Never underestimate the value of a tax deduction.

For years I have punted the benefits of retirement annuities.

But over the last 2 years my RA contributions haven’t achieved the dot in the eye in the word sh%t.

And when I lecture there is always that bugger in the audience who reckons the meaning of life is offshore investment. He’s normally an ex-Zimbabwean who just can’t wait to tell you ‘ I told you so.’

So now I am left with that burning question ‘ should I skip my 2016 retirement annuity fund contribution, pay more tax and invest what remains using my offshore allowance? Or buy a bigger boat before the price of resin goes through the roof?’

Just a week ago I would have considered this all a no brainer and schlepped the investment offshore. But there are some benefits in procrastination and the Rand made a bit of a recovery last week. It isn’t the exactly biggest comeback since Lazarus, but it shows that when the Rand falls speculators in dealing rooms make pigs of themselves.

My retirement annuities are largely JSE denominated. Save for 25% that has to be based on cash, that is. The stagnation in growth is reflected in the JSE that is sitting around the same levels as two years ago, save for a bit of a recovery in the last 2 weeks.

Picture 1

In the second half of 2015 the Rand got hammered against all currencies, aggravated by a dreadful presidential gaff in December.

Picture 2

The president says that there was an overreaction to the December blunder. And it would seem that Finance Minister Pravin Gordhan did a good job in restoring some of the damage at Davos. But there is no denying that the damage was just awful.

Now the offshore fans tell you ‘if you had been offshore, fully invested on the New York stock exchange, you would have made a killing!’

Ja, right, but what are the chances of getting that right without the benefit of hindsight. But lets accept the statement anyway by putting the Dow Jones (in Rand Terms) against the JSE, over the past two years.

Picture 3

‘See, I told you so!’ say the offshore fans. ‘QED.’

Maybe not!

If I had R100 of pretax income to invest offshore I would have only invest R60 after tax. However, if I invested through a retirement annuity the full R100 would have been invested.

So lets compare R60 invested offshore versus R100 invested through a retirement annuity.

Picture 4

And the retirement annuity wins by a nose.

The most important point in all of this is ‘never underestimate the value of a tax deduction.’

The offshore fans will still advance a range of ‘ Ja But’ issues. And we could write another few thousand words.

But for now I reckon I will still go ahead with my 2016 retirement annuity contribution.




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