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Blue sky scenarios – why local RA still beats offshore

26 August 2015   (0 Comments)
Posted by: Author: Matthew Lester
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Author: Matthew Lester (Bizcom)

Tax expert Matthew Lester looks for the blue sky investment scenario in the tough conditions South Africans currently find themselves. He points towards the tax-deductibility of retirement funds and why they offer a better investment than offshore. He says if you’d invested the tax deduction back into the RA, it would represent a very effective buffer against the current market turmoil. Hindsight is a great tool but the cyclical nature of markets points towards a similar scenario further down the line. – Stuart Lowman

Let’s be honest, It’s difficult to find a blue sky scenario for RSA today. It’s really quite pathetic when one has to look at Greece for a daily pick-me-upper. Apparently they’re selling condoms in packs of 183, just in case the third bailout fails and the shops shut for 6 months.

But seriously, when your retirement fund benefit statement reflects that your contributions over the past two years have not been enough to absorb the losses sustained in the market then its time to pay attention.

I have written many articles punting the use of retirement annuities in financial planning. And the critics always complain ‘ but what about currency hedge?

Given RSA’s problems it’s a much better idea to go for offshore investment portfolios! Who wants an investment based on the JSE?’ And they are all probably gloating right now as the weakening of the Rand has compensated for market losses.

It all depends on how you want to manipulate the numbers. So starting off by looking at the JSE since 2012.


Yes, we are currently looking that all gains since October 2014 have been wiped away. And there may well be more bad news to come. But it would take a monstrous disaster to wipe out everything since 2012. That would leave us all eating Epol. And nobody is predicting that.

Now take the Dow and the FTSE 100 and force the indices onto the same axis at base 100 points adjusting for the decline of the Rand and we get


Whoops, the JSE is miles behind. So the offshore investors are wining the debate by a country mile.

Maybe not!

Presume that the investment in the JSE is based on a retirement annuity. When I invested R100 I enjoyed a tax deduction of R40. And that was then invested back in the retirement annuity.

So the base investment on the JSE was 140 not 100.

Adjusting the comparison we get


The Rand based investments in retirement funds, measured since 2012, are currently holding pace with the offshore investments.

‘Foul’ cry the foreign investors, ‘remember regulation 28 that requires retirement funds to maintain a 25% cash component. And you must factor in this. And then there’s that!’

Point taken. This is a very simplistic comparison. There are so many different factors we can bring onto the debate. Costs of maintaining an offshore portfolio are important. Not to mention interest rates and different tax profiles.

But the important point remains. Retirement fund investments are tax deductible, offshore investments are not. So if the tax saving is reinvested it represents a very effective buffer in times of market turmoil.

This article first appeared on


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