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Is Cyril worse for your money than Zuma?

by , 29 August 2019
Is Cyril worse for your money than Zuma?
I never thought I'd say this…

While President Cyril Ramaphosa may be less corrupt than Zuma, his economic theories are almost as bad.


I am too.

Like the rest of the market, I celebrated when Ramaphosa replaced Zuma. Aided by heroes of the anti-Zuma movement like Pravin Gordon, I truly hoped we'd see a “New Dawn” for South Africa and a turnaround for our economy.

The euphoria was short-lived.

I've been nervous about the President for a while now. But last week's Parliamentary debates confirmed my worst fears. With proposals for prescribed assets and the National Health Insurance (NHI) Bill now firmly on the table, the sun is rapidly setting on Cyril's new economic dawn.

And, as the dust settles, you can either wallow in the bitter aftermath of these announcements or you can protect yourself from them.
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Ramaphosa is gambling with your pension
Prescribed assets describe government using a percentage of your retirement savings to invest in other projects, with the aim of bringing in a profitable return.
In our case, this percentage is likely to go into rescuing State-Owned Enterprises (SOEs) like Eskom and SAA or towards infrastructure projects. While it’ll initially be a small amount, just a few percent or so, over time I expect there to be an increase in this amount every time government finds itself short of funds.
With more than R4 trillion in pension savings, the South African pension fund industry is massive compared to the size of our economy. Having access to such a massive pool of funds would mean that politicians could effectively ignore fiscal restrictions for years to come.
How will this affect you?
Put simply, it could ruin your pension.
The prescribed assets strategy is extremely risky. For your retirement plans to keep up, you’ll probably have to increase your contributions and possibly even work and contribute longer to match the amount your financial planner estimated when you sat down and created your retirement plan.
And that’s just Cyril’s first strike.
Why combining private medical with the public health sector is a HUGE mistake
The other proposal, the NHI Bill, will revamp the public health sector using private sector resources. Since it’ll come into effect in stages, you’re unlikely to see the worst immediately. But be warned, when NHI is in full swing, the South African medical system will be unrecognisable.
Now I could write a book on all the badly conceived ideas included in the NHI Bill, but that’s not the point of this article. Instead, let me highlight the following:
With an expected budget in excess of R300 billion a year, NHI is set to significantly increase your taxes.
Despite paying more taxes, you and I will get worse medical care than we do now.
Medical professionals, especially the most skilled specialists, will also see significant falls in their income.
Combining South Africa’s world-class private medical industry and our disastrous public health sector is a HUGE mistake. It is far more likely to pull down the private sector than raise the public sector up. And without a decent healthcare option, our country simply won’t be able to retain skilled medical professionals. They’ll end up leaving.
Not only will this be disastrous for your health, but the economy will dive because without these skills, the economy won’t grow.  
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Protect your wealth from Ramaphosa’s two BIG mistakes today
Despite these glaringly obvious downsides, the President and the ruling party are determined to push on with their ill-conceived plans. The best that you can do is to insulate yourself against the worst. That means:
adjusting your retirement savings to keep as much as you can out of the reach of government; and 
creating a personal medical aid fund to avoid using the public sector if and when you need medical care. 
Doing this may sound impossible, but it’s easier than you think. 
If you have a relatively low marginal tax rate or are more than 15 years away from your retirement, start saving your after-tax money. 
By doing this, not only do you avoid significant fees, but you also won’t have limit the amount you can invest offshore. Even saving as little as an extra one percent per year could make up for your lost tax rebate.
If, on the other hand, you’re a higher marginal taxpayer, section 12J investments may be the answer. I’ve written about these before but, just beware that not all 12Js are equal. Get a professional to do the required due diligence before you commit your money.
For those of you who are close to retirement, continue with your retirement annuity as planned. The President’s plans will take time to come into effect and hopefully you’ll be able to retire before that happens. When you do, use the most tax effective withdrawal rate to get your funds out.
Once they’re out you’re free to move and invest them offshore. If you’ve followed this column for a while, you’ll know I’m a big fan of correctly externalizing funds through official treasury agents rather than the banks. If you need more information, I’m available on support@randswiss.com
Finally, don’t forget to protect your health. 
I would suggest creating your own personalized medical aid fund. And don’t skimp on dread disease and disability cover. Catastrophic health issues are more common than you think. It will take time to build up a nest egg away from government control but, fortunately, the NHI will take several years to be implemented so it is still possible. But you need to start today. If you need help to build a Ramaphosa-proof financial plan, please do contact me at support@randswiss.com.  
Viv Govender,
Rand Swiss, Wealth Manager
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Watch this space or email us at info@fsp.co.za with subject “keep your hands off my money” and I’ll be sure to let you know its release date!

Is Cyril worse for your money than Zuma?
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