“Investors asked to ‘think global’ with pension planning”

Investors wanting to mitigate domestic risks are encouraged to “think global.”

This is according to Gavin Smith, Head of Africa at deVere Acuma, who says there is a misconception that investing internationally is riskier than the local market.

Smith’s comments follow the International Monetary Fund's warning that threats to the global financial system had increased ‘somewhat,” and as Jacob Zuma’s presidency gives way to an era of renewed optimism.

In South Africa, like the rest of the world, shifts in the economic and political realms affect individual financial security.

Diversifying one’s wealth portfolio helps to offset political and economic headwinds.

“Financial downturns, restrictions on capital flows, over-regulation, populist economic reforms, and new tax laws all affect investor confidence and personal wealth,” Smith adds.

Lax on corruption, the Zuma regime oversaw the mismanagement of finances at State-owned entities, which have become a burden on the fiscus. Their reliance on government bailouts continue to pose a major risk to the economy.

Smith says that in the months since Cyril Ramaphosa took office, the Boards of problematic parastatals have been overhauled to strengthen governance and financial controls.

“Even in times of optimism, however, smart investors should remember that politics is a fickle domain,” Smith cautions. “High-net-worth individuals must be circumspect when making investment decisions based on political sentiment.”

Smith recommends that forward-thinking South African residents consider international pension planning as part of their diversification strategy as it typically can allow investors to retire at a time and in a manner that suits them.

“To a high net-worth individual creating a new retirement plan may sound like archaic planning, however, in my experience such individuals prioritise a ‘plan B’ or peace of mind over and above a mindset of purely seeking capital growth,” Smith explains.

“They deem it important to be able to choose when they want to retire, with a level of income that preserves their standard of living, wherever they are.”

Smith says that international pensions allow an individual to save in foreign currency, receive an alternative income stream as they move through retirement and benefit from the favourable tax treatment of pensions by many governments globally.

High-net-worth individuals are facing possible new threats from a tax perspective. Although the Davis Tax Committee (DTC) found that the introduction of a “wealth tax” was not feasible in the short-term, the committee proposed that all personal income taxpayers above the filing threshold be required to submit a statement of all assets and liabilities from 2020 onwards.

Cryptocurrencies are also on the taxman’s radar. The South African Revenue Service regards cryptocurrencies as intangible assets, so taxpayers are expected to declare gains or losses.

“With constant changes to the political, economic and regulatory landscapes, it is essential that investors are equipped with the right financial planning tools to navigate any changes in the market and preserve their wealth,” concludes Smith.