07 June 2011
IN THE NEWS TODAY
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Living Hands Trust sues for R1.3bn
DANISA BALOYI, INVESTEC AND OLD MUTUAL UNIT TRUST MANAGERS AMONG THOSE BEING
CAPE TOWN - In a bid to recoup its lost, stolen or misappropriated funds, the trustees of the Living Hands
Umbrella Trust are suing former directors, shareholders and trustees of the trust for the R1.3bn that
allegedly went missing on their watch.
The likes of businesswoman Danisa Baloyi, professional trustees Ivanka Atcheson and Don Guthrie and
the former MD of the company that managed the funds, Jeoffrey Gover are being sued in their personal
capacity, while institutions like Old Mutual Unit Trust Managers and Investec are also included in the
extensive list of defendants.
The summons paints a detailed picture of how Fidentia contrived to own the Mantadia Asset Trust
Company (Matco), which it renamed the Living Hands Company. Matco was the trust administration
company that, until February this year, was the sole trustee of the Living Hands Umbrella Trust (LHUT).
The summons alleges that defendants could have and should have prevented the sale of Matco to Fidentia.
It alleges that the former directors and shareholders of Matco were reckless and negligent in facilitating
the sale to a company that was wholly unsuitable for the task. Old Mutual and Investec, which are
regulated by plethora of financial regulations designed, among other reasons, to protect the interests of
depositors, acted negligently and contrary to certain of these provisions, it is alleged. Investec was a
shareholder in Matco, while Matco had invested funds with Old Mutual Unit Trusts.
The defendants include the seven former directors and six shareholders of Matco. These are virtually the
same as the shareholders were represented through trusts in which all of the former directors held a
Also on the list of defendants were those appointed to the board by Fidentia when it acquired Matco in
2004. These are Arthur Brown, Andrew Tucker, Hjalmar Mulder, Philip Malan and Johan de Jongh.
It is alleged that roughly R1.3bn was misappropriated from the LHUT by Fidentia and the Fidentia
This case does not deal specifically with the misappropriation of those funds. Rather it accuses the
defendants of failing to do their duty to ensure that the funds were adequately invested and that
beneficiary interests were protected at all times.
The defendants have all hired their own legal teams to fight off the challenge. Investec has briefed
advocate Wim Trengrove and Old Mutual Eduard Fagan; while Danisa Baloyi has retained Jurgens Bekker.
Legal counsel for the defendants would not discuss the merits of the case in detail. It is understood
however, that some defendants noted exceptions to the summons, on the basis that it is vague and
embarrassing and does not disclose a legal cause of action. Counsel for the LHUT believes it has addressed
these issues, and argues that the case has merit. An Investec spokesperson dismissed this: “We believe
this case is totally without merit and will defend our position in court.”
In order to bring this case to prosecution, counsel for the plaintiff must successfully argue some novel
points in SA law. In a nutshell, they will argue, inter alia, that the former directors and shareholders of
Matco sold their shares in the company to Fidentia without taking sufficient precautions to ensure the
new management was trustworthy.
What is novel, in the legal sense, is the idea that shareholders cannot just sell their shares to anyone,
particularly when the company they represent, in turn represents the interests of vulnerable people in a
“At the time that we exited all the money was in the trust,” said one shareholder who chose to remain
anonymous. “The losses came about under the new board, appointed by Fidentia. What they are saying is
that we are responsible for a loss suffered not under our tenure, but after our tenure. That is nonsense.”
However the plaintiff is arguing that alarm bells should have gone off in several quarters when the sale of
Matco to Fidentia was affected.
It is alleged that former directors and shareholders did not exercise sufficient care and oversight in selling
the company to Fidentia. One possible reason, it is alleged, is that they benefitted materially from the deal,
and were too quick to conclude the transaction. According to information in the summons, the day before
the deal was concluded, Matco directors authorised a R2.4m bonus be paid to shareholders.
There are a number of examples given to support the alleged lack of care shown by former directors. For
instance they knew that Fidentia Holdings would appoint a new board of directors to Matco and once this
happened Fidentia would control the purse strings on a R1.3bn fund. This, it is alleged, required that
directors apply more than the usual scrutiny to the deal and the people involved.
Both Old Mutual and Investec are subject to a plethora of financial regulations which in one way or
another are there to protect the interests of investors. The plaintiff will attempt to prove that these
financial institutions were equally remiss in their duties to the trust and its beneficiaries.
Matco had invested the funds with Old Mutual since 2002. By October 2004 it had invested some R1.1bn
in various Old Mutual portfolios.
Whether the institutions and directors acted irresponsibly is for the courts to decide. In the process the
various legal teams will scrutinise the way in which Fidentia came to own Matco. And they will wonder
that nobody created any fuss when Fidentia became the sole trustee over a billion rand fund over which it
had full control.
For a detailed explanation of how R1.3bn of orphans funds rolled in Fidentia, see
The real action began on October 15 2004 when Fidentia Asset Management (FAM) instructed Old Mutual
to “liquidate the R150m of Matco assets with immediate effect...” and to transfer these proceeds into a
Fidentia bank account. At this point FAM had no contractual relationship with Old Mutual.
Shortly thereafter Old Mutual was informed by letter that FAM had been appointed as investment
manager to Matco and the Matco Trust with effect from October 14 2004. The letter added that FAM,
represented by Arthur Brown associate Johan de Jongh had full authority to deal with the investment
portfolio of Matco.
A sceptical Old Mutual responded to Matco saying it was not satisfied with the letter received on October
15 from FAM and signed by FAM directors Steve de Kok, Johan de Jongh and Johan Linde. The letter, Old
Mutual said, was not dated and its instructions were vague and open to possible interpretation.
In addition, Old Mutual said, it had no knowledge of the sale of Matco or of the management changes in the
company. It insisted Matco provide it with clear instructions signed by an authorised signatory.
By the 16th, Fidentia did not have the funds in its Standard Bank account to make the R93m payment for
Matco. It was due that day yet the balance reflected a mere R353 316.97.
On the October 18, the original board tendered its resignation.
On October 19 2004, this same board, including the Investec representatives, recommended and approved
a dividend to the shareholders, effective October 13, to the value of R2.4m each.
By 12h00 on October 19 2004 Fidentia Holdings was the lead shareholder of Matco and the new board
was immediately appointed.
Other shareholders in the Fidentia Consortium included Kopano Ke Matla and the Woman’s
Empowerment Forum, represented by Baloyi. On October 19 2004 Fidentia, represented by Brown,
Mulder, Tucker and Malan concluded the transaction and transferred the R93m for Matco, allegedly using
funds from Matco itself.
On October 20 Malan, now Matco MD, advised Old Mutual and Symmetry Multi Manager that he was the
“sole representative” trustee of the Trust. Malan had, prior to this, instructed Old Mutual to redeem the
relevant unit trusts
According to the summons papers, it was only on October 29 that Old Mutual requested the new board
supply it with Fica-related documentation relating to the trust and Matco.
Old Mutual addressed a further letter to Matco board member Johan de Jongh in this regard, on November
Neither FAM, De Jongh or anyone else at Matco replied.
By November 8 the entire investment portfolio held by Old Mutual on behalf of Matco and the LHUT had
been redeemed to Matco, now owned by Fidentia.
The circumstances under which Fidentia gained control of Matco and paid for Matco seemed unusual.
And the fact that two institutions and at least ten people did not raise an alarm at any of these
circumstances also seems a little alarming.
However, to be successful in their legal effort to get financial restitution for the trust, counsel for the
plaintiff will need to inter alia prove that the defendants breached their fiduciary duty to Matco and the
trust beneficiaries because they did not prevent the sale of the company to Fidentia.
This was despite them knowing that FAM held a mandate that gave it an unfettered discretion to invest
and manage the trust funds and that this was profoundly different to the previous agreement between
Matco and Old Mutual.
They will need to prove that the defendants failed to ascertain the financial viability of Fidentia Holdings
and did not verify the credentials of the incoming Matco directors. In addition they must show that the
defendants did not do enough to confirm that Fidentia had sufficient funds with which to conclude the
And, they will need to prove that the incredible decision by the former directors to implement the sale
agreement without any proof that Fidentia could pay, was reckless or negligent. In addition, they will
need to prove that Old Mutual, which paid the invested funds to Matco between October 26 and November
8, acted negligently.
The summons concludes that as a result of the actions of the previous board and the new board, led by
Arthur Brown as well as the action of Old Mutual, the funds administered on behalf of hundreds of widows
and orphans were dissipated, depleted, stolen and unlawfully, fraudulently and recklessly spent. And as a
result the LHUT is demanding the defendants cough up R1.1bn plus interest as well as the R93m that
Fidentia ‘paid’ for Matco.
But, unfortunately for LHUT, this case is unusual, there is no legal precedent for it, and there will be a lot
of legal to-ing and fro-ing before it sees the inside of a court room.
06 June 2011
How to retire in peace and comfort
IT'S challenging enough planning a vacation six months in advance let alone something in the very
distant future - like retirement.
Thinking and acting in advance are key to being ready for the future when it turns inexorably into the
The younger you are the more distant retirement seems, but the more power you have in the form of
compound returns over time. This paradox can work to your advantage.
We need to ask ourselves some important questions.
How much will I need for my retirement in order to live comfortably when the time comes?
What are my goals?
When should I start?
What should I do?
What expenses might I have when I retire?
In preparation for that comfortable retirement, consider the following:
Recognise that retirement is more than choosing a date to do so;
Determine what it takes and how to get there;
Know how your job/ profession contributes to your retirement needs;
Recognise when to use tax-deferred savings and when not to;
Invest for the future - and into the future;
Be aware of the impact of working during retirement;
Recognise that your home is a lifestyle asset and is unlikely to produce income;
Remember that taxes do continue after you retire;
Determine how you will receive retirement plan benefits;
Ensure your hard-earned wealth stays in the family;
Examine your insurance needs (life, disability, dreaded disease and medical cover);
And Step 12 (a) is of utmost importance, the one that, if forgotten. When all else fails, repeat the first 11
Plans are just that - plans. There are always influences over which we have no control that can destroy
As the two-handed investment analyst says - "on the other hand," your plan may not fail. It may work
wonderfully. However, the first 11 steps deal primarily with money issues. They fail to address those
facets of retired life that have little to do with finances.
Step 12 (b) Reflect on the personal issues of retirement. When you no longer work, you have plenty of
time to fill. When the golf or bowls game becomes boring, what will take its place? During our working
lives, we have many social contacts with our co-workers. Who will take their place to satisfy our basic
human needs for companionship and social interaction? A couple, no matter how devoted to each other,
cannot spend 24 hours a day, day after day, in the exclusive company of one another. Both need outside
interests and companions.
There are other quality-of-life issues, such as housing and its location, health maintenance, availability of
community services, both volunteer and compensatory work, educational interests and leisure pursuits.
These issues will define our life and happiness during retirement. Money keeps us physically comfortable,
but these are the factors that make us who we are.
Retirement is that time of life when we have gained sufficient experience to lose our jobs. Put another
way, we want to reach the stage where, having worked all our lives to make money, we now want our
money to work for us!
07 June 2011
By Bryan Hirsch
New tax law tightens screws on avoidance
Tax changes, which no longer allow companies to transfer assets within a group of companies
without adverse tax implications, have sparked an uproar.
This followed Friday's release of the draft 2011 Taxation Laws Amendment Bill aimed at closing
loopholes, improving anti-avoidance measures and introducing regional initiatives.
"There's been quite a lot of shock," said Barry Garven, director of tax at Bowman Gilfillan.
"There's a perception by the national Treasury that the section has been abused, and to an extent they're
correct," he said. But the proposals were "throwing the baby out with the bath water".
Advisers say most companies use the tax relief legitimately and now they all have to pay for the
transgressions of a few.
The exemption has been removed for 18 months.
Internationally, it is common for companies to shift businesses or assets within their groups. More
sophisticated tax systems allow for this.
Deals using section 45 but not concluded before Friday will have to go back to the drawing board.
AJ Jansen van Nieuwenhuizen, head of tax at Grant Thornton, said: "Their true intention is to clean up
structures, restructure and refocus. It's unfortunate the entire tax base has to suffer the consequence of
less savoury transactions."
Garven said the amendments included clarification and corrections to make it easier to interpret the
Bernard du Plessis, tax executive at Edward Nathan Sonnenberg, said revamping venture capital
provisions and other tax incentive improvements were to stimulate economic activity.
Venture-capital investors will be able to deduct the sum of the investment for tax purposes.
An incentive for film production, previously based on spending, will be linked to profits.
Refinements to the tax incentives for research and development spending mean 150% of
qualifying research and development spending can be deducted.
Industrial development tax incentives have been boosted, with more tax allowance for qualifying
greenfields projects in industrial development zones.
New legislation has been put in place for the introduction of the new dividend withholding tax
next April, replacing secondary tax on companies.
Amendments related to cross-border taxation will provide a more flexible tax environment for SA
multinationals and align treatment with international trends, said Du Plessis.
SA companies will be able to set up foreign regional distribution companies to distribute products bought
04 June 2011
Diversity in equity allocation rampant among investment professionals –
Don’t know whether to buy or sell domestic equities? Should you be beefing them up to exploit value
opportunities or making a smart exit because the JSE has been in ‘expensive’ territory for months?
Insight can be gained by looking into the currently conflicted views of investment professionals according
to Absa Multi Management (AMM), a ‘manager of asset managers’ that constantly scrutinises performance,
philosophy and behaviour across all major investment houses and many of the smart stock-picking
boutiques that are often under-researched by their financial service peers.
“There is little consensus on domestic equity weightings in the asset management industry,” says Miranda
van Rensburg, a leading AMM analyst with the job of tracking fund manager behaviour, asset allocation
trends and shifts in investment style. “The professionals all have the same access to the same data but
often draw radically different conclusions.
“At some asset management firms we recently found equity allocations in balanced funds as low as 50%
while some of their peers had weightings of 75% yet the risk profile of the funds was supposedly much
the same. “If weightings among the professionals fluctuate like this it’s no wonder many private investors
don’t know which way to jump.”
The AMM analysts ascribe the divergence to some nervousness about relatively high JSE valuations and
growing market volatility. The Allshare is basically back to May 2008 highs suggesting the market is
expensive based on historic earnings and some profit-taking might be sensible. However, some listed
companies in some sectors still present buying opportunities even though the market as a whole is
“It’s difficult in these scenarios to suggest guidelines that might help retail investors select an appropriate
fund manager. But generally, the current situation highlights the value of strong asset allocation skills – an
investment manager capable of getting the right mix of equities, bonds, cash and property.
“On top of that, stock-picking ability off the back of strong fundamental research can work wonders as it
helps soften any dip while adding extra upside when the market favours the manager.”
07 June 2011
Revamp of illas to benefit you
The government intends to introduce major changes to the structure of investment-linked living annuities
(illas) from March next year, as well as how illas are provided, scrapping the life assurance industry’s
monopoly on the product so that banks, collective investment schemes and the government itself can sell
The aim of the changes is to lower the costs of the retirement-income product.
The changes, which Finance Minister Pravin Gordhan announced in his Budget speech in February, are
detailed in the Taxation Laws Amendment Bill published this week.
The illa changes are another significant step in the string of ad hoc reforms to the country’s retirement-
funding system over the past few years. The details of the other retirement reforms announced by
Gordhan in his Budget speech will be published in a second tax bill later this year or early next year.
The National Treasury said in a media statement that the delay is because of the need for further
consultations. The proposals will first be included in a retirement reform discussion document to be
released in July.
The proposed changes are:
* Provident funds. The government wants provident funds to fall into line with pension funds, effectively
phasing them out.
Currently, provident fund members are allowed to take their total accumulated savings as a cash lump
sum at retirement. The government intends to phase this out, limiting the cash commutation to one-third;
the balance must be used to buy a pension for life.
* Contribution deductions. The government intends to change and simplify the structure that governs
the tax-deductibility of retirement fund contributions from taxable income.
The contribution deduction proposals are:
* A tax-deductible contribution threshold of 22.5 percent of your annual taxable income from all sources
(both your and your employer’s contributions) as well as for contributions made to any tax-incentivised
retirement fund, such as contributions to occupational funds, and to discretionary savings, such as
retirement annuity funds.
* A limit of R200 000 a year on how much may be deducted in total from your taxable income. The aim of
the limit is to prevent the wealthy from using the current open-ended structure to avoid paying tax.
system reform proposals
The government is scheduled to release the third version of its long-awaited proposals on the overall
reform of the retirement-funding system in July. These proposals will deal with matters such as:
* A compulsory-membership national social security fund aimed at providing minimum pensions for
everyone in formal employment; and
* The compulsory preservation of retirement savings until you reach retirement age.
extra rebate for seniors
This week’s Taxation Laws Amendment Bill confirms that the government will go ahead with a third tax
rebate for senior citizens in the 2011/12 tax year.
The tertiary rebate of R2 000 for people aged 75 and older is in addition to the primary rebate of R10 755,
which all taxpayers receive, and the secondary rebate of R6 012 for taxpayers aged 65 and older.
The introduction of the third rebate means that someone aged 75 or older can deduct a total of R18 767
from the tax they must pay.
05 June 2011
By Bruce Cameron
Major tax law changes
The government is pressing ahead with significant reforms to the country’s retirement-funding system to
improve competition, thereby reducing the cost of retirement products. It is also changing how
contributions to retirement funds will be taxed.
The changes are detailed in the omnibus Taxation Laws Amendment Bill, released this week, which
contains other proposals that could result in your having to rethink your financial plan. The affected
Dividend income funds
The days of tax-free dividend income funds are numbered. The Taxation Laws Amendment Bill puts a stop
to dividend income unit trusts by declaring that the returns are in effect interest payments and will be
subject to income tax. In effect, this will convert the existing dividend income funds into money market
funds but with poorer after-tax returns than normal money market funds.
There are four dividend income funds, with about R45 billion in assets under management, that cost the
fiscus billions of rands in unpaid tax.
In an explanatory memorandum to the Bill, the National Treasury says that dividend income funds use
various strategies “to disguise otherwise taxable interest as tax-free dividend income”.
The strategies include the creation of preference shares, dividend cessions or banks merely providing
guarantees of one sort or another through special purpose vehicles/companies. The types of special
purpose vehicles that are used to switch what should be taxable interest income into tax-free dividend
income vary, but all of them are unacceptable, Keith Engel, the chief director of legal tax design at the
National Treasury, says.
Consultations with the collective investment schemes industry over the future of dividend income funds
are still under way, Engel says. “We are aware the issue needs very careful consideration.”
Engel gave the assurance that there will be no retrospective tax on the returns earned by investors in
dividend income funds. The treatment of the income flows on dividend income funds is due to take effect
on April 1 next year, simultaneously with the introduction of dividends tax.
Deductions for medical expenses
The Taxation Laws Amendment Bill proposes changing the tax deductions that you can claim for
contributing to a medical scheme to a tax credit – an amount by which you reduce the tax you pay rather
than your taxable income.
The credit will be equal to between 30 and 33 percent of the rand amounts that you are currently allowed
to deduct from your taxable income for medical scheme contributions. The Bill proposes that the change
be made effective from next year.
If approved, the effect on scheme members is that higher-income earners who are on a tax rate above
about 30 percent will pay more tax, whereas lower-income earners on tax rates lower than about 30
percent should see a tax benefit.
The Bill proposes increasing the maximum amounts that you can deduct from your taxable income for
medical scheme contributions for the 2011/12 tax year to R720 a month each for the member and the
first dependant you register and R440 a month for each additional dependant.
The explanatory memorandum to the Bill says that if the proposed tax credit system had been introduced
in this tax year (2010/11), the tax credit allowed would be R216 a month each for the member and the
first dependant and R144 a month for each additional dependant.
The memorandum says there will be a supplementary credit for taxpayers over the age of 65, who can
currently claim all their medical expenses against tax. The National Treasury says that it will issue a
discussion document next week that will clarify the policy on deductions for medical expenses, including
out-of-pocket medical expenses.
Risk life assurance policies
The Bill establishes in law the basic principles for how the benefits paid on risk life assurance products –
for example, death and disability cover – will be taxed in the hands of beneficiaries.
Peter Stephan, the senior legal adviser at the Association for Savings & Investment SA, says that, in the
past, practice notes issued by the South African Revenue Service determined whether the proceeds of a
risk policy benefit would be taxable or non-taxable in the hands of the beneficiary. Now, the taxation of
risk policy benefits will be included in the Income Tax Act.
The underlying principles are that if premiums are paid with:
* After-tax money, then the proceeds will be tax-free in the hands of the beneficiary; and
* Pre-tax money, then the proceeds will be taxable in the hands of the beneficiary. This applies mainly to
policies such as unapproved group life schemes, key man policies and other employer/employee contracts
where an employer has paid the premiums and has claimed them as a deduction against taxable income.
Other changes in the Bill
* Foreign dividends, which are currently taxable except for the R3 700 of the annual interest exemption
that you can apply against these dividends, will become subject to tax at 10 percent once dividends tax
becomes effective on April 1 next year.
* Tax concessions for those receiving annual payments from the Road Accident Fund (as the fund moves
away from lump sum payments) from March next year.
* An extension of the tax breaks for murabaha financing and provision for the government to issue a
sukuk – a government bond that is shariah-compliant.
* Turnover tax for small businesses will be made more attractive.
05 June 2011
By Bruce Cameron and Laura du Preez
Illas to give way for accessible riddas
Investment-linked living annuities (illas) are to be renamed retirement income drawdown accounts
(riddas) as part of a general overhaul of the product. Currently, illas can be sold only under a life
assurance licence. They are widely marketed by linked-investment services provider companies, which
are owned by life assurers, or have obtained a life assurance licence, or in effect rent a licence to enable
them to sell illas.
The government says there are a number of reasons that more institutions should be allowed to sell illas
(riddas). The reasons include:
The government is concerned about the costs of illas, which can be more than five percent of the invested
value of the annuity, once adviser fees, administration platform fees and asset management costs have
been factored in.
The government believes that more competition can lower the costs. It has proposed that retirement
funds, collective investment schemes (unit trust management companies and providers of exchange
traded funds) and banks be allowed to market riddas. In fact, the government itself intends to enter the
ridda market with a product linked to its successful RSA Retail Bond.
In its explanatory memorandum to the Taxation Laws Amendment Bill, the government says: “Because
living annuities can seemingly be offered only by insurers (outside of retirement funds), it is contended
that many problems associated with these products can be solved through increased competition beyond
a narrow group of insurance providers.”
* Structure. The government says in its memorandum: “On a technical level, living annuities, as defined in
the Income Tax Act, are not true annuities. The drawdown levels can be altered annually, so the payment
is not permanently fixed into a narrow framework.
“More importantly, living annuities do not really operate as insurance products, because the risk does not
pass to the insurer but remains solely with the recipient retiree.
“Payments for life are not guaranteed and, once the capital savings are depleted, the annuity ends.”
The government says that one of the effects of opening up the living annuity market is that there will be an
increase in the migration of living annuities to low-cost product providers.
The government says it is a fact that pensioners who receive an illa income from more than one provider
or a fragmented income from the same provider often require their living annuities to be combined into
The government wants to encourage the combining of living annuities, because it will be cost-effective and
it is less likely to result in the capital value of the assets falling below an effective R75 000, resulting in a
commutation to cash.
The minimum annual drawdown of 2.5 percent will be scrapped, “because a minimum drawdown is more
consistent with a (guaranteed) annuity product”.
The drawdown account for a ridda must meet the following conditions:
* The total value of the drawdown must be linked to the value of the assets or the retirement savings used
to purchase the annuity;
* The provider cannot guarantee the amount of the annuity;
* No more than 17.5 percent of the remaining balance can be withdrawn in any one year, except where the
total value of the assets or savings falls to R75 000 or less, in which case the total amount may be
withdrawn as a lump sum; and
* When the recipient dies, the remaining savings may be withdrawn by his or her nominee as a lump sum
or the nominee can continue to receive an income on the same basis.
The National Treasury says existing legislation, which is not clear on this point, will be clarified to allow a
nominee to decide whether to take the benefit as a lump sum or an income or as a combination of both.
“The law will be also be clarified to ensure that any residue can only be bequeathed to a natural person
and not to some other legal entity, such as a trust or a company.” Full Report:
05 June 2011
By Bruce Cameron
One in two face poverty in retirement
This is the seventh annual pension report from Scottish Widows which aims to measure the state of the
nation's retirement savings. But while the insurer found there was an increased awareness for the need to
make private savings, the number of people actually doing so has remained static during this period.
The report also showed at more than 10pc of respondents said they would opt out of the Government new
flagship pension scheme – designed to provide low-costs pensions to all workers.
Although three in four people said they recognised the need to save for their retirement, the average
"pensions ratio" for UK workers – that is the amount of income saved into a retirement fund – has
remained broadly the same, at 9pc. According to Scottish Widows workers need to be putting aside at
least 12pc of earnings to secure a decent retirement.
Only one in two workers are doing this, and this drops to just one in four, if those with traditional final
salary scheme are excluded. Worryingly a fifth or workers are making any pension savings at all.
Ian Naismith of the head of pensions market development for Scottish Widows, said: "This year's report
clearly illustrates the stark difficulty we face in helping people to recognise the urgent need to take
personal responsibility for their future. We need a step-change to overcome this ingrained inertia and
help people prepare for their retirement."
This report also highlighted the growing gap between people's retirement aspirations and the reality they
Tom McPhail, a pensions expert at Hargreaves Lansdown added: "This report shows that millions of
people are hoping to retire on a pension of almost £25,000 in their early sixties – yet current savings rates
show that many of them will have to work into their 70s and even then won't achieve this kind of
According to Scottish Widows, the average age people would like to retire remains unchanged, at just over
61 years. Most people said they would not want to work beyond 67, with only one in five saying they
would be happy to still be in employment at 70 years of age.
However, the recession has forced some to downsize their income expectations. On average respondents
said they would need at annual pension of £24,300 to be comfortable at the age of 70, significantly less
than the £28,000 people said they would need prior to the recession. However, this will still be
unobtainable if the number of people failing to save adequately remains at current rates.
Mr Naismith added: "On average people only need to save an extra £58 a month to ensure they have
adequate funds in retirement. That is roughly the cost of a cup of coffee every day."
However he added that people would need "much higher savings levels" if they were to get towards the
average incomes they aspire to. "For many the amount to be saved will be higher but it's about taking
small steps, getting on to the savings ladder, and more importantly, staying on it."
Mr McPhail said it was worrying that such a large number of people seemed likely to opt out of the new
pension scheme, known as Nest (National Employment Savings Trust). He said: "This appears to suggest
that you can lead a horse to water but they may well then choose to turn round and head off to the pub
He added: "The single most important consideration with saving for retirement is how much you save: if
you don't put enough in then you won't get enough out. Even allowing for a state pension of £7,500 a year,
you need a pension fund of over £400,000 to deliver that kind of retirement income, yet according to ONS,
the average savings for a 50-64 year old are currently £151,900 with average pension savings of just
By Emma Simon
Most schemes structurally underhedged
UK - Only 15% of pension schemes have 50% or more inflation-linked assets matching their liabilities,
suggesting most are structurally underhedged, research shows. Research among 44 actuaries working in
pensions, carried out by Redington and Pension Corporation, also revealed the proportion of matching
assets relative to liabilities in these schemes was between 25% and 35% meaning that they were, in effect,
However, it also found 75% of respondents said their schemes would likely or almost certainly carry out a
buyout or buy-in in the next three years, while 80% would likely or almost certainly conduct a liability
management exercise of some description.
Redington founder and co-chief executive Robert Gardner (pictured) said: "The switch in statutory
indexation of RPI to CPI has impacted schemes looking to de-risk, but, as the first set of our survey results
show, pensions schemes can do a significant amount of first order inflation de-risking using RPI before
they need to worry about the secondary order RPI/CPI basis risk."
PIC co-head of business origination Jay Shah added: "Pension schemes are continuing to take big risks of
inflation eroding away investment returns and funding positions deteriorating."
06 June 201
By Sebastian Cheek
The Jam generation face a pension time bomb
You will need a pension pot worth half a million pounds to secure a retirement income of £20,000.
They are all at it. In the past few weeks, Scottish Widows, Prudential, HSBC, LV= and Aviva have published
detailed reports on Britain's pensions landscape. But they needn't have gone to all that effort because they
all conclude what we already know – that many of us are on course for a woefully inadequate retirement
income because we are not saving enough.
The figures on how much you need to save for a half-decent pension are alarming. It is of little wonder
that people don't bother – for many, the goal seems improbable. You would need a pension pot worth half
a million pounds to secure a retirement income of £20,000, if it were index-linked and included a widow's
Remove the valuable indexing element and you would still need a pot of around £320,000. Remove your
spouse from the equation as well and you would need to have saved just over £300,000.
That's why we should all mourn the demise of the final salary scheme. Unfortunately though, these gold-
plated schemes overpromised – they didn't factor in increasing longevity, for instance, and many simply
can't afford to carry on paying out such generous pensions.
If I was offered the chance of a final salary scheme tomorrow I would sign on the dotted line without
hesitation. I worked for Coutts as a lowly paid bank clerk in the late Eighties, and I was a member of its
non-contributory final salary scheme for five years. Full Report:
The Telegraph News
07 June 2011
By Paul Farrow
Will that other shoe drop?
SOUTH AFRICA’S GDP’S GROWING FAST, WILL IT HIT A WALL LATER?
PHILADELPHIA - There was some genuinely good news out on the GDP front last week – according to
Statistics South Africa, the economy beat forecasts to deliver growth of 4.8% in the first quarter of this
This performance was an improvement on the 4.5% growth rate achieved in the fourth quarter of last
year, and was better than the 4.2% growth that economists had, according to Reuters and Bloomberg
The best news of all was that a lot of the extra oomph came from manufacturing, which grew by 14.5% in
the first quarter. This particular sector has been a source of great concern for economists over the last 18
months, because it failed to recover convincingly after the recession. The strong performance it delivered
in these numbers is therefore very cheering.
However, despite the strong Q1 numbers, most economists, and government, are still predicting that the
South African economy will grow by about 3.5% or thereabouts this year, suggesting that we will see a
marked slowdown in growth over the next few months. This is not the end of the world. Although the
government has said that South Africa needs to grow at least 7% a year to make a dent in unemployment,
3.5% is definitely respectable.
Unfortunately, there is also the risk that things could deteriorate quite seriously. On the face of it, the
worst ravages of the Great Recession are behind us, and South Africa has emerged relatively unscathed
from the bloodbath, but there are some major problems in the world and at home that pose significant
risks to the South African economy.
By far the most serious and scariest wild cards in the deck right now are global risks.
Most notably, the situation in Europe is looking ever-more shaky. Painful negotiations with Greece seem
likely to once again have staved off disaster, but European policymakers seem to be lurching from crisis to
crisis as the heavily indebted PIIGS (Portugal, Italy, Ireland, Greece, and Spain) teeter precariously on the
edge of default. Bone-deep austerity programmes have already caused instability and resentment among
the Greeks and the Irish, and the prospect of more to come makes the whole European project look
distinctly shaky. Full Report:
07 June 2011
By Felicity Duncan
OUT OF INTEREST NEWS
Economy to grow at 4,3% — report
A report shows the South African economy is expected to rise by 4,3% next year with a 3,6% rise in 2011.
THE South African economy is set to grow at 4,3% next year, above its potential growth rate, after
expanding by 3,6% this year, according to a report on Africa’s economic outlook published yesterday. The
growth forecasts were above the Treasury's estimates for the economy to expand by 3,4% this year and
4,1% next year.
The report was compiled by the African Development Bank, the Organisation of Economic Cooperation
and Development, and bodies within the United Nations. It estimates SA’s potential growth rate at 4%.
The report predicted that SA’s interest rates would start to rise before the end of this year, after being
lowered by 6,5 percentage points since 2008. That is in line with market consensus, which sees the repo
rate rising by half a percentage point to 6% in November.
SA would record a budget deficit of 5% of gross domestic product (GDP) this year, and 4,5% of GDP next
year, the report said. The shortfalls are below estimates of 5,3% and 4,8% which the Treasury released in
its February budget.
"Likely increases in the (state’s) wage bill pose a downward risk to the fiscal balance outlook as do the
possible introduction of a public health insurance system and youth employment subsidy," the report said.
SA had to show that it had a "purposeful plan" to engage with other members in the Brazil, Russia, India,
China and SA group of developing economies, which it joined this year. "Another challenge is to avoid
neglecting traditional partners while nurturing its strategically important emerging partnerships," the
report said. China takes a bigger share of SA’s exports then any other country, but Europe is still its main
regional trading partner.
The report urged African countries to develop closer cross-border ties in dealing with both traditional and
emerging partners. "Africa is growing but there are risks. Urgent attention is needed to foster inclusive
growth, to improve political accountability and address the youth bulge," it said. The youth bulge referred
to high unemployment among young people.
The share of trade between Africa and other emerging countries had grown to 39% from about 23% in the
past decade, the report said. Its top five emerging trade partners are China, India, Korea, Brazil and
07 June 2011
By Mariam Isa
Vavi: SA must copy India on creating more jobs
Johannesburg - Six million South Africans want jobs but cannot find them, Cosatu general secretary
Zwelinzima Vavi said on Monday evening. "Most of them are young black women without education and
skills," he said at a discussion at the University of Johannesburg.
"They face a lifetime of poverty. This is what I have called a ticking bomb."
Vavi said thousands of South Africans felt marginalised and ignored "living in slum shacks, collecting
water from taps in the street, even having to use bucket toilets".
"This has led to a growing number of service delivery protests."
He said South Africa had been slower than other countries in eradicating poverty.
"India has shown us a way to defuse that bomb."
In 2005, India implemented a scheme which gave every rural household the right to 100 days of
employment (manual labour) a year at a minimum wage. With over 55 million participants, it had become
one of the largest poverty programmes in history and had provided over two billion person-days of work,
48% of which had gone to women. "It has reduced hunger, raised self-esteem, advanced women,
strengthened civil society, and despite problems with fraud, which we in South Africa are unfortunately
also familiar with, introduced new mechanisms to ensure transparency and accountability," said Vavi.
He hoped South Africa could move towards a more radical programme to get young people working and
to eradicate poverty. "South Africa has been slower off the block. Yes, there have been similar schemes...
but much more needs to be done to give our young people hope for a better future," said Vavi.
06 June 2011
Institute of Retirement Funds, SA
Tel: 011 781 4320
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