Important updates - Short-term, Medical aids & Regulation 28

It is Important to update your short-term policy

I recently had a scare when I lost my wedding band and began to institute a claim from my short-term policy. I say almost as I managed to find it after three weeks, my insurance provider was just as pleased to hear that news. My point is to bring your attention to the value of your jewelry on your short–term policies.

Jewelry values on a short-term policy are set at the time you take it out. These values do not, annually, increase in line with inflation or a massively over-valued gold price. Using me as an example, I got married in 2010 and between this date and today the gold price has risen from R 1,155 to R 1,760. This is an increase of over 50 % on the value of my ring. Great thing if I want to sell it but what if I need to replace it due to a loss or theft? Luckily I didn’t have to but if I had had to buy the same ring it would have cost me 50 % more than it did in 2010. Who wants to downgrade their ring if they lose it?

Make sure that when we look at your portfolio of products and policies we update your short-term policy in this manner. It is the same for all your financial planning; ensure that it is up-to-date and pertinent to your current life situation. Too often we don’t look at these things till we have to and then it is often too late.

Just be aware that the opposite is true for platinum. If we had gone for this more fashionable option when we were married it would have stayed pretty much the same as when we first bought them. Diamonds are the same: there are great deals on diamonds currently so if you are planning on getting married soon – go for platinum and diamonds. Save the gold for the anniversary!

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Medical aids

Now is the time to consider changing medical aids or upgrading your current option to be effective 1 Jan 2013. If you don’t change your medical aid will automatically default to the same plan you are on currently.  If you would like to up/down grade your medical aid, please inform us or your medical aid soon. This process needs to be completed by the end of November.

Thinking of changing your medical aid provider?

Medical aids cannot refuse you entry, however they can ‘underwrite[1]’ anyone that is joining them.  This may involve questionnaires, queries or a full medical report & relevant tests that go along with this.  Once they have undertaken this process they are entitled, under South African legislation, to impose 3 restrictions on your joining their medical aid:

1.     A 3 month-general waiting period can be imposed during which you will have limited or no cover. Limited cover will be for life threatening conditions and the prescribed minimum benefits. &/OR

2.     A condition-specific 12-month waiting period can also be applied; &/OR

3.     Late joiner penalties – otherwise known as LJPs; are only applied to members older than 35 years of age and only if you have not been a member of a medical aid over the age of 30. 

Generally, if you are under the age of 40 and are completely healthy, you should not have any waiting periods or penalties enforced on your membership of a medical aid.  This is a rule of thumb and is not a definitive declaration on all medical aid schemes out there. If you are considering it do your homework.

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Regulation 28

A number of notices have gone out regarding your Retirement investments compliance with Regulation 28. You may have gotten a generic document or one specific to your investment. This should not alarm you as it is a legislated requirement to ‘protect’ your investments from yourselves and uneducated advisors.

This section from the Pension Funds Act restricts your exposure to certain asset classes. If your investment exceeds these restrictions than your investment house/policy provider, may choose to switch you automatically into Cash, thereby brining you in line with Reg 28 and avoiding any risk on their side. This is often not the best thing for your investment and if you have a long time to go to your retirement is actually the worst thing for your returns. It is, however, a regulation that now has to be followed and all the companies we represent are enforcing it in one way or another.

Regular rebalancing of your portfolio is an important part of your financial planning. If you have any concerns about this or would like to discuss your Reg 28 letters or investment portfolios please get in touch with me. It is important for us to meet regularly to ensure these types of alterations are discussed and actioned where necessary.

 

The Low Environment

Low interest rates, low returns, low feelings, the lowing of the cows in the fields of uncertainty. Everything appears to be confusing and worrying. Good news and markets rebound but the converse is also as prevalent. Review any market movements over a month or two for the last year and you will see what I mean. Generally markets have moved up however volatility abounds. This uncertainty is prevalent – titles of recent articles:

·         Ten stocks for uncertain times

·         IMF Warns on fiscal cliff, euro crisis

·         South African economic outlook deteriorating rapidly…

So what is there to do in these times but ride out this uncertainty? The only certainty that we can bank on is that in the end everything will be alright. Make sure that your portfolio and needs are closely aligned. It is a disparity between these two distinct variables that will cause a loss or diminish the returns of your investment.

Low lights to be aware of

Uncertainty within our markets affects the way foreigners perceive us. We rely heavily on foreign inflows of money into SA stocks, bonds and other investments to balance our (SA’s) books. Without these inflows our deficit has to be funded through borrowing money. Governments in developed countries are excellent at this – borrow now to pay later when things turn around. What if they don’t? Perception of our markets has been negatively affected due to the strikes and political uncertainty which has been mostly due to ANC’s Mangaung conference. Foreigners have dis invested approx. R 4bn from SA. Taking profits they have made over the past few years. Moodys recently downgraded our credit rating which also had overseas investors raising concerns. The value of the Rand has also weakened due to these outflows which makes investing in our country more expensive.

There is a sinister element in these illegal and wildcat strikes that does concern me. Our government must get a grip on this quickly in order to restore confidence. Once these political manoeuvrings within our ruling elite have played themselves out, it should be business as usual. I do hope, however, that the status quo within our country that exists between elective conferences, will not, in the broader sense, carry forward. We really need our government to start performing and encouraging our country to become the African light that can lead us to prosperity.

Another concern is still Europe as it is in recession and they are one of our largest trading partners. Greece’s economy, in particular, will have contracted 25% by the time this recession ends. They have to accept the austerity but yet they protest and fight it. If they had just paid their taxes and balanced their books in the first place all would have been fine.

Why are rates so low?

Rates are low worldwide; in most cases returns on cash are actually negative when you take inflation into account. Bond and cash yields are being kept artificially low so that Governments and the public can afford their debt. Fiscal policy is hamstrung as Governments are unable to increase yields to get their economies moving. Inflation since 1994 has been around 2% in the developed markets. If they were able to increase costs this could spur the economy on as Corporations make more money. Inflation is not necessarily a bad thing. We are caught in this ‘bubble’ of uncertainty. If rates were to increase some governments might not be able to service their debts to other countries. Look at Italy and Greece. Yields on US Gov bonds are the lowest they have been in over 500 years of data! 500 years…

A conspiracy that I have on this is actually my largest concern. One day some, if not all, of this debt will need to be written off. This is especially true for the US, as their debt is just too huge to ever be paid back. Which company or government will be willing to take that write off? You should know that China is still the largest owner of US paper.

And now the down-low

As I mentioned in my opening few paragraphs - ensure that your needs and required returns are aligned. There are many things out there that could affect ours and the world’s economy quite badly. Be aware and make sure your portfolio is positioned appropriately. In my ‘glass-half-full’ world: everything should be alright. I just wish everyone else would see it that way as well and then this uncertainty would fade and things would become less volatile.