Do overly complex investment products hinder savings?

CIARAN RYAN: When you look at the savings habits of South Africans, a number of things jump out. First, South Africans are terrible savers in general. Second, Covid may have changed that with the national savings rate dropping from around 14% to 18% in the first quarter of 2021. That’s according to the Reserve Bank. The research also showed that one of the main reasons for the traditionally low savings rate in the country is that the products are seen by people as too complex.

Well, PPS Investments may have found some interesting solutions to these problems. Joining us is Anil Thakersee, Head of Marketing and Business Development at PPS Investments. Hi Anil, thanks for your time. Would you agree with the assessment that one of the reasons for the low savings rate in South Africa is that the products offered are considered too complex?

ANIL THAKERSEE: Hi Ciaran, I guess to some extent that’s true. I think for the investor, navigating the myriad of choices and options available to them can sometimes be difficult. However, I think it’s very important to get back to first principles, and the starting point should really be that saving for retirement is really about you. [being] in a phase of capital accumulation. Obviously, once you enter the workforce or start your own business, you have those three decades or maybe four decades where you’re really in a capital accumulation phase. So on one level it’s very simple, which is that even if you have income and you have a growing business, your goal is really to accumulate capital. Thus, when you reach retirement, you have amassed a nest egg from which you draw an income.

However, I have to agree that, certainly from a simplicity standpoint, we as an industry can certainly do more to make this journey a little easier. That’s why we think it’s essential to be able to get good financial advice when planning your retirement savings. This will help you navigate or perhaps avoid some of the pitfalls, but also help you find the most appropriate solution for what you’re trying to accomplish and the results you’re looking to achieve with your retirement savings.

So I guess a bit of both.

CIARAN RYAN: Okay, given the complexity of an individual trying to navigate something like this on their own, how does PPS Investments go about solving this problem?

ANIL THAKERSEE: Ciaran, as you know, PPS Investments and PPS Group are to some extent quite unique in that we offer what is called a profit sharing account. How it works, when you become a member of the PPS Group – and this is available to licensed professionals – you then qualify for what we call a Profit Sharing Account.

Now, where this is different from your typical business is that any profits that the PPS group produces are then reallocated to the members. So as you come to a later part of your life, then you can access that profit sharing account. This profit sharing account can then be used as an asset to supplement your retirement savings and provide you with the opportunity to earn additional income. So I would say that is definitely the biggest and probably the most profound difference or uniqueness that the PPS Group is able to offer its graduate professionals.

CIARAN RYAN: Agreed. South Africans have the opportunity to maximize their tax savings before the end of February this year. Tell us a bit about that.

ANIL THAKERSEE: Yes. We are certainly approaching the end of the tax year, which is February 28, 2022. If you think of your traditional retirement annuity, you can contribute monthly or you can contribute a lump sum at the end of each year of retirement. taxation. But this is of course subject to certain limits which have been set by Sars. In the current tax year, you can contribute up to 27.5% of your annual taxable income. Now this is subject to a maximum tax deduction limit of R350,000 per year. This tax deduction limit applies to the accumulated annual pension contributions. And this, whether you save in a retirement annuity, a pension fund or a provident fund.

This can be a pretty powerful opportunity – and we’ve calculated some numbers on this: topping up over a 15-year period and reinvesting those tax savings can significantly increase your savings, compared to a scenario where you only top up not.

Of course, another opportunity is the Tax-Free Investment Account, which gives you investment options with no tax on income or investment growth, and no withholding tax on dividends. So basically you can invest up to R36,000 per year until you reach a lifetime limit of R500,000. We certainly see them as significant opportunities that, if you are able to take advantage of consistently over a long period of time, you are able to significantly increase your retirement savings.

CIARAN RYAN: It’s a tax savings. Now looking at the wider universe of investments, mutual funds – is this something you offer and why would I have to go through PPS to access it rather than someone else?

ANIL THAKERSEE: Ciaran, we offer a range of mutual funds, and these mutual funds are specifically designed to meet client outcomes. They vary across the spectrum of risk and can give you a mix of exposure to different asset classes. So if you look at our multi-manager range, the typical multi-manager fund would give you a mix of local cash, local bonds, maybe a little local ownership, and of course equities. But, in addition to that, you can also access offshore assets, be it offshore stocks or offshore property.

So really, when you look at it, you basically go through a fund or a multi-manager fund… access [to] a fairly wide range of assets that not only offer the possibility of generating good long-term returns, but also of managing the risk and volatility of these. This has been our primary focus: how to provide a one-stop solution to a client that is able to not only offer the diversification to meet the client’s risk-return parameters, but also something that is a sustainable long-term solution for them. ?

CIARAN RYAN: I guess the same question applies to retirement annuities, which are available from many different providers. Why would I choose to invest with PPS Investments over someone else?

ANIL THAKERSEE: I would say the biggest benefit would obviously be the profit sharing account and the ability to essentially reap the benefits as a member of the Professional Provident Society. You can then access the profit allocation that comes out of the central group structure. This is clearly the big advantage. I believe we are part of a holistic financial services group, which means we are able to look at your entire financial planning process across all of your needs and across different financial products.

We have many value-added solutions and benefits. An additional benefit that you are able to obtain within the PPS group is what we call ‘family networks’ or ‘family ties’. In other words, what we’re able to do is link your investment, or look at the value of your investment as well as…your immediate family members, and assess that on a scale at several levels as if you came to see us with this consolidated amount. . This generates significant long-term savings.

For us, the focus was really on cost reduction.

Two essential elements contribute to the final return you get on your investment. One is obviously investment or market performance, but the other is cost management.

We have certainly been in favor of reducing costs and providing greater value to members. When it comes to family networks and various other enhancements that we have, we are certainly able to reduce the cost significantly.

CIARAN RYAN: We talk a lot about flexibility and transparency, especially when it comes to next-generation pensions. Simply explain to our listeners, what do we mean by this?

ANIL THAKERSEE: I think as an industry we’ve come a long way over the past few decades. If you were to go back and look at the previous generation of products, there was limited flexibility and transparency, whereas today you can, in a next generation retirement annuity, access an investment based on a mutual fund.

First, it gives you more flexibility to access a wider range of investment options. It’s also a lot more competitive from a price point of view, and of course you have a lot more transparency. If we went back to older generation products, we got maybe a statement once a year, and that was it. Today you can access your values ​​live [in real] daily time. You have the ability to switch between different placement options, which gives you flexibility. Thus, as your situation changes, or perhaps if you revise your strategy, you are able, in a much more agile and active way, to implement these changes and ensure that your portfolio is always designed. to suit your investment results as well as your risk. profile.

CIARAN RYAN: Anil Thakersee, head of marketing and business development at PPS Investments, we’ll leave it at that. Thank you very much for these ideas.

ANIL THAKERSEE: Thank you Ciran.

Presented by PPS Investments.

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