Reserve Bank governor Tito Mboweni may be unpopular with stretched consumers following his recent rate rise but is being applauded by one group of often hard-pressed South Africans – retirees.
“Over-65s on a fixed income are cheering Mr Mboweni, especially if they can maximise recent improvements in the tax treatment of interest income,” notes Alan Botha, head of wealth, Gauteng, at Barnard Jacobs Mellet Private Client Services (BJM PCS), a leading adviser to high net worth individuals with a well-resourced retirement planning service.
“With inflation threatening to reach 9.5% and big rises in transport and food costs, rate increases are good news for those on a fixed income,” says Botha. “From a retiree’s perspective, this is much better than the alternative scenario of high inflation and low rates in pursuit of growth as the over-65s are usually risk averse and may be exposed when chasing problematic equity gains.
“With nominal money market rates above 10.5%, they can achieve solid returns without holding thumbs that equities bounce back.
“Mr Mboweni’s single-minded inflation-fighting may upset some commentators and add to the woes of consumers who have been living on credit, but pensioners with low or no debt are pleased that the policy environment is working in their favour for once.”
Smart retirees are maximising the opportunity by making the most of recent changes in the tax treatment of retirement products and tax exemptions on interest earnings.
Botha sketched out a typical one-two approach:
Alan Botha adds: “Needs vary and tax issues normally require individual treatment for greatest efficiency, but in many instances prudent retirees who have provided for the future are well placed to secure at least some advantage from the current interest rate climate.
“Numerous factors work against the over-65s, including spiralling medical inflation. It makes a nice change being able to advise them that they can derive some benefit from recent developments.”