TFSA in life wrapper brings added benefits

Story Highlights

• TFSA life wrapper
• nominate beneficiaries
• insolvency protection
• Old Mutual

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Staff Reporter

Old Mutual has introduced a tax-free savings account (TFSA) in the form of a life insurance policy. That brings extra features that other accounts don’t have, including much simpler transfer of benefits to beneficiaries in the event of death, and protection from creditors.

Clients can nominate beneficiaries and avoid estate process delays and executor fees in the event of their deaths.

“A tax-free product can be written under a number of licences provided the product complies with the regulations,” explains Richard Treagus, GM of savings & investments at Old Mutual Emerging Markets. Licences include life insurance, collective investment schemes (such as unit trusts), LISPs (linked investment service providers where investors can select from a range of investment portfolios from different asset managers), stockbroking accounts and bank deposits.

He says there are no legal requirements to list TFSA products under any specific licence, but the South African Revenue Service does have the right to disallow a product if it does not comply with the regulations. “We obviously made sure the product is fully compliant.”

Solvency protection, he says, is one of the advantages that comes with a life product, as is the ability to name a beneficiary and for the proceeds on death to be excluded from a person’s estate. “We chose to use a life licence for Old Mutual’s tax-free plan because it has these advantages without the liquidity constraint that normally applies to life-wrapped investments.” Other forms of TFSA form part of the estate in the event of death.

He says the response has been extremely positive both in terms of the level of take-up and in customer satisfaction. “We’re particularly pleased with the level of online take-up.

Old Mutual also offers a TFSA product through its unit trust division without a life wrapper. “Although a tax-free product is also available via Old Mutual Unit Trusts, take-up of the life-wrapper version (Old Mutual Invest Tax Free Plan) has been much higher, as it was designed as Old Mutual’s premier tax-free savings product.”

As with most firms offering TFSAs, Old Mutual is keeping administration fees low but it is also paying advice fees to brokers to incentivise them to promote tax-free savings. However, clients can invest directly online, eliminating broker fees.