At The Approach of Rajab & Sha’ban
With the sighting of the crescent of Rajab, Rasulullah (Sallallahu ‘Alaihi Wa Salam) would anticipate and begin preparations for the month of Ramadaan. This is two months in advance! People “live to see” various accomplishments in their lives, but a Believer “lives for” and yearns to witness sacred days like these.
The crescent of Rajab signals the start of a “New Season”. One of hope, mercy and forgiveness for a believer. This “season” only finishes three months later; on the day of Eid!
Rajab is the second of the “four sacred months” in the Islamic Calendar which are referred to as: “Al-Ash-hurul hurum“ (Surah Tawbah, verse: 36)
The others are: Zhul-Qa’dah, Zhul-Hijjah and Al-Muharram.
Shaykh Abu Bakr Balkhy (Rahimahullah) says:
“Rajab is a month in which we plant the seeds of good. i.e, by increasing our ‘ibadah. In Sha’ban we water them, to cultivate (and reap the rewards) in Ramadhan”
(Lataif, pg. 173)
Imam Shafi’e (Rahimahullah) has stated: “I have heard that Dua’s are accepted by Almighty Allah on five nights:
1) The night of Jumu’ah,
2 & 3) The nights of the two ‘Eids,
4) The first night of Rajab,
5) The middle (15th) night of Sha’ban,
(Lataiful Ma’arif, pg. 196)
The Sahabah (Radiyallahu ‘anum) and the Tab’un (Rahimahumullah) would increase their Quranic recital during these months (especially in Sha’ban), i.e. in preparation for Ramadhan. (Lataiful Ma’arif, pg. 192)
Opportunities like these only come once a year. Fortunate are those who maximize their benefit there from.
Why you should weather the storm
Fund managers have preached patience. Financial advisors have urged clients to stay the course. But it hasn’t been easy. Equities are generally expected to do much better than cash in the long run, but over the last five years, local cash investors have had better returns than those who have invested in the stock market.
Source: Old Mutual Investment Group (* Average of the Asisa SA Multi-Asset High Equity Category)
Many people are wondering if this situation will be a permanent feature going forward. It may be useful to go back in history to see what the situation has been over long periods of time, and whether the current situation is unique. The maroon line in the chart below depicts the rolling five-year return of the JSE All Share Index after inflation. The green line shows real cash returns in the same manner.
Source: Old Mutual Multi-Managers
there is a lot of volatility in the red line, but that is also cyclical. For those investors who had the patience to stay invested, equities managed to outperform cash 80% of the time over all these rolling periods, one must believe that the macro-economic environment isn’t broken. While the South African economy faces many risks and challenges, it is coming off a low base. Economic growth has been low, but the view of Old Mutual Multi-Managers is that it will turn around. The second consideration is whether there is value in the market – in other words, if assets are cheap. The chart below shows the real returns of various asset classes over the very long term (the maroon dots). When the green bars are above the dots, they believe the asset class is offering value.
Source: Old Mutual Multi-Managers
In almost all cases, asset classes currently look cheap with the exception of global bonds, Watson says. Portfolio managers say based on their current expectations of asset class returns, the typical balanced fund could deliver around 9.5% in nominal terms per year over the next five years, compared to 7% for cash. The assumption is that inflation will be around 5%.
Many people are disappointed that change in the country hasn’t happened quickly enough, however change has been extraordinary. Just over a year ago, South Africa had a poor team in charge. Today, a much better leadership team is in place and President Cyril Ramaphosa wants to take the country in the right direction. It is going to take time. Confidence has to come back, but due to the depressed asset prices in South Africa and because of those poor returns over a number of years – the outlook for better returns is promising, specifically in South African assets.
Source (Old Mutual)
Taqwâ (piety) has three levels:
1. Do not use such things or wealth that the jurists and ulamâ have declared harâm (forbidden), as using these will result in one becoming a fâsiq (open rebellious sinner), and his testimony will be rejected in court. This is the level of piety of the common Muslim.
2. The second level of piety is that of the sulahâ (pious). This means that one should abstain from doubtful things, even though the Muftis, based on outwards circumstances, have declared them to be halâl. However, these items are such, that there is a possibility of hurmat (prohibition, thus they become doubtful. The sulahâ abstain from such type of food.
Rasulullâh Sallallahu Allaihi Wasallam said, “Leave that in which there is doubt, for that in which you do not have doubt.” Ibn Hibbân(722), Tirmidhi (2518), Hâkim (2/13)
3. The third level is that of the atqiyâ (those having taqwâ/abstinent). Rasulullâh Sallallahu Allaihi Wasallam said, “A person cannot reach the rank of the muttaqin (those having taqwâ), until he does not leave out the harmless things, for fear of getting engaged in those things in which there is harm.” Tirmidhi (2451), Hâkim (4/319), Ibn Mâjah (4215)
Umar Radhiallahu Anhu used to say, “We used to leave out nine-tenths of halâl, out of fear of falling into harâm.” Musannaf of Abdur Razâq (8/152)
Based on this principle, some of Allâh Ta’aala’s pious servants would only suffice on 99 dirhams when they were eligible to receive 100. When they had to fulfil anyone’s right, they would give extra. When claiming their right, they would take less!
Umar bin Abdul Aziz Rahmatullahi Allahi would cover his nose, when musk was weighed in his presence in the Baitul-Mâl (public treasury).
When asked regarding this, he remarked, “The benefit of it is in its fragrance.” Abu Nua’ym in Hilyah, Bayhaqî in Az-Zuhdul Kabîr (919), Taârikhe Dimishq (28/64)
This is the reason for abstaining from delicious halâl food, and permissible forms of beautification. There is fear that once habituated to it, one’s nafs will overpower a person, and thereafter lead him to prohibited desires. The prohibition of the Qurân of longingly gazing at the abundance of wealth and material chattels of the disbelievers, and towards their status and honour, is because the beauty and lustre of one’s îmân diminishes, due to this outward glamour. When the love and desire of worldly wealth and goods overtakes one, the love of îmân does not remain in the heart. A pious person once said, “He whose clothing is thin, his Dîn is also thin.” In short, according to the abstinent, only that wealth which is halâl, is presently devoid of any form of doubt, and devoid of any possibility of causing harm in future, is worthy of consumption.
Tabligh-al-Deen – The forty foundations of the Religion by Imam Abu Hamid Muhammad ibn Muhammad al-Ghazaali Rahmatullahi Allaihi. Pg 32-33.
Niel Fourie, the public policy actuary at the Actuarial Society of South Africa, has a solution that can help you to achieve exactly that, while at the same time significantly boosting your retirement savings. But there’s a caveat: you have to be prepared to sacrifice a portion of your monthly take-home pay.
To illustrate this, Fourie crunched the numbers for monthly salaries of R50 000, R25 000 and R100 000.
“Obviously, the higher your pay scale, the more impressive the numbers,” says Fourie.
Take a salary of R50 000 a month. If you’re contributing 10%, or R5 000, to a retirement fund, your monthly tax is R10 683 (based on the 2018/19 tax tables). Assuming there are no other deductions, your take-home pay is R34 317.
If you doubled your monthly contribution to the retirement fund to R10 000, your tax would drop by R1 800 and your take-home package to R31 117, a reduction of R3 200. Fourie says that, effectively, the government is sponsoring the additional R1 800 towards your retirement savings, by reducing your tax rate as an incentive to save more for your retirement.
Over 12 months, your tax saving would amount to R21 600 and over 20 years to R794 568.77, assuming a 6% salary increase every year and the tax brackets adjusting accordingly.
Fourie says that, instead of sacrificing this money to taxes, you have effectively grown your retirement savings by at least this amount or more, depending on where you invested your money.
Here is how much you can save if you earn R25 000 or R100 000 a month:
• If you are contributing 10%, or R2 500, of your salary of R25 000 every month to a retirement fund, your monthly tax is R3 372 and your take home-pay is R19 128, Fourie says.
If you doubled your monthly contribution to the retirement fund to R5 000, your tax would drop by R650 and your take-home package to R17 278, a reduction of R1 850, Fourie says. In this case, the government is sponsoring an additional R650 towards your retirement savings.
Over 12 months, your tax saving would amount to R7 800 and over 20 years to R286 927.61, Fourie says.
• If you are contributing 10%, or R10 000, of R100 000 to a retirement fund, your monthly tax is R28 814. Assuming there are no other deductions, your take-home pay is R61 186.
If you doubled your monthly contribution to a retirement fund to R20 000, your tax would drop by R4 100 to R24 714 and your take-home package to R55 286, a reduction of R5 900. In this case, Fourie says, the government is sponsoring R4 100 towards your retirement savings. This tax saving would amount to R49 200 in the first 12 months and to R1.8 million over 20 years.
Fourie says that, by giving up a portion of your take-home pay, you end up with significant tax savings, which, if invested wisely, could grow into a sizeable nest egg.
“Even though you will be taxed when you start drawing an income in retirement, it will most likely be at a lower marginal rate. It is also clear that, the more you earn, the more compelling the argument to save in a pension fund or a retirement annuity,” he says.
The Tax Advantages of an Endowment.
To build a successful long-term investment portfolio, one must consider ways to enhance their capital whilst finding efficient mechanisms to reduce your taxes. Endowments remain a useful investment vehicle and offer a disciplined way of saving where you are committed for a certain period so that you can reach your goals.
The tax benefits of endowment policies
Endowments offer an attractive tax-efficient option for people who want to save more than the maximum annual limit for tax-free savings accounts, and those who have exhausted their annual tax allowances such as tax-free interest income.
In addition to tax savings, an endowment offers the following advantages:
- Simplified tax administration as tax is recovered within the endowment and taken care of on behalf of the investor.
- Insolvency protection – the entire value of the policy will be protected against creditors three years after inception until five years after the maturity, or termination of the policy.
- Beneficiary nomination can lead to potential savings on executor’s fees (up to 3.99% of fund value).
- Where a beneficiary has been nominated, payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly.
- Liquidity is created in the estate as payment of the death benefit does not depend on the winding up of the estate and beneficiaries will receive the proceeds relatively quickly.
Advantages of staying invested in an endowment, even after maturity
- You will not pay any tax on future policy proceeds; Your chosen fund house will pay the tax on your behalf from its policyholder’s fund.
- Access to the money: After the maturity date, you have access to the investment funds through lump sum or regular withdrawals. These withdrawals will also be tax free.
- Insolvency protection – the entire value of the policy will be protected against creditors five years after the maturity, or termination of the policy.
There are a couple of options available to you after maturity so you can continue to enjoy the benefits of your endowment. At maturity, you have the following options:
- With your accumulated savings, you can continue growing your money by remaining invested in your endowment policy where your full or some of your maturity proceeds can continue growing (depending on how much you withdraw at that point).
- If you are paying premiums, you also have the option to continue paying your current premiums or to contribute a higher amount.
It horses for courses when choosing an endowment. The main advantage is the tax benefits which tend to benefit the higher taxpayers.
The cost of Medical Schemes in South Africa is staggering, and prices keep on rising. This year, the average increase in monthly contributions is way above consumer price inflation (CPI). Coupled with rising costs are dwindling benefits.
So what’s causing the very high cost of basic medical cover – and is it really necessary to keep on contributing to a Medical Schemes scheme?
Why Medical Schemes is so expensive
The medical inflation rate is almost double the consumer inflation rate. More troubling are predictions of a further rise in 2019.
Several factors are contributing to higher premiums, not least of which is the sorry state of South Africa’s economy.
What has caused this spike in inflation? A combination of three factors.
Preventable lifestyle diseases are eroding the Medical Schemes available resources at an alarming rate. Factor in a sharp reduction in the number of healthy people who are joining Medical Schemes, and there’s less money to fund the rising tide of chronic condition claims. The solution? A sharp year-on-year increase in member contributions.
Aging memberships base
Due to fewer and fewer young people opting for Medical Schemes, the average membership base is aging. Age equates to more frequent, and higher Medical Schemes claims, hence a rise in contributions across the board.
Medical Schemes fraud
According to a recent report, Discovery Health – one of the country’s leading Medical Schemes providers – recovers or prevents fraud valued at around R400 million every year. That’s only the detected fraud. The result is that all members have to pay more to cover the costs of the wholesale looting.
What’s the alternative?
The reality is that there is no alternative to Medical Schemes. You can take a chance and go it alone but consider that 90 percent of existing Medical Schemes members simply could not afford private health care.
Are you able to pay for heart bypass surgery, or the latest and most effective cancer treatment; procedures that can easily cost between R500,000 and R2.3 million?
The real cost of public healthcare
A low-cost alternative is public healthcare. But if you do choose to go for surgery or treatment at a government hospital, be prepared to endure waiting lists, long queues, a lack of properly trained personnel and even unsanitary conditions.
The fact is that the public healthcare system in South Africa is on its knees. There’s a general lack of supplies, equipment, staff and, more importantly, respect or care for patients.
Pay more for less: late joiner penalties
If you decide to relinquish your Medical Schemes only to re-join the same, or a different, Medical Schemes scheme a year or more later, you’ll be penalised through a heavy “late joiner” fee.
Penalty bands are calculated according to the time you have been without cover after a certain age. At the end of the day, you’ll pay more for the same benefits you enjoyed before opting out.
Medical expenses increase with age
One sure bet is that your medical expenses will increase with age. You may need regular blood pressure and cholesterol tests, hormone replacement therapy, pap smears, prostate examinations and tests for diabetes and heart disease. Other common requirements are knee and hip replacement surgeries, CT scans and colonoscopies.
If you don’t have Medical Schemes cover, you’ll have to pick up the tab yourself. That tab can easily run into tens of thousands of rand.
Is there a solution?
Currently, there’s no clear solution – but if you are on Medical Schemes or looking to join a scheme, there may be ways to reduce the costs. Several leading Medical Schemes providers offer low-cost options, providing basic medical cover at more affordable rates.
SOURCE: Independent Financial Consultants