PPS is an exclusive society for professionals with at least a 4year qualification. Their core business is to provide an income to professionals in times of illness, hospitalization, etc. For example, if you are a CA, and fall ill for 2 weeks, you cannot charge your fees. PPS will then re-imburse you for the time you are unable to perform your work.
Their rates are extremely competative in this niche market. All the other benefits that they provide are add on's underwritten by major players.
Their premiums may look competitive but the contributions you pay towards their income replacement benefits are not tax deductible (talk of changes in the next tax year) like those of the life offices are. Yes, the proceeds are tax free but you are definitely going to be paying the premiums, and hopefully you will never need to claim.
The escalation in claim with PPS is at the mercy of the trustees of PPS. The amount by which your benefit will increase is not laid out up front.
Yes, this benefit is usually cheap(er) but just always make sure you are comparing apples with apples.
A lot of life companies now all offer "professional rates" to qualified graduates so the gap has closed considerably.
Could someone please explain to me why it wouldn't be better to pump those funds into a bond and pay that off much earlier? If you can settle your bond in 7-10 years earlier and continue plowing spare funds into your property, would you not be growing a decent nest egg for retirement too? I know a couple who've managed to grow this into 2 townhouses and 2 flats which they're renting out, over the space of 6 years. I reckon the sale of those properties some day, will bring in a decent profit?
Sounds wonderful until the property market fails to grow, and in fact loses value in real terms, as we currently have. I know a couple who have three properties and they are now looking at selling the one at less than they owe on the bond (the reason being that bond repayments, levies, rates etc are in excess of R11,000 and they are managing to get rental of R6500 for the property - or they could have it standing empty! So in other words they are becoming worse off considering the property value is currently not growing), the other one they are battling to get R800,000 when they hoped for over R1mill and the third they are living in!
Now your rental income on your properties is taxed. Proceeds from the sale of it accrue CGT. Your bond repayments are not tax deductible. (Now I am not saying money cannot be made in property but I am saying be careful of putting all your eggs in one basket...)
Now compare this to an RA where your earnings within an approved retirement annuity fund are tax free. The proceeds (ie when you retire) have a tax free lump sum portion to them, with preferential rates above this tax free amount. Your contributions are tax deductible up to certain limits.
Now think about this last one.... if you are on a 40% tax rate you are effectively making a 40% GUARANTEED return (you WILL get tax money back on this!!). To put it another way you are effectively only contributing R600 for every R1000 you invest! Tell me what other investment guarantees 40% returns... and this is before the actual portfolio return. And then of course throw in the benefits of these funds being protected from creditors... lose your house and their go your retirement "savings".
Everyone should be taking advantage of Trevor's gift by maximising their tax deductibility when it comes to RAs.
