I wrote the piece below towards the end of Feb just after the regulation around TFSA’s was announced* and at the time that OM (life) announced the launch of their offering. I took the information directly from their website and then got contacted by someone from OM about my information being incorrect…my response to this is that one of the main criteria of the TFSA is that “products qualifying as tax free savings and investments should be simple to understand, transparent in their disclosure and suitable for the majority of individuals making use of such savings and investment products”.
I dont want to pick a fight with OM but my challenge to them is that their products (and those of some other providers) are not sticking to the letter or spirit of the law by being simple and transparent. If I, as a “so-called sophisticated investor” struggled to find and understand the product information, then how is the person at whom the product aimed going to get it right?
The reality is that in order to make the product accessible to the “yet-to-save”and also profitable for the company, either the fees need to be “high” or the minimum amount needs to be high. In trying to develop a product for the mass market while at the same time trying to make it profitable, it is my opinion that the TFSA offering has got too complicated.
Whilst many have heralded the introduction of the TFSA as a great thing, what they are also forgetting is that the TFSA is not aimed at them – it is intended to encourage non-savers to save. One of the real challenges that emerges from the introduction of the TFSA’s is that as much as government want people to save and invest, it is not profitable business to deal with some sectors of clients. Some of the problems are as follows:
- Bank fees in SA (for debit orders and rejected debit orders) are far too high
- Smaller debit order clients tend to default too frequently
- The combination of the above 2 factors makes the cost of providing products for the “lower end of the market” too expensive.
Perhaps rather than trying to be all things to all people, what OM (and others) should do is set a minimum investment amount at R1000 pm (or whatever the level is that makes the investment profitable) and then when National Treasury gets all heated up about this, perhaps they should point out the reasons that make this business unprofitable – such as high bank fees and uneducated clients.
Or perhaps there is scope for more creativity on this whole thing? National Treasury seems hell-bent on not been seen to favour the wealthy in the country – why else would they cap the TFSA at R30k pa or put a proposed cap on retirement contributions? They need to rememeber that the wealthy pay the tax in the country and need to be encouraged to invest in SA just as much as anyone else does…
So what about a system where there is a significantly increased annuall allowance – such as R200k but where this can only be attained when the investor allocates an amount (say 5%?) to someone who is currently not saving. I imagine something like me putting R100k per annum into a TFSA but where 5% of this is then allocated to a “previously disadvantaged saver”. I would happily pay this to get the advantage of tax-free growth as well as to try to “redstribute” some of the wealth in SA. For example, when I invest my R100k – R95k of this would go into my account and R5k would go into my domestic worker’s childrens fund (for example). There would obviously need to be conditions put in place to prevent the abuse of the system but with something like this we would all benefit. So how about it, surely we can come up with something that makes it better for all?
Note:
*I have since revised the article with this response…
