Linked Endowments
March 2012
General
What is an Endowment?
A product wrapper which is a long term saving vehicle
Will provide the investor with an accumulated capital amount
upon maturity
Ideal for investors with a high marginal tax rate
Maturity benefit is not guaranteed (as is with a life insurance
policy), but determined by the performance of the underlying
assets
General
Endowment
Insurer agrees to pay a benefit after a terms in exchange for a premium
(single/recurring)
Unit linked endowment (PSG’s endowment) without guaranteeing the
benefit
No life assured (second holder), but beneficiary nomination
Minimum investment period is five years
Sinking fund
Contract, other than a life investment, where the Insurer agrees to pay
savings as a “tax free” lump sum at the end of a period (usually 5 years),
no life assured, beneficiaries do not have the option of taking the policy
value in cash upon death of the investor. In case of the insurer being
liquidated, the investor as a claim against the insurer in terms of the
Insolvency Act.
Who may invest?
Individuals
Companies
Trusts
Retirement Funds
Non-taxable organizations
Where does it fit in?
Platform Offering
Investment
Voluntary
Investment
Pre-retirement
Endowment
Retirement
Annuity
Post-retirement
Preservation
Funds
Retirement builder
Capital Protector
Various Unit Trusts as per Portfolio Selection List
Living
Annuity
Pricing
All life investment products are taxed according to the “four
fund approach”
That means a life company classifies its clients into four
different tax categories
01 – Individuals 30%
02 – Companies 28%
03 – Trusts (taxed according to beneficiary status 01 or 02)
04 – Non taxable entities
The tax and fund fees are then taken out of the price and paid
on behalf of the member Admin and risk management fees
are generated by selling units from the client’s investment
A client in the Endowment will not receive an IT3(b) or IT3(c)
as the returns are not taxed in the hands of the investor, but in
the hands of the fund.
Pricing
Net Asset Value used (NAV)
Not the four fund approach as with the life funds
Since we are a LISP, we will make use of NAV pricing for most
of our investments
Where a fund does not have unit trust pricing, life pricing (four
fund approach) will be used according to the tax classification
(available to RA, ELLA, Pres Funds and Endowments)
Investments
Single Premium Endowment
Top ups subject to the 120% rule
Unlimited contributions in the first year
Minimum R50 000 initial lump sum (R20 000 for PSG Konsult and Online)
Can be phased in – daily/weekly/monthly phase ins
Recurring Premium Endowment
Minimum R500 monthly – subject to the 120% rule
Monthly, quarterly, half-yearly, yearly
Inflation rate CPI / 5% / 10% / 15% / 20% per annum
Collection date: previously only on the 1st of the month, now any day
• Once all requirements received and submitted, t+1 for
investment to settle
120% rule
During the first year, no restriction on top ups
Thereafter a top up may not exceed the higher of the total
contributions of the two previous years respectively by 120%
That means you add ALL the contributions to the policy up per
year for the last 2 years, then determine the higher, times
120%
120% rule example
Year 1 = R200 000
Year 2 = R100 000
Year 3 = ?
What can the investor add in year 3?
R200 000 X 120% = R240 000
R100 000 X 120% = R120 000
In year 3 the investor may add R240 000.
Let’s say the investor only adds R50 000 in year 3.
What can the investor add in year 4?
R50 000 X 120% = R60 000
R100 000 X 120% = R120 000
The client may add R120 000 in year 4.
Documents Needed
PSG Application form (fully completed)
Certified copy of client’s ID
Certified copy of client’s proof of address (less than three months)
Certified copy of client’s proof of bank details (less than three
months)
Proof of deposit (match to unallocated spreadsheet)
Investment Options
Unit Trusts
Within the Endowment wrapper – subject to market movements
Unit Trust Pricing or Life Pricing
Money Market
We only offer PSG Money Market Fund
Transfers
Legally it should follow the Section 37(2) process.
Most companies do not allow transfers due to their
administrative system constraints (cannot account for CGT
upon a unit transfer)
Section 37 transfers are not allowed with PSG
Switches
Switch form, fully completed and signed
Where a standing instruction exists on the client’s investment,
confirm with the client that it will follow the switch (complete
on batch form)
t+4 (this can differ based on the type of source and
destination fund as well as possible liquidity constraints in the
source fund)
Loans and Surrenders
A client may make one surrender AND one loan during the
first five years of the investment
A client is allowed one surrender in the first five years, which
may not exceed capital invested plus 5% compounded growth
per annum. If the remaining balance will be less that R2 500,
100% will be paid out.
A client is allowed to make one INTEREST FREE loan in the
first five years. PSG restricts this to 80% of the value (20% to
remain for monthly fees, as the investment may not be
closed).
After maturity the client may make unlimited loans and
surrenders.
NIB Loan
Signed and completed NIB Loan Form
FICA (if details changed)
Certified proof of bank details (less than 3 months old) OR
cancelled cheque
CAP + 5% calculation (pre – maturity)
NIB Loan Repayment
Letter from client instructing loan repayment
– Policy number
– Amount
– Portfolio allocation
Proof of deposit
Match deposit to unallocated recon
Documents Needed For Partial Surrender
Signed and completed Surrender and Maturity Form
FICA (if details changed)
Certified proof of bank details (less than 3 months old) OR
Cancelled cheque
CAP + 5% calculation (pre – maturity)
Documents Needed For Full Surrender
Signed and completed Surrender and Maturity Form
FICA (if details changed)
Certified proof of bank details (less than 3 months old) OR
cancelled cheque
CAP + 5% calculation (pre – maturity)
Original Contract document OR original Lost Policy Affidavit
Maturity
The investor may continue the investment after maturity and
enjoy the same tax benefits; or
The client may take the market value in cash, subject to tax,
which will be paid on the investor’s behalf
After the maturity date the 120% rule stays in tact
After maturity the client may opt for a regular income
Documents Needed For Maturity
Signed and completed Surrender and Maturity Form
FICA (if details changed)
Certified proof of bank details (less than 3 months old) OR
cancelled cheque
Original Contract document OR original Lost Policy Affidavit
Standing Instructions Change
Static Details Change Form OR
Letter from client instructing change (signed by client or
mandated broker)
Debit order amount/frequency/escalation
Client can switch and confirm how the allocation of the debit
order should change, if required
Should a regular contribution default for 3 months
consecutively, the investment will be treated as “paid up”. The
member may choose to resume payments by informing us in
writing.
Static Details Change
Address / Contact details change
Residential Address
Signed and completed Change of Static Details form AND
Certified proof residential address not older than three months (FICA)
Postal Address
Signed and completed Change of Static Details form OR
Letter from client instructing change
Contact Details (email / tel / cell / fax)
Signed and completed Change of Static Details form OR
Original Letter from client instructing change
Static Details Change
Bank Details Change
Signed and completed Change of Static Details form AND
Certified proof of bank details (less than 3 months old)
NOTE: Internet bank statements will not be accepted
Static Details Change
Beneficiary Changes
Signed and completed Change of Static Details form OR
Letter from client instructing change
–
Beneficiary Title
–
Beneficiary name and surname
–
Date of birth or ID number
–
Relationship
–
Share of benefits
Static Details Change
ID Number or Name Changes
Signed and completed Change of Static Details form AND
Certified copy of marriage certificate (if surname change)
Certified copy of ID with 3 specimen signatures if the
client’s signature changed
Cession
An endowment may be ceded to another client or offered as
security for a loan
An outright cession to another client will result in the tax
benefits being lost since it will be a second hand policy
(excluding transfers to a spouse)
The new owner will pay tax at their marginal rate and tax will
not be deducted in the product
If the previous owner took a loan/partial surrender, the new
owner will not be able to make a loan/surrender until maturity
Documents Needed for Outright Cession
Signed and completed Cession Registration Form
Original Contract document OR original Lost Policy Affidavit
Certified copy of ID for Cedent (if not on file)
FICA for Cessionary
– Certified copy of Identity Document
– Certified copy of physical address
– Certified copy of bank details, not older than three months
– Certified copy of most recent proof of tax reference number
Death Claim
ENDOWMENTS
Lump sum may be transferred to the deceased’s nominated beneficiaries or
the deceased’s estate if no beneficiaries were nominated
Beneficiaries may continue with the policy until maturity or withdraw the
benefit as at value on date of death of the deceased
Beneficiaries will have the same rights and obligations as the deceased
(same tax benefits, if the deceased took a loan/partial surrender, the
beneficiary/ies will not be able to make a loan/surrender if they choose to
continue with the policy until maturity
SINKING POLICIES
A sinking fund policy remains in force to the maturity date at which time the
benefit will only then be payable to the policyholder or the nominated person
to receive the policy.
In case of the Insurer being liquidated, the investor has a claim against the
insurer in terms of the Insolvency Act.
Death Claim
Documents Required:
Certified copy of death certificate
Post mortem report (if unnatural death)
Certified copy of deceased’s ID
Certified copy of letter of Executorship (If the beneficiary is Estate)
Signed and completed Death claim application & discharge form
Certified copy of marriage certificate (if married within community of property before
1984 or anti-nuptial contract with accrual)
Certified copy of ID of beneficiaries
Copy of Will (if applicable)
Certified proof of bank details (less than 3 months old) OR cancelled cheque
If benefit will transfer to beneficiary – New application form (PSG FW or other
Provider)
Original Contract document OR Original Lost Policy Affidavit
Cut offs for processing
Any instruction for processing has to be batched and
submitted to Admin before 9:00
Ensure that your broker actually SENDS it well within cut off
so that there is sufficient time for batching and submission to
Admin
Recurring Contribution Endowment: 3 business days prior to
collection
Turn around time
Should all requirements have been received:
Before 9:00 – processed for prices on t
After 9:00 – processed for prices on t+1
Tax
Tax is levied in the product, not in the hands of the investor
No IT3(b) for distributions
No IT3(c) for capital gains/losses
But CGT will still be “charged”:
25% for individuals (33.3% X 30%)
50% for corporates (66.6% X 28%)
PSG will pay the CGT on a client’s behalf
No Dividend Withholding Tax
Legislation
Collective Investment Schemes Act
Income Tax Act
Long Term Insurance Act
Financial Intelligence Centre Act (FICA)
Financial Intermediary and Advisory Services Act (FAIS)
Fees
IFA initial fee 0% - 3% excl VAT
IFA ongoing fee – up to 1% excl VAT
No initial platform fee
Ongoing platform fee
– PSG – before 1 Aug 2011 = sliding scale
– PSG – after 1 Aug 2011
= 0.4% for Konsult & Online
0.5% for Retail
Neg for Best of Breed
LESS REBATES
Fax and E-mail Indemnity
Faxed instructions will be accepted, FICA docs have to be
certified
Where an advisor did not certify FICA docs, we will check if
Fax and E-mail Indemnity is on file
If a client signed the F/E Indemnity in the application form/
other transaction form, we will accept instructions via e-mail
Disclaimer
The information contained in this document is correct at time
of the presentation. All figures and points must be verified
prior to any business dealings due to the dynamic nature of
legal and financial environments. Though every effort is made
to ensure the accuracy of the information contained herein,
the author cannot guarantee the validity and or current
information in future circumstance when legislation is
adapted.
The author accepts no responsibility for the use of validated
information and the misuse of current information. Individuals
misusing current information or using outdated information will
be personally liable for any damages/consequences incurred.
PSG Asset Management Administration Services Limited
reserves the right to adapt provisions as set out in this
presentation where applicable legislation and practices
change. PSG Asset Management Administration Services
Limited is an approved financial services provider.