Savings: go offshore, but avoid the pitfalls

The JSE is struggling. Property prices are stagnant. The political scenario is volatile. Is it time for South African investors to take a greater portion of their savings abroad to try and preserve their money? Yes, says Sovereign Trust MD Coreen van der Merwe – but make sure you’re doing it in the right way, and for the right reasons.

“Investing offshore shouldn’t be a knee-jerk reaction to current affairs, but rather a well-thought-out process that forms part of your overall financial plan,” says Van der Merwe.

“As with anything in life, you don’t want all your eggs in one basket – and it’s no different when it comes to protecting your wealth and where you invest it. Diversification is important, but it’s equally critical to make an informed decision when choosing to mitigate savings and wealth risks by spreading investments offshore.”

Some offshore jurisdictions – like Malta, Gibraltar, Guernsey and Mauritius - allow clients to hold assets anywhere in the world in foreign currency, making them popular among South African investors. But while saving for medium to long-term financial sustainability is vital, there’s no ‘one size fits all’ approach.

That’s why when investing offshore becomes a consideration, it’s important to have a clear picture of the currencies, returns, fees and taxes associated with the different options, and the respective risks need to be managed from the outset, warns Van der Merwe.

In some cases, fees can end up being significant, to the point where they result in an ongoing shrinkage of offshore assets. And if an investment is held in the name of a company, trust or pension, there will be additional director or trustee fees on top of the advisory fees. Investors in some European jurisdictions often pay significantly more in fees with no extra added benefits, compared to investors in countries like Mauritius.

Another factor to consider is tax. Holding offshore assets in tax-inefficient structures is a sure-fire way of depriving investors of value. Should you already have a structure offshore, it is worth considering a review to ensure that it is still tax-compliant in light of recent changes in South African legislation, says Van der Merwe.

“The decision to distribute wealth offshore is a sound one – but there are pitfalls along the way for the unwary investor, like exchange control and cost considerations, which must be taken into account and fully appreciated,” says Van der Merwe. “That’s why anyone looking to establish an offshore asset base should use a reputable investment and trust company to assist, and get appropriate investment, tax and legal advice from the start.”

Sovereign Trust (SA) Limited is bringing together experts in the field of offshore retirement planning for its sixth annual International Retirement Seminar being held in Johannesburg on 28 August and in Cape Town on 30 August. To find out more, or to register: https://www.sovereigngroup.com/events/sovereign-trust-sa-limited-annual-international-retirement-seminar/