Generating Growth by Using Pension Funds

On Thursday, president Cyril Ramaphosa said that South Africa should look at funding finance development and infrastructure projects through the use of worker pensions. 

On Thursday 22ndAugust during a parliamentary Q&A session, Ramaphosa said that the Congress of South Trade Unions backed the proposal, Reuters reported. 

Ramaphosa said that the matter will still need to be discussed and in context of what can be done to use the resources within the country to stimulate growth in a purposeful manner. The development needs are huge and other places have used pension funds for developmental purposes and these pension funds have often seen a good return from infrastructure developments. 

In a Sunday Times interview, a top ANC official said money from public and private pension funds could be used to rescue state-owned enterprises. 

Head of the party’s economic transformation sub-committee, Enoch Godongwana, said the government should borrow the R6 trillion under the asset management industry. He went on to say that gathering funds this way is better than borrowing from the International Monetary Fund (IMF) for a bailout. 

He also said why raise money by going to the IMF and the World Bank when the economy already holds sufficient savings that could be borrowed cheaper and with little exchange rate risk. Also, apart from raising money through pension funds, the ANC is looking at prescribed assets. 

The January 2019 published election manifesto announced that the ANC planned to consider the introduction of prescribed assets on financial institutions to unlock resources for investments in economic and social development. 

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It Will Become Harder to Get a Loan with New Debt Relief Laws

The new debt relief laws could potentially harm South Africa’s international standing and could even result in a further credit downgrade according to Dawie Roodt, chief economist at Efficient Group. He also said that the new legislation will add to the ever growing national debt. 

He went on to say that South Africa is already on the verge of seeing expropriation of land without compensation and now the ANC is tinkering with the financial system. It could mean that debt to the tune of between R13 and R20 billion could be written off, which belongs to banks and other financial institutions. These loans are in effect property and therefore should be protected by article 25 of the constitution. The question is then what message is being sent to the rating agencies. 

Last week saw president Cyril Ramaphosa officially approving the National Credit Amendment Bill. The aim of such is to provide breathing room for some of the country’s hard pressed consumers, where applicants who meet the criteria can have their debt deferred in part or in full for up to 24 months. Not only this, the debt can even be expunged completely if the applicant’s financial circumstances do not improve.

So, what happens to loans and credit given the debt relief bill? Well, it could become a lot harder for people to get the loan they need. 

Banks will Tighten Up

Financial institutions that could lose billions if loans are written off will look at tightening their lending criteria to the point where the majority of these individuals will not be able to get a loan in the future, according to the CEO of Debt Rescue, Neil Roets.

The debt forgiveness programme is aimed at low wage earners and retrenched workers according to the Department of Trade and Industry and they are the very ones that potentially may not be able to secure credit when the policy is implemented. 

Director of the Banking Association of South Africa, Cas Coovadia agrees with this sentiment saying that the lending criteria of banks will be tightened as a response to the new act. The association has conducted an economic impact assessment, which engaged the Department of Trade and Industry and found that banks will have to price higher to cover risks or will avoid lending to low income customers altogether.

He said that this could then lead to serious economic implications, but other options can only be considered once more details and implementation details are released. 

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The New Driver Demerit System

Cyril Ramaphosa has signed in the Administrative Adjudication of Road Traffic Offence (Aarto) Bill into law and it is facing opposition. The way we drive in South Africa could fundamentally change due to this amendment act. 

With the new act comes changes.

  1. Firstly, if you fail to pay a traffic fine then it may result in a block on obtaining driving and vehicle licenses as well as an administration fee in addition to other penalties. 
  2. Documents that were once delivered by registered mail via the post office, can now be served by authorities electronically plus they can send reminders via SMS and WhatsApp. 
  3. There will be a new demerit system. This system works on points and depending on the severity of the offence, 1 to 6 points can be allocated. If you have more than 12 points, then it will result in a suspension of the driving license. If you receive three suspensions, then it will result in cancellation.
  4. With the new act, a new Appeals Tribunal will be created which will preside over issues that are raised in terms of the act. 

The demerit system is the biggest change and has the aim of making South Africa’s roads safer by being harder on violators. 

Points of 1 to 6 are allocated depending on the severity of the offence and if the infringer has more than 12 points then the driving license will be suspended and having three suspensions will mean that the license is cancelled. 

There has been support for the demerit system, but there has also been many organisations that have argued that the current lack of enforcement of current laws as well as the capacity of traffic authorities means that the new point system will likely be ineffective. 

The Automobile Association has said that the focus seems to be on revenue collection as the act also makes provision to make it easier for authorities to deliver fines as well as hold licenses to ransom due to unpaid fines. 

The constitutionally of the act will be challenged by Outa. They also believe that motorists will be forced into paying Gauteng e-toll fees by making it an offence to ignore road signs, which would then include e-toll fee signs that are next to the highway. 

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The New Debt Relief Bill has Been Signed into Law and this is What It Means

The controversial National Credit Amendment Bill otherwise known as the debt relief bill, has been signed into law by President Cyril Ramaphosa. The new act aims to provide relief to South Africans that are over-indebted who have no other way to remedy themselves of being over-indebted. 

With the act, certain applicants can have their debt suspended in part or in full for up to 24 months. If the financial circumstances of the applicant do not improve then the debt may then be erased altogether. 

The debt writes off criteria includes:

  1. Unsecured debt that is not more than R50 000
  2. Unsecured debt which was accumulated through unsecured credit facilities, unsecured credit agreements and unsecured short term credit only
  3. A person who earned no more than R7500 a month over the last 6 months. 

Not only that the bill will also hold new offences that are related to debt intervention. It will now become an offence for a person who deliberately submits false information related to debt intervention. Any person that alters their financial circumstances or persons that alter their joint financial circumstances deliberately in order to qualify for debt intervention will be found guilty of an offence. It isn’t clear yet though when the new bill will come in effect or whether it will be applied retrospectively. 

Concerns were previously raised by the banking industry after the bill proposed to write off billions worth of debt from every day South Africans. It has been made clear by the Banking Association of South Africa (Basa) that it does not support the principle of debt forgiveness. 

The banks would incur costs for writing off debt, but according to Basa, the most likely reaction from banks is that it would make lending conditions tighter, which would then make it even more difficult for the poor to secure credit.

How much this bill would cost South African lenders hasn’t been pinned down, but according to Peter Attard Montalto an Intellidex analyst, the bill could force losses in the region of R25 billion at local banks. He went on to say that the bill is a serious concern to the banking sector.

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Stuck in a Debt Cycle? Here is How You Can Get Out

When an unforeseen emergency crops up then borrowing money can help, but if you start to rely on debt for your day to day living then you are getting trapped in the debt cycle that will become harder to escape. 

The debt cycle starts when you take out a loan like a personal loan to pay for an unexpected expense. Your plan might be to pay it off before you take on any further credit, but life is full of surprises and another emergency may crop up or you may find that your living expenses have increased and you feel the need to apply for another loan. However, the weight of your increasing debt and the interest that is attached starts to put pressure on you. This may force you to get faster access to money and you may find yourself applying for a credit card or an overdraft facility. 

In the end, you have multiple instalments to pay off and you start to rely on credit to pay off your daily expenses. This is the cycle of debt and the further in you are the harder it is to get out of it, but it is possible. 

Here is how you can break the debt cycle. 

Get to Know Your Situation

The first thing you need to do so you can get out of a bad debt situation is to admit to yourself that there is one. When it comes to personal finance, consumers are often in denial and won’t acknowledge that things have got out of hand, but hiding from the situation won’t do you any favours. Acknowledge your debt, know where you stand and be open to your family about it. You can also get advice from a reputable professional. 

Say No to More Debt

When you can access credit, you can easily fall into the debt trap. It becomes easy to overspend on credit cards and using your overdraft facility when you run out of cash in the middle of the month. The best thing you can do is to close your overdraft accounts and leave your credit cards at home. You will become more aware of what you are spending and will be more careful with your money. 

Your Money Only Goes So Far

You can only pay for so many things with your income, so you need to learn to live within your means. If you want to buy something, first think about how the purchase will effect the rest of your finances and if you will have enough for the rest of the month, if not, then rather leave the purchase. 

You also need to make a conscious effort to save money so that you can avoid relying on credit if an emergency comes up. 

If your dreams are larger than your earnings, then you may want to find ways to boost your income. 

Have a Budget in a Place

Having a budget is important as it will show you what your income is, what you need to pay each month and what will be left once all your expenses are paid. This can help you to spend less, see where you can make cutbacks and see where you have cash available to pay off your debt or save. 

Put a Debt Strategy Together

When you are paying off your debt, you need to have a plan in place, pay your monthly repayments consistently and you should try and pay more than the minimum. 

If paying for your monthly living expenses is becoming increasingly difficult because of your debt repayments, then you need to seek help instead of borrowing more money. A debt counsellor can help to create a payment plan to provide you with relief. They can also help negotiate lower instalments and interest rates with your creditors. 

If you are struggling with debt and feel like you are trapped in the debt cycle, then don’t ignore it. Acknowledge the problem and face it head on and get help from a debt counsellor if you need it. 

How You the Taxpayer Will Be Paying Up for the NHI

On Thursday, the new National Health Insurance (NHI) Bill was tabled in parliament and sheds some light on the creation of the controversial new NHI Fund. 

It is explained in the memorandum that the reforms will be implemented in six phases. The Department of Health will release the details of such in a series of implementation plans. 

However, the burning question for taxpayers and medical aid members is if they will still be able to belong to a medical aid and if they can, will they have to pay medical aid contributions and a contribution to the NHI. 

In short, the answer would be yes, but the details of such have not yet been released. 

The NHI will be funded in the following ways:

  1. General tax revenue where funds from provincial health budgets are shifted to the NHI fund
  2. Medical scheme tax credit will be transferred to the NHI fund.
  3. Payroll tax
  4. A surcharge on personal income tax

At the moment, it’s unclear as to what this will actually cost taxpayers, but through a money bill, the minister of finance will introduce these taxes. 

According to the memorandum only in the final stage will these tax options be evaluated, so it would seem that it won’t be before 2022.

Also, it is thought that it will be a small payroll tax, but it’s unclear what this means. 

In the memorandum, there is a part that deals with the financial implications for the state and refers to various financing options, but it also refers to imposing further taxes at a later stage after an evaluation of the potential impact and it will take into account the economic and fiscal environment at the time.

What does seem to be certain is that taxpayers will no longer receive medical scheme tax credits. 

Even though things are still unclear at the moment, one thing that isn’t is that taxpayers will find the additional tax burden a hard pill to swallow. 

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Boost Your Savings with These Tips

As electricity and fuel prices being on the high side, our money is being stretched even further and trying to save money and build wealth seems harder than ever. However, when it comes to keeping your financial goals on track in tough economic times, you need to be smarter. 

Here are three simple tips to boost your savings. 

Get Rid of the Excess 

It’s usually harder to increase your income then it is to cut your spending. So, take a look at your budget and cut the excess by getting rid of any unnecessary expenses. You should shop around and compare monthly premiums for insurance and cell phone contracts as well as cancel any subscriptions that you are not using, cut down on nights out and takeaways and also look at ways you can maximise your savings through retail loyalty programmes. 

Once you have made room in your budget, use these funds for your savings. Set up a monthly debit order for your savings and investments that is realistic and is a comfortable amount that doesn’t place strain on your finances. Over time you should aim to increase this amount. 

The savings account that you use should earn interest, so that your savings grow over time.

Put Your Funds to Work

No matter what you are saving for whether it’s for your education, a home deposit or a rainy-day fund for unexpected emergencies, you should think about putting these short-term savings to work in a money market or a capital preservation fund. You can also put these fund in an interest bearing bank account like a call deposit. 

Compound interest is powerful and your initial capital and the interest earned on the capital will earn additional interest. This means that your savings will grow and generate more wealth. 

You will need to do your research, compare different financial products and choose one that will make the biggest impact on your savings. 

Invest Your Money

Tax efficient investment vehicles like tax free savings accounts or a retirement fund like a pension fund, provident fund or a retirement annuity are free of dividends withholding tax, capital gains tax and tax on interest. Also, with compound interest, the benefit of these tax savings over time could really make a difference to your long-term investment outcomes.

Your annual tax burden can be reduced with contributions to a retirement fund because you can have tax deductions of up to 27.5% of your salary to a maximum of R350 000 per year.

However, after you retire the income that you withdraw from these funds can be taxed. 

With a tax free savings account, you are allowed to invest up to a maximum of R33 000 each year and up to R500 000 over its lifetime. Contributions are not tax deductible and you will not be taxed when you withdraw from the fund. 

Using your savings, the smart way can boost your savings over time and the process is simpler then you may think so start making your money work for you. 

Next Year Expect a Large Increase in Medical Aid Prices

A recommended price increase of 5.4% for medical aid members has been put forward by the Council of Medical Scheme (CMS) for 2020. 

Jill Larkan, head of Healthcare Consulting at wealth and advisory business GTC said that whilst medical aid schemes have been cautioned not to go above the proposed increase, South Africans should expect to pay more. Medical aids generally go above these guidelines by 3.4% on average. 

A good part of this increase is mainly due to the differences seen in how medical aid is used, according to CMS data, which shows usage patterns of members of different providers annually. On average, members should expect an increase of 8.8% on their premiums next year. In 2020, both companies and individuals will need to consider their plan types. 

Employers as well as individuals that do not form part of an employer group start their annual assessments in terms of the schemes and plans offered. 

In 2020, salary increase percentages are unlikely to match an 8.8% increase in medical aid premiums. Employers should then assess the best value for money options available to employees who are most likely under increasing financial pressure. 

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Got an SMS from SARS? You Don’t Need to Submit a Tax Return

Did you get an SMS from SARS? If you received a simulated tax calculation from SARS, you could get to skip submitting a tax return. 

The revenue collector has said that it has access to many sources of information about taxpayers, which includes information that is already on the SARS system. 

This means that SARS can make a tax calculation and arrive at an outcome without you having to do anything. The outcome will show if you would receive a refund or if you would owe SARS money if you were to file a tax return. 

The reason that you are getting a tax calculation this year is because last year you filed a tax return when you were not required to do so.  The tax calculation was introduced as a way to assist taxpayers so that they can avoid unnecessary visits to branches during tax season. 

According to SARS, if your financial circumstances haven’t changed since February 2018 then you will not be required to file a return. If your circumstances have changed then you may file a return still, however, it is a good idea to use the eFiling system or the SARS MobiApp to avoid the queues. 

No Refunds Under R100

Also, SARS went on to say that they are only allowed to refund an amount, which is more than R100 according to the terms of the current tax legislation. It’s not cost effective to collect or refund an amount that is below R100 as usually a cost is involved when doing this. However, the tax debt doesn’t just vanish, but rather it remains due by or to the taxpayer and is carried forward and will be added to a future a tax refund of more than R100 or is offset on future tax debt. 

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