THE OLD MUTUAL INVEST TAX FREE PLAN INTERMEDIARY TECHNICAL GUIDE. Let s get South Africa saving.

Transcription

1 THE OLD MUTUAL INVEST TAX FREE PLAN INTERMEDIARY TECHNICAL GUIDE Let s get South Africa saving.

2 PLEASE NOTE: This reference guide does not constitute advice. The information is of a general nature and should not substitute detailed financial planning. The term advisers is inclusive of Old Mutual financial advisers, Agency Franchise Division (mandated agents), Private Wealth Management, bank brokers and Independent Brokers. Although we have taken care in compiling this guide, it may contain inaccuracies, typographical errors and become outdated. Old Mutual Life Assurance Company (South Africa) Ltd cannot accept liability for any loss, damage or expense that may be incurred as a direct or indirect consequence of reliance placed on this guide. Where the contents of the customer s contract and Terms and Conditions differ from the descriptions or definitions in this guide, the contract and Terms and Conditions will prevail. This guide is correct as of March 2015.

3 CONTENTS: SECTION A: INTRODUCING THE OLD MUTUAL INVEST TAX FREE PLAN 4 SECTION B: OVERVIEW AND CUSTOMER ROLES 5 SECTION C: PRODUCT RULES 9 SECTION D: ADVISER FEES 15 SECTION E: PRODUCT FEES AND CHARGES 19 SECTION F: INVESTMENT MAXIMISERS 19 SECTION G: CHANGES TO THE PLAN 21 SECTION H: INVESTMENT FUNDS 23 SECTION I: MARKETING SUPPORT AND SERVICE ADMINISTRATION 27

4 SECTION A: INTRODUCING THE OLD MUTUAL INVEST TAX FREE PLAN Imagine the peace of mind that comes from having an investment that allows your customers to save for their dreams and goals, gives them access to their money at any time, and offers them payment flexibility at no cost. Not just that, but a tax free investment an investment where your customers get their full investment return without being taxed on any of the growth they have earned. With the Old Mutual Invest Tax Free Plan, they can have all that and more. 4

5 SECTION B: OVERVIEW AND CUSTOMER ROLES OVERVIEW THE TAX FREE PLAN The Tax Free Plan is a simple and transparent savings solution for your customers savings needs. All growth in the plan is completely tax free. With flexibility, accessibility and no penalties, the Tax Free Plan puts your customers in control and encourages them to save, while giving them the peace of mind of knowing they can access their money at any time. Key product features: All growth on your customer s plan is tax free All proceeds to your customer are tax free Transparent fees and charges Your customers choose how they want to invest with lump sums, regular investments or a combination of both They have full access to their savings from day one with no penalties They can increase, decrease or stop their regular investments at any time They have the choice of a range of underlying investment funds to meet their unique investment strategies The option to switch their underlying investment funds as many times as they like at no cost There is no term attached to their plan so they choose how long and how often to invest INVESTMENT FUNDS The streamlined range of funds caters to your customers specific investment strategies. They can choose funds that vary in risk from low and medium, to high risk. Old Mutual also offers tracker funds that give customers the ability to invest as affordably as possible while still giving them exposure to growth assets. Along with investment funds managed by Old Mutual, our selected range also includes funds managed by leading fund managers including Nedgroup Investments, Coronation, Prudential and Investec. These funds are referred to as external funds. NO TRANSACTIONAL CHARGES No transactional charges will apply if the customer decides to: increase, decrease or stop their regular investments withdraw from the plan switch between underlying investment funds A transactional charge may apply if a customer transfers their plan to another provider. 5

6 INVESTMENT MAXIMISERS Reduction in administration charges for Old Mutual funds Customers who invest in funds managed by Old Mutual will receive a reduction in their administration charges. Refund of administration charges Customers who contribute the full R annual allowance will receive a refund of a portion of their administration fees after the end of every tax year. LEGISLATION Life Pure Investment The Tax Free Plan is sold under the Life Licence and is governed by the Long Term Insurance Act (LTIA) and Income Tax Act. Certain criteria have however been waived/introduced in order for the plan to fulfil the requirements of a tax free plan. 1. There are no Section 54 liquidity constraints. 2. There is an annual and lifetime limit on contributions as dictated by the government. Annual and lifetime limits on contributions The government has placed annual and lifetime limits on the contributions that can be made into tax free plans. The annual allowance for contributions in a tax year is R This maximum allowance is expected to be reviewed regularly by the government. The lifetime allowance for contributions is R If a customer has more than one tax free plan, the maximum of R per tax year applies across all their tax free plans, not per plan. If your customer sets up a regular investment, the R per tax year maximum means they can invest up to R2 500 per month (if they invest for the full 12 months). If they start their investment later in the tax year, they could select a higher regular investment. Example Start date: October 2015 Months remaining for that tax year (ending February 2016): 5 Maximum regular investment: R30 000/5= R6 000 per month. At the start of the next tax year (March 2016), we will reduce your R6 000 monthly investment to R2 500 to ensure you do not exceed the annual allowance for that tax year. Even though there are limits as to how much your customers can invest, there are no limits on the growth of their investment. The longer they stay invested, the more they benefit from tax free growth. 6

7 The South African Revenue Services will levy a tax of 40% on all contributions exceeding R per tax year. Remember the tax year is from the beginning of March to the end of February the following year. For example, if your customer contributes R in a tax year: Total amount invested R Amount over-contributed R Tax the customer will owe SARS R4 000* *(R x 40% = R4 000) CUSTOMER ROLES CONTRACTING PARTY The contracting party is the owner of the plan. The contracting party is entitled to the rights and is responsible for the obligations under the plan. The contracting party must be a natural person. A replacement contracting party is not applicable to the Tax Free Plan. LIFE COVERED The contracting party will also be the life covered applicable to the plan. NOMINATED BENEFICIARIES The plan will cease on the death of the contracting party. The contracting party can nominate one or more beneficiaries to receive the proceeds of the Tax Free Plan on their death. This means they can save on executor fees and their beneficiaries can receive the proceeds quicker. If no beneficiaries have been nominated, the Tax Free Plan will be part of the contracting party s estate for the purposes of determining executor fees. 7

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9 SECTION C: PRODUCT RULES INVESTMENT TERM The Tax Free Plan is an open-ended plan that has no specified term. Your customers can choose how long they want to contribute for, and also how long they want to keep their money invested. MINIMUM CONTRIBUTIONS Customers can choose whether they would like to make regular investments or lump sum investments, or have a combination of the two. Regular investments Lump sum investments INVESTING IN OLD MUTUAL FUNDS R350 per month R5 000 (If customers have a regular investment set up, this minimum reduces to R1 000) The minimum regular investment above should be adjusted proportionately for other payment frequencies, e.g. R350 per month, R1 050 per quarter, R2 100 half-yearly or R4 200 per year. Regular investments Lump sum investments INVESTING IN EXTERNAL FUNDS R1 000 per month R5 000 (If customers have a regular investment set up, this minimum reduces to R1 000) The minimum regular investment above should be adjusted proportionately for other payment frequencies e.g. R1 000 per month, R3 000 per quarter, R6 000 half-yearly or R per year. If a customer meets these external fund minimums, they can have a combination of Old Mutual and external funds. Old Mutual reserves the right to change these minimums at any time. 9

10 METHOD OF PAYMENT Regular investments Debit order Payment can be made by bank debit orders. The customer may specify the day of the month the debit order must be lodged. If a debit order is unsuccessful, due to insufficient funds in the customer s bank account, we will cancel the debit order after 3 failed attempts. Stop order Only an automatic stop order facility will be accepted and this is restricted to certain companies/institutions that are on Old Mutual s approved list of companies. Stop order payments are always due on the first day of the month. The customer cannot specify the day of the month the regular investment must be paid. Once the method of payment is selected, customers have the option to change their future method of payment from debit order to stop order, and vice versa. Lump sum investments Debit order Old Mutual can raise a once-off debit order from the customer s bank account. The customer may specify the day of the month the debit order must be lodged. Deposits/EFTs Customers can make a deposit into the following Old Mutual Invest bank account: Name of Bank: Standard Bank Account holder: Old Mutual Life Account Branch: Cape Town Branch code: Account number: Account type: Current Payment reference: The proposal number of the plan or the identity number of the contracting party must be used as a reference. PAYMENT FREQUENCY For regular investments, the following frequencies are allowed: Debit orders: monthly, quarterly, half-yearly and annual investments will be accepted. Stop orders: only monthly investments will be accepted. Once the payment frequency is selected, customers have the option to change their future regular investments to any of the available payment frequencies. Lump sum investments can be made as, and when, the customer is able to. 10

11 COOL-OFF PERIOD The cool-off period is 30 days from receipt of each investment, during which the customer can cancel the plan. On cool-off, the total amount of investments made, less any market loss (if applicable), will be disinvested at the earliest opportunity after the date that the written request is received by Old Mutual. Payment to the customer may only be made after a minimum period of 40 days from the date that the investments were due. Cool-off will not be allowed where: The customer has already received some of the proceeds of their plan(s). The customer has increased or decreased the regular investment amount. The customer has switched between investment fund/s. The customer s request for any other voluntary change(s) to the plan(s) has been approved. An income tax certificate has been issued for the plan(s) (or any other requirements as determined by SARS in terms of practice or legislation). INCREASING OR DECREASING REGULAR INVESTMENTS When a regular investment is increased or decreased, the following rules will apply: The regular investment change can be processed at any time for the next due date. Allowance needs to be made for debit order and stop order lead times (usually three working days for debit orders and two months for stop orders before the next due date). For investment increases: adviser fees will be paid to the current or new intermediary(ies), if applicable. For investment decreases: no adviser fees are clawed back from the adviser. Once a change has been requested, the changed investment amount will be the new regular investment. The changed investment amount needs to comply with the minimum investment rules at the time of the request. When increasing investment amounts, customers must ensure that their increase will not result in them investing more than the annual allowance dictated by government. 11

12 SCHEDULED ANNUAL INCREASE The contracting party has the option to select an automatic scheduled annual increase on their regular investments. This facility allows the customer to automatically increase their regular investments once a year by a specified percentage to ensure that their investment keeps pace with inflation. Regular investments can be increased by any whole percentage (up to 99%), the customer can select an inflation-linked increase at a rate determined by Old Mutual every year, or they can choose Education Inflation (based on June-to-June total inflation rate for primary, secondary and tertiary education according to Stats SA). The default date will be the anniversary date of the plan each year. Customers can subsequently change this date. The chosen scheduled annual increase rate can be changed at any time before the next scheduled annual increase takes place (allowance needs to be made for debit order and stop order lead times usually 3 working days for debit orders and 2 months for stop orders before the next regular investment s due date). The customer may choose not to increase their regular investments in any particular year. Once the scheduled annual increase has been taken, the increased investment amount will become the new regular investment. If, at any time, applying the chosen scheduled annual increase will result in your customer exceeding the annual allowance, we will reduce the scheduled annual increase accordingly. Once the new tax year begins, we will adjust your customer s investment amount with the scheduled annual increase they have selected. CHANGE IN DUE DATE FOR REGULAR INVESTMENTS The due date of regular investments may be changed for debit order payments only. The due date may be changed to any date. Due date changes can only be made three or more working days before the investment amount is deducted (as a result of the debit order lead time required by the bank). SWITCHING UNDERLYING INVESTMENT FUNDS Customers have the option to switch the underlying investment funds they have selected for their plan. There are no additional costs for switching funds. WITHDRAWALS (ONCE-OFF) The contracting party may apply for a disinvestment at any time from their plan. The percentage to be disinvested from each investment fund, or the rand amount must be specified. There are no restrictions on the number of disinvestments allowed, but customers need to be aware that disinvestments do not reduce the total contributions they have made for the tax year. Any money withdrawn does not get deducted from your customer s annual allowance. This means that if they have paid R in a tax year and withdraw R10 000, they will not be allowed to reinvest that R until the following tax year. Amounts that have been paid but that have not yet been cleared in our bank account, may be held back until they have been cleared. Withdrawals can only be paid into the bank account of the contracting party and will be paid within 7 days. 12

13 WITHDRAWALS (REGULAR) The contracting party must specify either the rand amount, the percentage of each investment fund, or select that the withdrawal must be made proportionately from each investment fund to facilitate the disinvestment. The minimum regular withdrawal amount is R100 per month and the maximum will equal the total fund value at the time of the request. There are no restrictions on the number of disinvestments allowed, but customers need to be aware that disinvestments do not reduce the total contributions they have made for the year. Any money withdrawn does not get deducted from your customer s annual allowance. This means that if they have paid R in a tax year and withdraw R10 000, they will not be allowed to reinvest that R until the following tax year. Amounts that have been paid but have not yet cleared in our bank account, may be held back until they have been cleared. Withdrawals can only be paid into the bank account of the contracting party. ZERO INTEREST LOANS Zero interest loans are not applicable to the Tax Free Plan. PLAN CANCELLATION The contracting party may apply for a plan cancellation on their plan at any time. All units will be disinvested from each investment fund. A plan cancellation results in the investment plan ceasing and all future regular investments will be cancelled. If a plan cancellation is requested during the cool-off period then the cool-off proceeds will be payable provided all the criteria in the cool-off period section (noted above) are met. If a plan has a zero fund value for more than 90 days after the start date, we will automatically cancel the plan. CESSIONS Both security and outright cessions are not applicable to the Tax Free Plan. DEATH OF THE CONTRACTING PARTY If beneficiaries have been nominated: The nominated beneficiaries will receive the proceeds of the Tax Free Plan according to the allocated shares that the contracting party has indicated. If no beneficiaries have been nominated: If no beneficiaries have been nominated, the Tax Free Plan will be subject to executor fees. 13

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15 SECTION D: ADVISER FEES Adviser fees could be a combination of the following: Financial planning fee: only payable when a regular investment is set up and can be negotiated up to the amount of the first regular investment (capped at R2 500). As-and-when advice fee: negotiable between % of each investment (inclusive of VAT where applicable) Ongoing advice fee: negotiable between % per year (calculated as a percentage of fund value). INITIAL ADVICE FINANCIAL PLANNING FEE The financial planning fee is payable by the customer to the adviser for the initial (upfront) financial advice given on choosing this plan and the appropriate underlying investment funds. The financial planning fee is: Only payable when a regular investment is set up on the plan. Chosen by the customer as a rand amount up to the equivalent of the first regular investment paid by the customer. This amount is capped at R2 500 (incl. VAT). Only payable when the plan is taken out (ie. is not payable on any subsequent investments into the plan). The financial planning fee can be paid in one of two ways: 1. Paid from the first regular investment The customer can choose to pay the financial planning fee as a once-off amount upfront, funded by the first regular investment. In this scenario, the financial planning fee is deducted from the first regular investment and the net amount is invested into the customer s chosen investment funds. 2. Paid as a monthly charge The customer can choose to pay the financial planning fee as a monthly charge which is deducted from their fund value until the full financial planning fee has been paid off. The financial planning fee will be calculated as an annual charge of 0.6% of the fund value, which will be payable monthly until the financial planning fee has been paid off. 15

16 ONGOING ADVICE Ongoing advice fees are payable for the ongoing advice on the continued suitability of the chosen investment funds and the product in general. Your customer may pay for this advice in the form of one, or a combination, of the following: As-and-when advice fee The as-and-when advice fee is payable by the customer to the adviser as, and when, each investment is made. The customer can pay the adviser an as-and-when advice fee of up to 3.42% of each investment payable as, and when, each investment is made. The advice fee is inclusive of VAT. The fee is scalable (0 100%). The net amount after this fee is invested into the plan. This fee can be amended by the customer at any stage and the new rate will be effective on the next investment. If the financial planning fee is being paid from the first regular investment and the customer has also agreed to pay an as-and-when advice fee, the as-and-when advice fee will only start on the regular investment following the one that funds the financial planning fee. This means that both a financial planning fee and an as-and-when advice fee cannot be deducted from the first regular investment. The R annual allowance per tax year is calculated net of the financial planning fee (only if it is funded from the first regular investment) and the as-and-when advice fee. Ongoing Advice Fee The ongoing advice fee is deducted monthly from the fund value. A monthly ongoing advice fee of up to 1.14% of the total fund value of the investment is allowed per year. This fee is paid at the end of every month by disinvesting units proportionally from the underlying investment funds. This fee is inclusive of VAT. The fee is scalable (0 100%). This fee can be amended by the customer at any stage and the new rate will be effective on the next deduction. The as-and-when advice fee and the ongoing advice fee work together in that the maximum of both cannot be charged. If a higher as-and-when fee is negotiated, then the ongoing advice fee must reduce accordingly, and vice versa. The sum of the scaling of the as-and-when fee and the ongoing advice fee must not equal to more than 100%. 16

17 As-and-when advice fee Fee (% of investment amount) Scaling 3.42% 100% 2.57% 75% 1.71% 50% 0.86% 25% 0.00% 0% Ongoing advice fee Fee (% of fund value) Scaling 0.00% 0% 0.29% 25% 0.57% 50% 0.86% 75% 1.14% 100% ALLOWABLE CHANGES TO ADVISER FEES Changes to the rate of future unpaid adviser fees: The customer can change the level of future unpaid adviser fees within the maximum allowable limits. Any adviser fees already paid cannot be changed. The following specific changes are allowed: Changing the rate of as-and-when advice fees on future investments. Specifying the rate of as-and-when advice fees on specific lump sum investments. Changing the rate of future ongoing advice fees. Changing the adviser to which future unpaid adviser fees are to be paid. An Adviser Fee Change form needs to be completed in order to request these changes. CLAWBACK OF ADVISER FEES (ONLY APPLICABLE TO FINANCIAL PLANNING FEE) Adviser remuneration account An adviser remuneration account is set up for each Tax Free Plan where the financial planning fee is paid as a monthly charge. On any transaction where financial planning fees are clawed back from an adviser, the adviser remuneration account will be reduced by this amount. The adviser remuneration account will grow at a rate of interest equal to the current prime lending rate less 2% per year. The prime rate will vary according to changes made by the RSA Reserve Bank. The financial planning fee will be clawed back on the following events: When a regular investment was due and not received (reversal) Withdrawals (proportionately on the withdrawal amount) Plan cancellation Regular investments which are cancelled after 3 failed attempts 17

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19 SECTION E: PRODUCT FEES AND CHARGES ADMINISTRATION CHARGE An administration charge of 0.75% per year will be deducted at the end of each month from the fund value via a cancellation of units for the ongoing administration of the plan. This administration charge will be a minimum of R20 per month unless a regular investment is in place. This charge may be increased annually with inflation as determined by Old Mutual. The administration charge can be reduced and a part is refunded in certain circumstances. These reductions and refunds are called Investment Maximisers. (See Section F for more on Investment Maximisers) ASSET MANAGEMENT FEES Asset management fees are deducted by the fund managers of the underlying investment funds. The fee varies from investment fund to investment fund. (The Fund Performance Guide can be referred to for a detailed list of funds and their respective fees.) SECTION F: INVESTMENT MAXIMISERS The Old Mutual Invest Tax Free Plan offers your customers Investment Maximisers to make the most of the growth on their investment through: REDUCTION IN ADMINISTRATION CHARGES: When customers choose underlying funds managed by Old Mutual, we reduce the administration charge on those funds by a third. This means the administration charge on Old Mutual funds reduces from 0.75% to 0.50% per year. REFUND OF ADMINISTRATION CHARGES: After each tax year, we check whether your customer has invested their full R annual allowance (or the new allowed maximum as announced by the government each year). If they have, we will refund a portion of the administration charges that they paid as follows: If they are invested in Old Mutual funds, we will refund half of all the administration charges they paid on those funds in that tax year. This means their administration charges will drop from 0.50% to 0.25% per year. If they are invested in funds managed by fund managers other than Old Mutual, we will refund a third of all the administration charges they paid on those funds in that tax year. This means their administration charges will drop from 0.75% to 0.50% per year. The refunded administration charge will be invested proportionally into the investment funds that the customer is invested in at the time the refund is made. 19

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21 SECTION G: CHANGES TO THE PLAN CHANGES ALLOWED Customer details e.g. address, phone numbers, bank account details. Beneficiary nomination and allocation changes. Personalised naming (purpose for saving). Increase regular investment. Decrease regular investment. Cancel regular investment. Addition of scheduled annual increase. Change in scheduled annual increase percentage. Make lump sum investments. Change method of payment from stop order to debit order or vice versa. Regular investment due date change. Adviser fee changes both the amount and the recipients. Switch underlying investment funds. Withdrawals regular and once off. CHANGES NOT ALLOWED Change of ownership outright cession. Security cessions. 21

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23 SECTION H: INVESTMENT FUNDS INVESTMENT STRATEGIES The investment strategies for the Tax Free Plan are based on Inflation+ targets. These targets represent the returns targeted by the fund after the deduction of asset management fees. The table below shows the investment strategies available on the Tax Free Plan: Investment Strategies Enhanced income Inflation plus 2 3% Inflation plus 3 4% Inflation plus 4 5% Inflation plus 5 7% Maximum return The characteristics of each investment strategy are as follows: Enhanced income This strategy has the following characteristics: Aims to achieve returns in excess of those from money markets (after asset management fees), while attempting to avoid capital loss over any 12-month period. There is no guarantee against returns being eroded by inflation. The recommended minimum investment period to achieve this return is 1 to 2 years. Requires a diversified investment portfolio predominately holding interest bearing assets. Returns will have very low volatility. Inflation plus 2 3% This strategy has the following characteristics: Aims to achieve returns exceeding inflation by 2% to 3% per year (after asset management fees), while limiting the risk of capital loss over a 12-month period. The recommended minimum investment period to achieve this return is 2 to 3 years. Requires a diversified investment portfolio concentrated in income bearing assets. Returns will have some volatility due to investment in growth assets. 23

24 Inflation plus 3 4% This strategy has the following characteristics: Targets returns exceeding inflation by 3% to 4% per year (after asset management fees), while limiting the risk of capital loss over a 12 to 18 month period. The recommended minimum investment period to achieve this return is 3 to 5 years. Requires a diversified investment portfolio balancing income bearing and growth assets. Returns will have moderate volatility due to investment in growth assets. Inflation plus 4 5% This strategy has the following characteristics: Targets returns exceeding inflation by 4% to 5% per year (after asset management fees). The recommended minimum investment period to achieve this return is 5 to 7 years. Requires a diversified investment portfolio concentrated in growth assets. Returns will be volatile due to investment in growth assets. Inflation plus 5 7% This strategy has the following characteristics: Targets returns exceeding inflation by 5% to 7% per year (after asset management fees). The recommended minimum investment period to achieve this return is 7 to 10 years. Requires a diversified investment portfolio concentrated in growth assets. Returns will have significant volatility and extended periods of negative returns are possible. Maximum return This strategy has the following characteristics: Targets returns in line with the maximum return available from conventional growth assets over the long term (after asset management fees). The recommended minimum investment period to achieve this return is 10 years. Requires an investment portfolio with close to 100% exposure to growth assets. Returns will be very volatile and long periods of negative returns are possible. 24

25 FUND ALLOCATION Customers select their funds in two steps: 1. Choose their investment strategy Enhanced income Inflation plus 2 3% Inflation plus 3 4% Inflation plus 4 5% Inflation plus 5 7% Maximum return 2. Design their portfolio Based on the option selected in the first step, customers will be defaulted into the following funds: Investment strategy Enhanced income Inflation plus 2 3% Inflation plus 3 4% Inflation plus 4 5% Inflation plus 5 7% Maximum return Default fund Old Mutual Enhanced Income Fund Old Mutual Real Income Fund Old Mutual Stable Growth Fund Old Mutual Balanced Fund Old Mutual Flexible Fund Old Mutual Maximum Return Fund of Funds Even though these funds are the defaults, customers can select any funds from the fund range table above. However, doing so may result in their fund selection not being aligned with their investment strategy. Customers must invest a minimum of the larger of 5% of their investment, or R100, into each investment fund.

26 SECTION I: MARKETING SUPPORT AND SERVICE ADMINISTRATION The following support has been designed to assist you in marketing and servicing the Old Mutual Invest Tax Free Plan: Printed marketing support: Customer Brochure Frequently Asked Questions These brochures can be ordered from: The Skynet Warehouse: Telephone: Electronic support: Brochures All printed material is also available electronically on Gateway. Information regarding Old Mutual Invest Tax Free Plan will also be available on Service Centre: Telephone number for advisers: Broker Service Centre (BSC): Preferred Service Centre (PSC PFA): High Value Distribution Service Centre (HVDSC): Intermediary Service Centre (Imed): Telephone number for investors: Fax number: #taxfreesignup 27

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28 OM /IMED Old Mutual is a Licensed Financial Services Provider