The role of a securities portfolio in your holistic retirement plan

Only 6% of South Africans retire comfortably. This is a sobering statistic and a stark reminder of the importance of ensuring you have a retirement plan in place that will meet your retirement needs. 

In this edition of The Wealth Perspective, I look at how a securities portfolio can be used to complement your retirement savings. This includes investigating the various options available to you, the factors you should consider when selecting an appropriate vehicle, further considerations when investing retirement savings in shares, and making sure your choices are aligned with your goals and needs in the context of your overall retirement plan – especially as goals and needs change over time. 

Options available to you when considering a securities portfolio in the context of a retirement plan

One option to complement your retirement savings is to open a local or an offshore securities portfolio in your name and invest a lump sum and/or monthly contributions. The time you’re invested in the market is more important than timing the market, so your overall retirement plan will benefit the earlier you start investing. Investing offshore also offers rand diversification benefits to your retirement plan.

If you prefer not to make investment decisions yourself, a financial adviser can assist you in choosing an appropriate portfolio of securities in the context of your holistic retirement plan and risk appetite. These securities can be invested in your name or through a retirement wrapper such as a PSP (private share portfolio). The PSG Wealth PSP is a long-term insurance licensed portfolio made up of various securities where one can invest in PSP investment products, such as the  Wealth Retirement Annuity,  Wealth Equity Linked Living Annuity and  Wealth Preservation Funds. The benefit of a PSP is that you can structure your retirement wrapper in such a way that you can invest directly in shares. No capital gains tax or income tax is payable within a retirement annuity, so you can have direct exposure to shares, without the usual tax implications attached to a separate direct equity portfolio. 

Factors to consider when selecting an appropriate vehicle

There are several key factors to consider when selecting an appropriate retirement savings vehicle. These are discussed below in the context of a PSP investment.

Active participation

Investing in a PSP gives you more say in the management of your retirement funds than would be the case if investing in unit trusts, as you can structure your portfolio based on your unique requirements.

Estate planning

• At death, the distribution of your benefits is determined by the product in which your PSP is housed. 
• No estate duty will be levied on your benefits.
• Executor’s fees might be charged on the benefits if the benefits are paid to your estate.

Creditor protection

Retirement benefits (including those invested in a PSP) are secured from attachment in the event of sequestration.

What to consider when investing retirement savings in shares 

It is important to remember that regulatory restrictions apply to retirement savings that are invested in shares. Regulation 28 of the Pension Funds Act places certain restrictions on overall portfolio composition, limiting the extent to which retirement funds may be invested in certain asset types or asset classes. The main purpose of these restrictions is to protect the members’ retirement provision from the effects of poorly diversified investment portfolios. This is done by limiting the maximum exposure to riskier asset classes, making sure that no unnecessary risks are taken with retirement savings.

Regulation 28 currently limits equity exposure in retirement funds to 75% (whether local or offshore), exposure to local or international property is limited to 25%, and foreign investment exposure is limited to 30%. There are also additional restrictions, including sub-limits for alternative investments and the percentage of a portfolio that can be held in offshore assets.

Since retirement planning requires holistic financial advice, it is advisable to consult a financial adviser to ensure your investment is well positioned to deliver on your needs. 

Wendy Myers is the Head of Securities, PSG Wealth.