linked endowments march 2012. general what is an endowment? a product wrapper which is a long term...

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

EndowmentInsurer 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 fundContract, 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

Various Unit Trusts as per Portfolio Selection List

Platform Offering

Investment Post-retirementPre-retirement

Voluntary Investment

EndowmentRetirement Annuity

Preservation Funds

Living Annuity

Retirement builder

Capital Protector

Where does it fit in?

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 EndowmentMinimum 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


Certified proof of bank details (less than 3 months old) OR

Cancelled cheque


Documents Needed For Full Surrender





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





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 AddressSigned 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


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


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


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


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

ENDOWMENTSLump 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 POLICIESA 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)


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.