Financial advice critical to helping consumers navigate ongoing financial pressures
22 Feb, 2024

Lizl Budhram, Head of Advice at Old Mutual Personal Finance



Finance Minister Enoch Godongwana’s 2024 Budget – geared toward long-term economic growth, will do little to provide personal tax relief for consumers, who will have to continue to battle the cost-of-living crisis in the short term.


Lizl Budhram, Head of Advice at Old Mutual Personal Finance, says that while personal income tax and the fuel levy remain unchanged, they do not equate to any significant savings for consumers.


“Because the Minister did not adjust income tax tables for inflation or medical tax credits, consumers will effectively be taxed through inflation,” says Budhram. “Effectively, consumers will be paying around 5% to 6% more in income tax, amounting to an additional burden of R18-billion.”


She added that with the Minister increasing excise taxes from 4,7% to 7,2%, driving up the cost of alcohol and tobacco products, consumers’ disposable income will continue to face pressure. This pressure on consumers provides an ideal opportunity for financial advisers to guide their customers on the negative and positive impact the 2024 Budget will have on their disposable income.


Budhram says, “In times of economic hardship, it is important that consumers are prepared for higher expenses and know how to manage the knock-on effect of rising costs on their personal finances without compromising their long-term financial wellness.”


Budhram says that re-evaluating personal budgets is imperative to ensure customers live within their means. She encourages advisers to help determine how their customer expenses can be adjusted through the following tips:


1. Be careful of cancelling insurance cover


Customers may consider cancelling their life- or short-term insurance covers to ease financial pressures. Budhram emphasises that financial advisers must make clear that cutting back on such expenses can have a dramatic impact on their customers, “Life cover cancellations may result in major premium increases because the customer may be older or have new health conditions when they apply for life cover again in the future.”


It is worthwhile looking at policies that offer an option to pause premiums or see if a premium can be reduced instead of cancelled altogether, as customers often don’t realise, they have these options.


2. Don’t slack on investing for retirement


According to the 2023 Old Mutual Savings and Investment Survey (OMSIM), only 33% of respondents ranked securing their investments as a top financial priority.


Regarding retirement savings, financial advisers should remind their customers why contributing to a retirement fund is highly beneficial; it is a tax-effective tool to benefit financially from and ensure a sustainable retirement life. Budhram points out that by maximising retirement contributions before the tax year-end, individuals can reduce their taxable income, thereby decreasing the amount of tax owed.


In addition, Budhram says the Minister’s confirmation of the Two-Pot Retirement System taking effect on 1 September 2024 under the new Two-Pot Retirement System, a ‘savings pot’ will receive a maximum of one-third of all retirement savings and will be accessible before retirement age. In contrast, a ‘retirement pot’ will receive a minimum of two-thirds of all retirement savings and will only be accessible at retirement.


Budhram emphasises, though, that it’s vital that advisers inform customers only to access the savings pot in an absolute emergency because early access will have significant tax implications and negatively affect their income growth for retirement.


3. Avoid cutting back on discretionary savings


The OMSIM results also indicate that only 34% of respondents prioritise creating emergency savings funds. The low percentage of respondents heeding the importance of saving for emergencies becomes more of a risk when further financial pressure increases and covering basic expenses becomes more challenging. Financial advisers should emphasise why having money for unforeseen expenses is invaluable as it helps avoid going into debt to cover these expenses, which worsens financial difficulties later.


4. Be solutions focussed


While it is important to warn customers what not to do, providing creative solutions to create a more cost-effective budget is essential. Advisers should give the customers money-saving ideas they may not have considered. For example, they can cancel streaming or app subscriptions, see how they can benefit from discounts offered in their loyalty programme, sell goods they no longer use, and refinance debt for more affordable premiums.


5. SMEs also can benefit from advice


Budhram says financial advisers should also focus on small business owners, who could use their experience in their personal and business capacities. Budhram indicated that the Minister had made several concessions to SMEs in his budget on Wednesday, and advisers are ideally placed to help business owners take full advantage of the offerings.


6. Reasons to be Positive


Budhram emphasises that advisers and their customers must remain optimistic about the economic outlook. She points out that South Africa is currently at the top of the interest rate cycle and can expect significant relief towards the end of 2024.


“Looking at the bigger picture, we can see the interest rates coming down in the latter part of the year and an easing off the cost-of-living crisis. This shift should lead to an increase in disposable income so that consumers can improve their debt situation and breathe again,” Budhram concluded.








@Lizl Budhram, Old Mutual Personal Finance
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