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South African Residents – The Benefits of Providing for Retirement Abroad

PraxisIFM one of the largest independently owned Trust Companies in the Channel Islands has generated a great deal of interest out of its latest pension offering the Trailblazer Global Retirement Plan.

Trailblazer is an International Retirement Plan written under Trust and governed by the Laws of Guernsey. The Plan qualifies for exemption from Guernsey Income Tax allowing Members' contributions to grow free of Guernsey Income Tax.

In addition to the customary estate planning benefits including inheritance planning continuity and asset protection Trailblazer provides a flexible and cost-effective solution for those wishing to establish an overseas pension. The Plan is particularly attractive to South African (SA) residents who wish to utilise their foreign investment allowance to externalise a portion of their wealth.

The Plan is designed to maintain maximum flexibility and provides for numerous benefits associated with a properly structured and well regulated pension plan including flexible lump sum and pension drawdowns increased influence over investment choice and portability of assets held within the Plan.


Why Trailblazer?

Trailblazer is particularly attractive to SA residents wishing to invest and make provision for their retirement outside of South Africa. It is designed to be a supplementary retirement plan complementing the Member's existing SA retirement fund/s.

Overseas pensions are a relatively unknown quantity to many SA Residents many of whom do not make provision for retirement locally let alone have a little nest egg abroad. It is said only 6% of SA Residents could retire comfortably between the ages of 60 and 65. The reason could perhaps be the over reliance on businesses built up and properties acquired over the years thinking that after their descendants have taken over the business/es they will continue to receive a dividend therefrom and together with such dividends receive income on their properties which they consider will be enough to last them for the rest of their lives.

However little did SA Residents know that in terms of the Broad Based Black Economic Empowerment Act and especially the recent Codes issued in terms thereof potentially up to 51% of their business/es will have to be sold to empowered persons or entities in order to stay competitive in whatever industry they are operating their respective business/es.

South Africa previously an obvious choice for at least a large part of inward investment into Africa has lost ground to other African economies that are showing significant growth as opposed to its own very low growth and various political economic and social challenges. This situation has left significant cracks in many SA Residents' retirement plans.

Even though contributions made to Trailblazer will not qualify for a deduction from SA Income Tax there are many reasons why SA residents would opt for an overseas pension in addition to their local pension/s:

  1. Hedge against the Rand - The Rand has depreciated up to 50% against most major currencies in the last 4 to 5 years. SA Residents are therefore realising that whilst SA markets may yield greater returns in respect of certain asset classes (especially in respect of cash investments) the buying power of the Rand is diminishing rapidly.
  2. SA Pension Reform - It is proposed that with effect from 1 March 2016 SA Residents be allowed to contribute up to 27.5% of their gross remuneration or taxable income (whichever is higher) to a retirement fund and receive a deduction from SA Income Tax in respect thereof subject thereto that the amount eligible for such a deduction will be capped at R350 000. If so SA Residents earning in excess of R1272 million per annum or who have surplus funds which they wish to contribute to a retirement fund will not be tax incentivised to do so and they may find it prudent to contribute such excess funds to an overseas retirement plan such as Trailblazer.
  3. No application of section 37C of the Pension Funds Act - In SA a duty is bestowed up the Trustees of a retirement fund to in terms of Section 37 of the Pension Funds Act ascertain whom were financially dependent on the deceased and are obliged to (despite who the nominated beneficiaries are) ensure that equitable distributions are made between the financial dependants perhaps even to the exclusion of the nominated beneficiaries. Trailblazer allows the Member to nominate beneficiaries and the Trustees will exclusively and explicitly act upon such nomination as they are not bound by the provisions of the SA Pension Funds Act.
  4. No application of regulation 28 issued in terms of the Pension Funds Act - Regulation 28 limits the investment exposure of SA retirement funds in respect of certain asset classes and offshore markets. Trailblazer allows the Member to invest in a range of equities bonds and / or funds across the World without restrictions being imposed in terms of the Pension Funds Act.

Trailblazer is competitively priced with pricing plans to suit investors from across the wealth spectrum. A lower-cost option allows Members to select one or more funds from a range of pre-approved unitised investment funds. The Member is free to decide his preferred level of exposure into each of the underlying investment funds resulting in a unique portfolio that is tailored to the Member's personal risk appetite.

The Premium option offers Members maximum flexibility wider investment choice and additional features not available under the lower-cost option including loans to the Member and more frequent pension drawdowns. Under the Premium option the Member may select one or more Asset Managers from the Trustee's panel of approved Asset Managers to act on a discretionary basis.



Jaco van Jaarsveld


Tel: +27 72 660 3836

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