JOHANNESBURG – South Africa’s two largest unit trust managers plan to launch their own tax-free savings accounts (TFSAs) within the next few months.
When TFSAs were first introduced on March 1 this year, Coronation Fund Managers and Allan Gray did not offer any products in this space as it was still in discussions with National Treasury about the requirements.
TFSAs allow individuals to invest up to R30 000 per annum in a variety of asset classes. All proceeds on the underlying investments (interest, capital gains and dividends) are 100% tax-free. A lifetime capital contribution limit of R500 000 applies. The introduction of these vehicles is an effort by Treasury to encourage consumers to save and to reduce their financial vulnerability.
Richard Carter, director and head of product development at Allan Gray, says they are working on their own product, which he hopes will be available within the current tax year.
The TFSA will be consistent with its current offering. It will be a platform product where investors can select different investment funds available in the account. The normal investment fee will be applicable depending on the chosen funds.
Coronation’s tax-free investment will be launched during the third quarter of this year.
Pieter Koekemoer, head of personal investments, says the product will be marketed as a tax-free investment (TFI) and the approach will be the same as for all other products with tax incentives (for example retirement annuities).
No administration fees will be levied and the investor will only pay the underlying unit trust fees, which differ depending on fund choices.
Koekemoer says its normal investment limits (R500 for debit orders or a R5 000 lump sum) will apply subject to the regulatory requirements (R2 500 for monthly debit orders or a R30 000 annual lump sum).
He says at first, investment choice will be limited to those funds that do not charge performance fees.
However, Coronation does expect that the restriction will be lifted in due course and that its whole range will qualify for inclusion over time.
Currently no products with performance fees are allowed in the TFSAs. Prior to the introduction of the accounts, National Treasury indicated that the current approach would be reviewed in future as part of other reviews.
“This will be done taking into account the need to treat customers fairly and lower charges in the financial industry,” it said.