Times are tough. We hear it from our clients, and just a glance over the economic pages of any publication shows how many South Africans are battling to make ends meet. Neesa Moodley from Daily Maverick reported on 7 October 2023 that 4,3 million risk policies lapsed in the first six months of last year. People couldn’t keep up their life insurance and funeral policies.
But however hard life is, as a young actuary it was drilled into me how important it is to save for future financial burdens. Of course, we also learnt the sums to prove this – the earlier you start saving, the less hard your money must work later. The later you leave saving for something, the more money you must throw at the same dream. It’s the interest you earn on your interest that makes the difference – the pebble in the water causes the ripple effect of growth.
Many people hope that some miracle will happen to ensure a comfortable retirement. In the financial services industry, we often share in the joy of people who started making provision early enough. But we also lament with those who waited too long. They then often want to take wild risks with the limited money they have to make it grow faster. In my experience, you need time on your side, not some lucky windfall.
But with retirement savings, there is a big brother who will help you save and kick-start your investment. He is called the South African Revenue Service. Yes, the same guy who we always blame for taking our hard-earned money, gives us back something when we look after ourselves. Because the government is so keen for people to save for their own retirement, you get huge tax breaks for investing in retirement products.
These tax breaks equal the tax rate you usually pay. If you earn R30 000 per month, you pay income tax of 26%, and this is the tax break you’ll get, too. It means you get R260 back for every R1 000 you invest. Now that is an unbeatable deal – Black Friday will battle to offer you a discount of more than 25%.
People will get this break for monthly contributions to a retirement annuity. They can also top up their retirement money any time during the tax year to get the same percentage discount. That is why financial advisers are so eager to help their clients to invest more before 29 February 2024, the last day of the current tax year. And the next tax year, the same breaks wait.
The new two-pot retirement system the government will implement will also make several retirement products much more flexible. Investors who have an emergency will have access to some money every year, once a year, at any time during the tax year before they turn 55.
You may have buyer’s remorse if you have spent too much money on shoes or a bottle of perfume, but will you ever regret investing too much money for your retirement? I doubt it. It’s time we start bragging about our retirement products just as we hope the neighbours will notice our new car.
And why wouldn’t you invest if SARS is picking up part of the bill? It’s time to get something back.