• Bruce Cameron

Many investors are asking how they should restructure their investments in the wake of the Covid-19

Here are some points to consider:

  • This market crash is going to be like the kleptocracy of the Zuma regime. The full results will only come through much later. For example, the downgrading of South Africa’s debt only came months after he departed. Markets are already looking like hitting a W-curve with the markets dropping, then recovering and then dropping again to come back again later.

  • Take a deep breath. Panic can lead to wrong decisions. Markets move in cycles and following collapses, such as now, we have seen they are likely to recover. The question is how deep will the depression be and for how long will it last. No one really knows.

  • No investment makes a loss or a profit until you actually sell it. Also, when markets are down and you have a long-term horizon, it is a good opportunity to buy good quality assets at lower prices to benefit from the longer-term recovery.

  • Pensioners who invested a big slice of their money offshore may find that they will not be too far out because of the fall in the value of the rand. A lesson in the need to diversify your investment.

  • If you have not saved sufficient money by retirement, it is unlikely that any pension structure you chose will make up the shortfall. By making the wrong choices you may accelerate the shortfall.

  • Living annuity investors may need some restructuring such as to draw on cash or near cash investments, rather than a drawdown across their investment-linked living annuity (living annuity or illa) or buy into a product that gives you access to a guaranteed annuity, but consult a knowledgeable financial planner first. Remember, everyone is different and everyone has different circumstances, wants and needs.

It’s crucial to consult a knowledgeable financial planner. If you don’t have one, preferably use one of these websites: www.findanadviser.co.za; the Financial Planning Institute (www.fpi.co.za), which accredits highly skilled advisers with the international certificate of Certified Financial Planners; and the relatively recently formed financial planning organisation, the South African Independent Financial Advisers Association (SAIFAA: South African Independent Financial Advisers Association), which offers a special course, the Certified Post Retirement Practitioner, to provide assistance for retirees and people in pre-retirement.

In the meantime, some good news. South African Revenue Services has announced that pensioners who receive funds from a living annuity will temporarily be allowed to immediately either increase (up to a maximum of 20% from 17.5%), or decrease (down to a minimum of 0.5% from 2.5%) the proportion they receive as a pension (annuity) income.

This will replace the existing system where the allowance is allowed only on the anniversary date of the living annuity. This date is in the month of your retirement.

Last week National Treasury announced that, as part of the investment market crash caused by Covid-19, it would be allowing changes.

The new legislation will only be published on 30 April. The full terms are not yet known. It is unlikely that they will be in place before the first half of May as parliament must first approve them and then be signed off by the president.

SARS says the move will assist individuals who either need cash flow immediately, or who do not want to be forced to sell after their investments have underperformed.

Actuary John Anderson, Alexander Forbes head of research, however, warns anyone wanting to increase their pension from a living annuity could face further problems in the months ahead as they will advance the “point of ruin” where, if you maintain the rand value of your drawdown, you will meet the maximum drawdown far sooner and your pension will shrink from that day on.

He says pensioners should rather find other ways to deal with the shortage of cash, such as cutting back on what they do not really need.

Investment company, Ninety One, says it only expects to implement the changes in mid-May. BM


This article originally appeared on Business Maverick and is s