0.06%|
|Dollar / Euro||19:59||1.1312||-0.0012||-0.11%|
|Pound / Dollar||19:55||0.6551||-0.0019||-0.29%|
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The JSE Today
* Includes all listed instruments on the JSE
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||69,471.08||351.85||0.51%|
|Oil & Gas ||34,752.44||-744.05||-2.10%|
|Oil & Gas Producers ||18,685.74||-400.07||-2.10%|
|Basic Materials ||24,395.65||-224.06||-0.91%|
|Forestry & Paper ||37,859.40||741.29||2.00%|
|Industrial Metals ||13,194.99||-386.88||-2.85%|
|General Industrials ||165.74||-1.11||-0.67%|
|Consumer Goods ||64,378.24||954.61||1.51%|
|Automobiles & Parts ||7,133.04||-67.94||-0.94%|
|Health Care ||10,965.07||-90.22||-0.82%|
|Index Name||RP||Move||% Move|
|Food Producers ||9,430.95||-153.25||-1.60%|
|Personal Goods ||1,015.24||11.58||1.15%|
|Consumer Services ||15,497.23||29.01||0.19%|
|General Retailers ||80,819.09||-747.99||-0.92%|
|Travel & Leisure ||6,729.04||131.56||1.99%|
|Support Services ||2,838.82||51.45||1.85%|
|Non-life Insurance ||62,529.41||5196.32||9.06%|
|Life Insurance ||41,083.08||763.95||1.89%|
|General Financial ||3,930.49||-28.78||-0.73%|
|SHARIAH TOP40 ||3,588.05||-46||-1.28%|
|FTSE/JSE SHARIAH ALL||3,880.75||-44||-1.13%|
|FTSE JSE Fledgling ||6,871.29||3||0.04%|
|FTSE/JSE Alt X ||1,500.94||6||0.39%|
|SA LISTED PROPERTY ||635.19||-0.41%|
|CAPPED PROPERTY ||550.53||0.03%|
|FTSE/JSE RAFI 40||9,939.14||-25||-0.25%|
|Capped Top 40||24,516.14||14||0.06%|
|Capped All Share||26,430.91||2||0.01%|
|JSE TABACO ||8,355.31||254||3.14%|
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Latest Consensus Changes**
|AQP||AQUARIUS PLATINUM LTD||BUY||06/02/2015|
|ATL||ATLATSA RESOURCES CORP||HOLD||06/02/2015|
|IMP||IMPALA PLATINUM HOLDINGS ...||HOLD||06/02/2015|
|RBP||ROYAL BAFOKENG PLATINUM L...||BUY||06/02/2015|
|Expected||Company Name||Fin. Date|
|11/02/2015||ABSABANK-P||December 2014 (Final)|
|11/02/2015||ASSORE||December 2014 (Interim)|
|11/02/2015||B-AFRICA||December 2014 (Final)|
|11/02/2015||GROUP 5||December 2014 (Interim)|
|11/02/2015||NEPI||December 2014 (Final)|
|TRADEHOLD PREF||06/02/15||20/02/15||02/03/15||ZAR 0.0452|
|DELTA INT||05/02/15||20/02/15||02/03/15||USD 0.0663|
|SHPRT 3RD5||05/02/15||20/02/15||02/03/15||ZAR 0.0500||
|ECSP C||23/01/15||06/02/15||16/02/15||ZAR 1.0164|
|ECSP A||23/01/15||06/02/15||16/02/15||ZAR 0.7671|
|NWL||Nu-World Holdings Ltd.||11/02/2015||Confirmed|
|NWN||Nu-World Holdings Ltd.||11/02/2015||Confirmed|
|EOH||EOH Holdings Ltd.||11/02/2015||Confirmed|
|OCE||Oceana Group Ltd.||12/02/2015||Confirmed||
Stock Exchange News Service
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