Tax relief when submitting yearly returns

Q: I am a 54-year-old male member of the Transnet Pension Fund. I recently responded positively to my employer’s advice for increasing monthly premiums. I have realised that Sars does not consider pension fund contributions for tax relief when submitting yearly returns. I am therefore thinking of reversing my decision, rather increase my Retirement Annuity, which I have with a financial institution, for tax returns purposes.

Please advise if it is a right decision.

A: As of March 1 last year, irrespective of whether you have a pension, provident or retirement annuity (RA), you will qualify for a tax deduction of up to 27.5% of your taxable income (subject to a maximum of R350 000 per year). This limit applies to the total contributions you make to all retirement funds in the tax year.

Prior to March 1 2016, members could get a deduction of up to 7.5% on their own contributions, and no deduction on their employer contribution. Post 1 March 2016, you will now pay fringe benefit tax on the employer contribution, but at the same time get a deduction on both your own and your employer’s contribution by way of a reduction in taxable income, subject to the limits referred to above. This will leave you in the same position as before March 1 2016, as long as your contribution is below the limits mentioned above. By increasing your contribution to the employer pension fund, you get the benefit of the effective tax deduction monthly and you won’t have to wait until you file your tax return (as is the case if you contribute to your own RA).

I would advise you to speak to someone in your HR/payroll department as you should be receiving the full tax deduction for the total contributions if they are below the limits mentioned above. Any contributions in excess of these limits will be carried into the next tax year.

The best deal on your personal cheque account

The latest report by the Solidarity Research Institute shows that increased competition among the nation’s banks appears to be driving fees down. But increased financial pressure on consumers means charges, albeit lower, can still be a significant burden.

So, how do you get the best possible deal on your personal cheque account?

Negotiate your bank charges

There is no law or code regulating the negotiation of bank charges. But Advocate Clive Pillay, the Ombudsman for Banking Services, says the charges levied on ordinary cheque accounts can be fully negotiated.

“In the case of a ‘big account’ with much activity and a reasonable balance, a bank would be more likely to negotiate a reduced rate, to retain the customer, than it would in the case of ‘a small account’, with little activity, such as a salary deposit each month and a number of withdrawals during the course of the month with a very low balance,” he told Moneyweb.

However, it is important to note that the bank can refuse to negotiate lower rates by “exercising their commercial discretion,” says Pillay. In which cases, customers can do little but switch banks, provided the new bank offers lower rates.

If that fails, there are other relatively simple ways to save money on bank charges.

Make sure your account suits your needs

Some banks offer two types of basic cheque accounts: bundles and pay-as you-transact accounts. Depending on the amount of activity on your account, one option may prove more cost-effective than the other.

Bundles, offered by the big four banks, comprise fixed monthly fees for a package of transactions including finite cash deposits and withdrawals, and oftentimes unlimited electronic transactions and notifications. Any transactions which breach the bundle limits are typically charged on as pay-as-you-transact (PAYT) basis.

The PAYT charges – offered by Absa and Standard Bank – include a minimum monthly service and additional fees per transaction. Capitec’s sole account option, the Global One Account is a PAYT account.

Savings rate critical to economic growth

As savings month comes to an end, government, business and individuals need to take a critical look at what is being done to turn the savings crisis around. The Investec GIBS Savings Index figure for 2017 Q1 reveals a score of 60.7 (where a score of 100 represents a pass mark), suggesting that little progress since the index was launched at the start of 2016.

Drawing on international research and evidence, the index assesses SA’s savings performance based on the extent of SA’s stock of savings, the savings rate and changes in environmental factors that influence the propensity of SA’s government, corporates and individuals to save.

“Evidence from across countries, at all stages of development, and through time identify a high saving rate as a critical driver of sustained, elevated and inclusive economic growth,” says Dr Adrian Saville, professor in Economics, Finance & Strategy at GIBS and founder and CE of Cannon Asset Managers.

“Sadly, despite the ambitious promises of elevated growth made by South Africa’s policy makers, this has not come to bear in recent times. Rather, the country has been caught in a low growth trap. Whilst the temptation is to point to a range of explanatory factors, the cause of low growth is the same in South Africa as elsewhere – and absence of saving to fund the investment required that supports economic growth and industrial transformation.”

The poor savings behaviour and performance by the SA economy from 1990 to present is broad-based and entrenched. The index reveals that the stock pillar has moved in a very narrow range over 27 years. This suggests that the country’s stock of savings needs to expand permanently by about one third.

The stock pillar and the flow pillar are consequences of SA’s savings behaviour, while the environmental pillar is where the search for factors and forces responsible for the inadequate savings result should begin. By identifying the most depressed components within this pillar, it’s evident where SA policy and effort should be focused in order to have the greatest impact.

With SA’s domestic economy having gone into recession in the first half of 2017, the growth rate will likely continue to lag the global figure by a wide margin in 2017. Unfortunately, this low growth will remain a headwind to job creation, further exacerbating an already elevated unemployment rate of 27.7%. Further casualties of a low growth environment include business confidence and profitability, which are important drivers of investment spending.

René Grobler, head of Investec Cash Investments says: “The insights derived from the index point to an enduring trend of spending rather than saving and both the macroeconomic as well as individual consequences of this merit serious attention in policy action and microeconomic initiatives.

“Our economic growth is at stake so the time has truly come for Savings Month to shift to a yearlong commitment by all stakeholders to play their part. For the consumer, it’s about looking for tangible, sustainable ways to reduce consumption to bolster savings and for government and business, it’s about putting in place mechanisms to assist this process. As is evident from the research one of the key focus areas of all stakeholders should be broad-based financial literacy education.”

Tips for financial independence

Just start. We often put things off that we’re a little afraid or intimidated by, which means we lose out on the learning you get when you just jump in. Start with small changes, but start. Whether that means investing just R50 a month, or finding one thing to cut out of your monthly expenses. Small changes become big changes over time.

Don’t starve yourself. Like with dieting, financial health means creating a lifestyle that trims down the excess but allows for a few treats here and there. You are way more likely to stick to your plan and meet your goals if you aren’t too hard on yourself. Have that little spoil every now and then. All in moderation.

You don’t know what you don’t know. Don’t bury your head in the sand. Understand where your money goes every month. Own it. Read up and make an effort to understand the stuff you don’t get. Ask – you’d be surprised how many people are happy to share their skills and knowledge with you. Plus there are so many resources available online now, get it girl!

Firstly, understand the following five concepts: interest, inflation, compounding, assets and index-tracking products. Google, ask a friend, learn in whatever way is comfortable. Understanding these concepts will empower you to make logical financial decisions.

Keep lifestyle expenses as low as possible. Cut what is unnecessary to create space in your budget and save the difference. It’s the single most important financial decision you’ll ever make.

Have enough savings to cover expenses for three months. If you are a parent, include the monthly expenses for your kids in this calculation. Emergencies are always costly and much more traumatic if you don’t have a financial buffer in place to get you through it.

Once your emergency fund is in place, start investing. Cash savings won’t preserve the spending power of your money. If you’re under the impression that investing is hard, I’m happy to tell you you’re wrong. Anybody can do it and everybody should.

What contributes to it and how to manage it

It’s not even halfway through the year and your medical savings have run out, leaving you in the dreaded self-payment gap (SPG). Sound familiar?

It’s something that happens to many medical aid members, but about which many are in the dark.

“Of those members, two thirds reach their annual threshold and receive extended cover for day-to-day healthcare expenses.

What is it?

The SPG is an amount assigned to members, that they must pay in full for day-to-day expenses, once their medical savings have run out. These claims are submitted to the scheme, not for refunding, but to reduce and close the gap – after which the above-threshold benefit takes effect and the scheme again pays for day-to-day claims.

It’s applicable to schemes/plans with an above-threshold benefit (limited or unlimited) – usually top-end plans.

SPGs are mechanisms “which the scheme can use to transfer some of the ‘out of hospital expenses’ risk from the scheme to the member,” adds Jill Larkan, GTC healthcare consulting head. This allows schemes to reduce premiums and make [the plan] appear more attractive.

That the SPG’s not fixed may be a surprise.

What adds to the gap?

Some claims made from savings, may add to the SPG.

Some reasons why Discovery’s SPG increases:

  • Medical savings accounts smaller than the annual threshold;
  • Members claim for over-the-counter (OTC) medicine – including schedule 0, 1 and 2 – from savings;
  • Claims submitted from the previous year and paid from savings;
  • Claims paid over a plan’s annual benefit limits;
  • Special payment applied for from savings;
  • Procedures and medicine that don’t count toward closing the SPG paid for, e.g. certain alternative treatments such as reflexology and acupuncture.

Tips for closing the gap

SPGs are only reduced by claims members pay for that are at medical aid rates, among other things, writes Ross.

For example, if you pay a GP who charges R500 – and submit the claim to the medical scheme to reduce your SPG – if the medical aid rate for a GP consultation is R320, your SPG will only reduce by R320.

As such:

  • Evaluate your medical aid plan: what you’re covered for, at what rates, with which providers and if a specific hospital or pharmacy network much be used, says Kotze. Members really wanting to avoid any SPG, must consider a comprehensive top plan, which can be costly, adds Pascale Bargehr, Total Risk business development officer.
  • Ross concurs. Ensure you really need a plan with an above-threshold benefit. If you’ve been on a plan for two years or more and have never closed your SPG, you’re likely a little over-insured. A financial advisor can assess your needs and place you on an appropriate plan.
  • Look for schemes offering benefits paid from risk. These benefits offer more value for money and are in addition to savings and day-to-day benefits.
  • When entering an SPG, ask your scheme what counts towards closing the gap. Then manage your spending efficiently to maximise benefits, writes ThinkMoney here.
  • Always use a partner network hospital, doctor or pharmacy: you won’t be charged over the rate agreed on with the scheme. This helps avoid copayments, deductibles and additional out-of-pocket expenses, says Gerhard van Emmenis, Bonitas Medical Fund acting principal officer.
  • While using your medical savings, and when in your SPG, use service providers (GPs, dentists, etc) who charge medical aid rates. Then your SPG will be at the same amount originally indicated on the benefit schedule, says David Narun of Informed Healthcare Solutions.
  • “If [hospital] procedures attract a copayment, negotiate with the provider on alternative/more conservative treatment protocols where possible, explains Ann Streak, Alexander Forbes Health senior consultant.