GQ South Africa — May 2017

Words byBruce Cameron

Theentiresavingsindustry,exceptbanks,

getsawaywiththepercentageracket–you

payalotmorethemoreyousave

FINANCE

56 GQ.CO.ZA MAY 2017

M

ostlifeassuranceinvestment

(endowment) policies are sold

withaconditionthatifyou

donotkeeppayingforacontracted

number of years you will be penalised.

hepenaltyisdeductedfromthe

amountyouhavesaved–untilrecently

thiscouldbe100percentofwhatyou

had saved. Now, by regulation, there is

a tiered structure that reduces the

percentage of the penalty every year.

When you are sold the policy there is

much obfuscation about this and other

things. For example, you will be told by

thecompanyagent(operatingunder

the guise of your adviser) that when you

receive the beneits (your investment

plusanyreturns)whenthepolicy

maturesitwillbetaxfreeinyourhands.

heproblemisthatthebeneitsare

onlytaxfreeinyourhandsbecausethe

lifecompanyhaspaidaheckofalotof

taxonyourbehalf–morethanmost

peoplewillpayonaunittrust

investment, for example.

helifecompanypaystaxonany

interest earned on your savings at

arateof30percenteveryyearand

onanycapitalgainsrealisedeachyear.

Veryfewincomeearningpeoplepay

anaveragerateoftaxgreaterthan30

percent.Yourannualtaxexemption

oninterestdoesnotapply,nordoesthe

capitalgainsexclusion.Butthisisnot

pointed out to you.

Neitherareyouwarnedthatevenif

your investment performs badly, you

willnotbeabletocancelthecontract

withoutapenalty,orthatifyoulose

your job and cannot

afordtocontinue

saving you will be

penalised. It’s like

beingkickedin

theribswhen

you’re down.

he amount of

a‘savingspolicy’is

apercentageofhow

much you save

multiplied by how

many years you are

contracted to save;

andatleasthalfthe

commission is paid

upfrontwiththe

balancepaidover

afairlyshortperiod.

You would be far

better of investing

inaunittrust,

even though the

commissionisalso

basedonapercentage

of your savings.he

diference, however,

is that the commission

is only paid as-and-

when you save. You

canstopsaving

anytime you wish

withoutpayingany

penalty, and you can

negotiate the amount

you pay.

A principle called

conduit tax applies to

unit trusts: every year

youpaythetaxontheinterestatyour

taxratewiththeexemptionsapplying.

Capitalgainstaxisonlypaidwhenyou

cash in your savings and the exclusion

alsoapplies.hisisafarbetterdeal.

However, the entire savings industry,

exceptbanks,getsawaywiththe

percentage racket. It costs no more

ifyousaveR500amonthorR10000

amonthbutyoupayalotmorethe

more you save.

hispercentagetrickisalsousedin

otherways.Veryfewpeopleareaware

that most insurance companies do not

automaticallyreducevalueseveryyear,

particularly of motor vehicles. hey

continue to levy premiums at the

same or even increasing levels. Come

toaclaim,andunlessyouhave

insuredyourpossessionsfor

replacement value, you will receive

themarketvalue–thepriceatwhich

youcouldexpecttoselltheitem.

here is no incentive for the

company or its commission-earning

agents to reduce the values and

therefore your premiums because

thegreaterthevalue,thegreaterthe

rands you pay.

hesamethingappliesinrisklife

assurance. he greater the premium,

thegreaterthecommissionearned.

Soyoumaybesoldapolicywhichhas

adoublepayoutifyou

dieinanaccident

rather than by natural

causes.Ifthenatural

causeofdeathbeneit

is good enough you

don’t need the double

indemnity – it simply

costs more.

here are yet more

nastytricksoutthere.

Forexample,your

so-called ‘independent

adviser’ may avoid

telling you that

acertaininancial

services company

mayhaveasizeable

investment in his or

her company that

obligesyour‘adviser’

tosellatargetedvalue

of that company’s

products to clients.

Oneoftheeasiestways

for the adviser

tomeetthetargetis

toswitchyouoverto

the new company. It’s

imperative that you

do your own research

to ensure you’re not

being duped.

TRICKS

THE

SAVINGS

INDUSTRY

PLAYS

ON YOU

Look out for these rackets

when investing your money

ILLUSTRATION BY LEANNE BOTHA