South African economy is savings deficient

At the Principal Officers Association, Chris Hart, chief strategist at Investment Solutions, highlighted that the South African public under-save as a result of being dis-incentivised to save.

He asserted that with over 89 000 stokvels operating in South Africa and a long-established pensions industry, South Africans do have a culture of savings.

“However, the impact of taxes namely capital gains tax, property transfer costs, death duties, dividend tax, tax on interest earned are all inhibiting household savings or capital formation,” added Hart.

Low interest rates and high inflation places people dependent on interest income under a lot of pressure.

Inflation hampers wealth accumulation and people who assumed they had provided adequately for their retirement often find this is not the case.

Hart explained to the audience that there is no such thing as a low risk investment as when volatility risk is low then inflation risk is high.

Over the past few weeks the weakening rand has increased awareness of jurisdiction risks. According to Hart financial models prescribe that South Africans should invest a third of their savings offshore and two thirds in South Africa.

Consultant’s fees are always a contentious issue when it comes to savings, as a portion of your savings goes to your financial consultant, Hart advices that agents should earn their fees and not take their fees.

“Given all this, saving in an economy that is savings deficient is essential to overcome some of the macroeconomic challenges such as unemployment. In addition, increasing savings is an essential part of reducing the risk associated with retirement,” concludes Hart.