Moonstone : 11 February 2008

RETIREMENT TAX AND COMMUTATIONS

A well connected reader who wishes to remain anonymous provided the following clarification on some issues around the tax treatment of retirement funding which we discussed in Investment Indicators over the last few weeks. He writes as follows:

I contacted a senior person at SARS that I know well regarding the new legislation on taxation of retirement benefits in respect of a practical problem we experienced.

In essence, the new legislation providing for the first R300 000 to be paid out tax-free, and tax on a sliding scale thereafter, is currently applicable; the problem is that the systems at SARS have not as yet been updated, and it appears likely that it will only be available from 1 April 2008.

Although the tax calculations will be done accurately (probably manually), the current system requires that the previous five years income still has to be provided.

I think we all thought that the last 5 year salary requirement was no longer required, but FSP’s could do themselves a big favor by rather obtaining this information upfront to prevent unnecessary delays.

With regards to the GN16 situation and the commutation of small annuities I was told that legislation makes provision for the new minimum of R75 000 to apply per fund and not per taxpayer. However, qualifying clients who currently apply are only granted one full commutation as a result of the same system limitations at SARS mentioned above.

A further interesting point was raised by another reader, Dirk Baard, who discovered that the wording per fund does not mean per annuity. If your client has three annuities of say R40 000 each with the same company, then the R75 000 will not apply as the client’s R120 000 is in the same fund. However, had these funds accumulated at three different product houses, they would all qualify for commutation. This does not sound right, does it?

A NETWORK THAT MAY JUST WORK FOR YOU

Complaints about poor service delivery from certain product houses are a recurring theme in discussions with brokers. So many services has been “delegated” to brokers that it has in fact become a major additional administrative cost that they have to provide for.

We spoke recently to Shaun Neuhoff, Director - Sales & Marketing at IFAnet about their role in making life easier for the independent broker.

What exactly does IFAnet do for a broker?
IFAnet provides independent broker consultant services, including some of the broker’s new business processing functions, on behalf of a range of product and service providers. There is no cost to the intermediary.

Our financial services product providers at this stage are Liberty Life, Altrisk, Hollard Wealth Management Services, CADIZ and Metropolitan Odyssey. Soon Metropolitan Life and a major LISP will also be added to the platform.

Our service providers are

- atWORK which is a well priced online office administration and CRM package

- Resolution Health which provides our non-healthcare brokers with a channel to provide their clients with this product for which they will receive an income

- TJH Financial Services which is a short term administrator that provides our members,especially those who do not do short term insurance, with the prospect of enhanced income and higher return on assets (clients).

How will I be better off as a member than being on my own?
Our broker consultant servicing model, i.e. a single BC representing a range of product providers, demonstrably saves the intermediary time (and this includes time saved in his/her office due to fewer BC's calling and taking up valuable staff time). This time can be better spent preparing for and seeing clients. Given that we provide a range of solutions from our product providers, we are more able to"partner" with an intermediary in finding the appropriate solution than say a BC representing a single product range.

We have put services in place that will enable our members to generate recurring income on short term and healthcare sales without having to be a registered short term or healthcare provider, and without having to get involved in the sale or running the compliance risk.

To many of our members, the prospect of changes to the commission structure on "life products" is potentially a “groot probleem”. These alternate, and recurring, income streams will assist our members to become less dependent on annualised commission over time.

You are not a charity organisation - how do you make money?
Like our members, we get paid by the productand service providersfor successful sales - new business. Neither our memberspay for our services, nor are our products more expensive to the consumer.Because the product and service providers would have had to employ a sales force to do what we do, and most do in any case,the products we promote alreadyinclude pricing to pay us for new business.

Are there different levels of membership?
Ourmembership essentially consists of two categories,

- Those who are actively serviced by our salespeople (720 members servicing 990 contracts) and

- Those who are not actively serviced members (Service on Demand) - 67 members servicing 105 contracts

To facilitate the servicing of our member base, we have branches in Johannesburg, Cape Town, Wellington, Pretoria, Durban, Port Elizabeth, George, East London andBloemfontein staffed by a team of 48 Franchisees, BC's and administration staff.

What about short-term and healthcare brokers?
Our target market is essentially theindependent life intermediary and we do not provide sufficient value for short term or healthcare brokers to make use of our services. Through us, our life intermediary can secure short term insurance services andbuild a recurring income stream.

What additional services do you offer to enhance the broker’s business?
In addition to the above we make it our business to stay aware of what is going on in our industry and to provide our members with summarised versions of developments.