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WHAT TO DO WITH YOUR LIFE SAVINGS, RETIREMENT AND INSURANCE POLICIES WHEN EMIGRATING

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Insurance

By Renier Hugo, Alexander Forbes Certified Financial Planner

 

With South Africans increasingly opting to live abroad, a hot topic is the issue of what to do with your life savings, retirement, and insurance policies when emigrating.

New legislation, coming into effect in March 2020, means that South African tax residents living and working abroad will be required to consider whether they should emigrate from South Africa in order to avoid having to potentially account for tax in two countries.

A new term known as “financial emigration” has crept into people’s vocabulary. This is no different from the term “emigration” and the rules which attach when a person takes the steps to emigrate.  One needs to understand the consequences of emigrating to another country on one’s financial products, such as long-term insurance policies, investments and pre-retirement money.

 

Insurance

Renier Hugo

Life cover – You have the option of cancelling your life cover. Depending on the policy of the particular insurer, you might have the right to continue with the cover depending on whether the risk has changed for the insurer. You should take advice on this aspect. If you can it might be worthwhile to keep the current cover especially if you were underwritten when much younger or healthier. Your premiums will still have to be paid from a South African bank account.  Some South African insurers currently sell life insurance that pays out in dollar or pounds; or life policies that pay out in any country abroad. These products may well be worth looking into before emigrating.

 

Disability and Income Protection – Care must be taken here. Assuming the policy can be continued, there may be certain exclusions within the terms and conditions when moving abroad.

 

Retirement Annuities  The usual restrictions of not being allowed to withdraw before age 55, as well as the one third maximum cash lump sum withdrawal, with the rest to buy a pension, does not apply. When officially emigrating, a member of an RA may withdraw the full capital amount.

 

Preservation Funds –  The same applies to members of pension and provident preservation funds – a full withdrawal is allowed upon emigration.

 

Employer pension or provident funds – there is no restriction on withdrawal out of an employer pension or provident fund if a person decides to emigrate before normal retirement age.

 

Unit trusts and shares – regardless of whether you make the financial decision to sell these, there will be a tax consequence on emigrationso it is important to take advice.

 

Living Annuities –  With regards to living annuities, you are unable to withdraw the capital even if you have formally emigrated. The income will continue to be paid out into a South African bank account, and from there the annuitant can choose to transfer it offshore.

Before making the big move abroad it is always wise to consult your financial adviser, as well as a South African emigration specialist who can analyse and give advice on your unique and personal circumstances. One should also obtain tax advice to understand the tax treatment of financial products following emigration.

 

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HIDDEN COSTS WHEN INVESTING… AND HOW NOT TO GET HIT

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By Annie Charalambous, Head of Communications at ETX Capital

 

According to recent figures, Brits plan to increase their investments by almost a fifth in the wake of the COVID-19 pandemic – with Gen-Z traders most keen to jump on the markets.

But are those looking to boost their profits paying over the odds without realising? A recent study claims UK investors often pay up to six times more in fees than advertised, costing some traders up to tens of thousands of pounds long-term.

ETX Capital is committed to shining a light on common hidden fees that can trip up new traders. Here’s how you can avoid feeling the pinch.

 

Taxing times

New traders are often unaware that profits made on their stocks and shares are subject to tax, in the same way they pay tax on salary earnings.

If your investment earnings are over £12,300 in a single year, you will have to pay Capital Gains Tax. This will either be 10 or 20 percent, depending on your annual income tax band.

However, married couples can ‘pool’ their tax-free allowance – meaning they can collectively earn up to £24,600 in trading profits each year without contributing Capital Gains Tax.

Some alternative savings vehicles also offer a larger tax-free allowance. For example, you can stash up to £20,000 each year in an ISA and earn interest on your cash.

For those looking to diversify their portfolio, many gold and silver coins are also exempt from Capital Gains Tax as they are technically legal British currency.

 

Commission costs

As with any commercial service, fund managers and platform providers that help traders set up and manage their investments will charge fees for their service.

However, the size of these costs can catch out unsuspecting investors. According to research, commission costs average 1.03 percent in the UK – around double the equivalent fees in the US.

While these costs are unavoidable for those who need support managing their investment funds, it is possible to reduce them. Research investment platforms and fund managers to ensure you find the most cost-effective commissions for your assets.

Alternatively, you may be able to avoid commission if you have the knowledge of the markets and are comfortable with the risk. If so, there are plenty of accessible platforms that will educate you on how to manage your stocks, forex, commodities and more. Although, keep in mind that you’ll likely have to pay fees to trade on these platforms.

 

Not that Stamp Duty

All stocks bought in the UK valued at £1,000 and over are subject to Stamp Duty Reserve Tax (SDRT). At 0.5 percent of the asset price, this can soon add up.

This tax is usually absorbed as part of a total fee charged by a fund manager. However, if you manage your own investments, you’ll need to submit details of your assets to the government in good time to skip late payment fines.

While SDRT marks a relatively small fee compared to the rewards on offer for successful investors, many may still wish to diversify their portfolios to avoid mounting tax bills. A common example is adding corporate bonds, which are exempt from SDRT.

 

Farewell feels

Many budding investors starting their trading journey simply aren’t thinking about what happens when you withdraw funds or transfer them to another platform. And for some, this means getting hit with unexpected ‘exit fees’.

These charges are typically written into the terms and conditions of an investment service and while many platforms and brokers have recently agreed to waive exit fees, there are still plenty leaving traders with a shock when the time comes to withdraw cash.

Exit fees are usually charged as a percentage fee of the withdrawn sum, which can represent a significant cost for longer-term investors.

It’s important to check for exit fees, which may also be referred to as ‘redemption fees’, before signing up for a platform or partnering with a fund manager. And those looking to escape these charges should look for providers that simply don’t apply them in the first place – or at least check the expiry date.

 

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INSURANCE TRENDS 2022

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INSURANCE TRENDS 2022
  1. The Insurance market will continue to grow in maturity based on the richness of solutions by InsurTech

In 2022, we’re going to see a true acceleration in the modernisation of the insurance industry. We’ve already started to see this change this year, but it will continue to grow at a rapid pace because of the amount of competition in the market. Competitors are now able to provide direct value propositions to clients that are much more convenient.

It will be key to modernise full technology stacks to get the value from IoT, data and the cloud. As a result, the rise of InsurTech is going to become the norm, with SaaS based solutions based on APIs put in place to deliver personalisation on a grand scale.

 

  1. The Insurance industry will become cloud native

Many companies are already using cloud as part of their growing infrastructure and this will be even more apparent in 2022.

Many of the newer technology solutions in the market are cloud native and as a result the insurance sector is starting to understand the true value of the cloud. Whether that’s based on accessing the wealth of third-party solutions available, improved efficiencies or cost savings , this trend will not slowdown and we’ll continue to see insurance companies look at solutions to help accelerate cloud migration.

 

  1. In 2022, the insurance industry will start using data managements at scale

Once insurance businesses move their IT infrastructure to the cloud, they will see huge gains from using data platforms.

While there are still many constraints in the sector around data management due to various regulations, the need to have proper solutions to cope with GDPR, cybersecurity and more has never been more vital.

We won’t see an explosion of new technologies, but instead insurance companies deploying current technology at scale and leveraging it to fulfil its true potential.

 

  1. The Insurance industry will continue to connect and work together with other industries

There is a huge role for insurance to play in several different industries and this will continue to increase in 2022.

For example, the automotive industry. Many modern cars have various IoT sensors which collect data on how a car travels. The telematics of the data is embedded in the car, which means data can then be sent back to relevant organisations, such as an insurance company, if an accident was to occur. This technology will only continue to get more sophisticated. AI also has a role to play and this will be driven by insurance as well.

There is also a huge opportunity in the healthcare industry and how the ecosystem of services and devices available can help individuals live a healthy life. As more products enter the market, such as Fit Bits and the Apple Watch, having the right solutions to process the data, store data and ensure its compliant will be key. It will continue to be an explosive market for insurance.

 

  1. The insurance sector will move towards being part of a wider ecosystem which will be API driven and open

With new platforms being created every day all over the world, we are already starting to see the development of micro insurance products that are built in a way that can be plugged into different marketplaces. This is driving product simplicity as well as ensuring focused customer engagement and services.

To take this to the next level, next year we will see the insurance sector take a larger role in this wider technology ecosystem. The focus for insurers will be on getting value from the technology. This requires a better use of APIs and creating partnerships with open architecture.

In Europe this has already started to happen and will become even more prominent in 2022.

 

  1. Throughout 2022, the cryptocurrency world will look completely different

We’re currently going through an evolution of tech ecosystems where insurance organisations are developing them and embedding into them more than ever. Already, we see Insurance players who are building payment mechanism leveraging crypto solutions.

As we move throughout 2022, we expect to see a growth in the alternative ways of making payments. We will start to see smaller players in InsurTech provide instant payments that perhaps are currently inexistant right now.

It will still take time for there to be a global crypto market, but blockchain will continue to provide new opportunities which will impact the insurance industry.

 

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