Offshore retirement - Dollars in your pockets 

The world has changed fundamentally in the past two decades. We are global citizens and aren’t necessarily confined to a single country when it comes to work, education, leisure or, indeed, retirement.

South Africans have become increasingly comfortable with investing offshore in recent years, and seen within this broader context, it’s not surprising. Exchange controls and limits on offshore allowances have steadily relaxed, while new products and platforms have been brought to the market, which made obtaining offshore exposure simple.

Benefits of offshore investing

Offshore exposure offers two obvious benefits: a much bigger investment universe and protection against currency weakness. The JSE has fewer than 500 listed companies, compared with the tens of thousands available globally. Beyond the numbers, there are sectors and markets that are simply not available on our local market. Social networking (for example, Facebook), e-commerce (for example, Amazon), motor manufacturers (for example, Tesla or Ford) or biotechnology (think Gilead) are just some examples.

Discovery Invest offers investors a number of offshore investment options, including the new Recurring Dollar Endowment Plan. This plan enables investors to invest US dollars for a minimum of $200 per month, with monthly contributions capped at $4 000. There is no clearance required because the investor’s R1 million offshore allowance is used.

For those who want to make a lump-sum investment, the Offshore Flexible Retirement Plan offers offshore investment with access to the money as needed, while Discovery’s Offshore Endowment Plans also offer numerous benefits, including the Offshore Upfront Investment Integrator, for qualifying investors.

Investing offshore for retirement

In the context of saving for retirement, offshore investing is also a compelling proposition. It allows for true diversification. Even if your portfolio is correctly diversified, as a South African-domiciled investor, you’re likely locked into funds and annuities that are rand-based. This carries with it an inherent element of risk.

Ensuring that you have a retirement investment offshore in another hard currency (likely dollars) will diversify you further. Locally available products will typically also offer a tax-efficient structure for this hard diversification (for example, as at March 2015, interest and gains will be taxed, with no tax liability on realising the investment at the end of its term). Any offshore investment, including for retirement investments, will form part of your offshore allowance. Residents have a discretionary allowance of R1 million a year, with a limit of up to R10 million, provided a tax clearance certificate is obtained and submitted to your financial institution.

True offshore retirement products are based and managed offshore, usually by a separately registered and domiciled subsidiary of a local institution (or vice versa). When you invest using your offshore investment allowance, your money is exchanged to foreign currency (unless you already have funds in a foreign bank account). Regular contributions mean your conversion rates will average out over time. This means you’ll be able to ride out currency fluctuations and you won’t have a scenario where you move a large chunk of money offshore at, for example, R15 to the dollar (which carries with it the risk of the rand strengthening from that position).

Your offshore retirement investment will pay out at the end of its term in foreign currency (into a foreign bank account). This has understandable advantages as you are not subject to any further exchange controls. For estate-planning purposes, a foreign currency investment can be dealt with under a South Africa executorship process.

The Dollar Discovery Retirement Optimiser is an endowment plan that allows holders of a Discovery Dollar Life Plan to save for retirement in US dollars. This plan offers discounts on your annual fees and pays an extra amount into your investment when you turn 65 (subject to conditions).

Any decision on how much of your retirement savings should be based offshore needs to be made in the context of how you’re planning to spend your retirement. If you travel a lot or have family overseas, or are planning on retiring in another country, chances are that basing a proportion of your retirement savings offshore will be prudent. You’ll have access to that money when and where you need it and won’t need to transfer it back and forth through South Africa, for example.

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