Sanlam pioneers social saving using TFSAs

Story Highlights

• Tax-free savings account
• social groups savings
• TFSA
• Sanlam

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Staff writer, 19 March 2015

Sanlam has introduced a novel concept whereby anyone can form a social savings group and benefit from reduced fees on their individual tax-free savings account (TFSA). In a group, people will face lower charges for their account than they would as individuals.

It is ideal for a financial intermediary to group their clients together to benefit from the reduced costs, but Sanlam product actuary Kavir Ramjee says clients can also create their own social groups and invite friends, family and colleagues to take out their own plan and join their social group. “The more people in a social group, the lower the administration charge percentage for everyone in that group. Currently, an unlimited number of clients may belong to a social group.”

The concept is inspired by social media and government’s ambition for TFSAs to encourage a culture of savings in SA. The structure of the product is an incentive for people to group together and encourage others to join their group, creating a kind of viral product sales mechanism. Charges are calculated as a percentage of the combined balance of the social group, rather than individual members. The charge percentage declines according to the size of the balance, from 1.45% starting charge to 0.2% for balances of R1m and above.

As an example, a group of 10 people each contributing R2 500 a month, increasing by 5% per year, to the Satrix Balanced Index Fund, would face an initial cost of 2.2% (including commission and asset management costs) against 3.0% for a single accountholder. After 25 years, the single accountholder would have a total charge of 1.2% against 0.8% for the social group.

Clients can open TFSAs, including social groups, online through Sanlam’s website or through an intermediary. Importantly, clients’ accounts remain confidential. The other members of a social group don’t need to know if you’ve joined or left them, but you will need to quote a unique identifier that the social group will have to give you.

Sanlam rolled out its tax-free offerings on March 9 and Ramjee says the social savings group concept is one of its cornerstones. “It has created tremendous interest from existing and potential new clients. Their main concern is where this product fits in with their specific medium- to long-term savings goals. We recommend that clients consult with an experienced registered financial adviser or broker to ensure that they make the decisions that are most appropriate to their specific financial situation.”