Monthly Archives: February 2017

Easier for those allergic to forms

The introduction of the smart phone a decade ago has changed many things. It’s changed the way you find things in the dark; it’s changed the way you wake up; it’s changed the way you communicate; it may even have changed the amount of time you spend in the loo. What it hasn’t changed, however, is investing.

Opening a new investment remains a complex forms-based process, requiring among other things multiple ID verification. “It’s not hard to see why young people don’t invest,” says Juan Labuschagne, an actuary with long-term insurer Liberty and head of development at Stash. “Look at these forms – they are a barrier – and that’s before you start selecting from one of 50 unit trust options.”

What if you could pay for your cappuccino using a credit, debit or cheque card and automatically the balance – rounded up to the nearest R10, R20 or R50 – was invested in the JSE’s top 100 companies?

Liberty has developed an app, called Stash – as in stash your cash – that enables savers to do exactly that.

Users decide how much they want to stash. The app rounds up the amount of every transaction. If a user decides that their Stash limit per transaction is R10 and they make a transaction for R45, this would be rounded up to R50. The R5 in change is stashed.

Labuschagne explains, “All this spare change accumulates without interfering with your day-to-day life. Stash checks your daily bank balance and never transfers more than you can afford, so you don’t have to worry about going into overdraft. Before you know it you’ll have a significant Stash balance. Your Stash grows as fast as South Africa’s biggest companies do because your spare change is invested in South Africa’s top 100 listed companies.”

There are several funky features to this product. The first is that users are automatically invested in a tax-free savings account. The second is that the app takes less than a minute to download and activate and third, there are no fees on the investment. None.

“We have designed it to encourage people – particularly first-time savers – to invest,” says Labuschagne. “The irony of tax-free savings accounts is that only 21% of the tax-free accounts opened to date have been opened by first-time savers.”

The reason the Stash sign-on process is so fast is because the verification process has been simplified. All that is required is your name, ID and cellphone number – and this information is transferred via the smart phone. And your bank card (not account) details – which are not stored by Stash, but by a Standard Bank subsidiary (which also manages encryption for Snapscan). These are also transferred via the phone.

So what is not required is complex scanning and sending of documents required by most financial institutions in the name of Fica.

Middle class South Africans experience

This is according to the 2017 Sanlam Benchmark Survey, an annual retirement funding study, which surveyed more than 1 300 employees about their financial wellness. The survey described financial stress as emotions associated with the difficulty an individual or household may have in meeting financial commitments due to a shortage and/or misuse of money.

“If it was something else – if this was a disease – this would be an epidemic. If this was the flu, then 70% of South Africa said they’ve got the flu at the same time. It would be headline news,” says Viresh Maharaj, CEO of Sanlam Employees Benefits: Client Solutions.

The middle class is the spine of the economy and the tax base and a lot of South Africa’s sustainability as a nation depends on this group. The fact that almost three-quarters of this group is financially stressed “is a scary place to be”, he adds.

Almost a quarter of those experiencing financial stress said they were stressed about the issue all the time.

The five most significant sources of financial stress were short-term debt obligations (car payments, credit cards and personal loans), not being able to save for the future, not having enough for unanticipated emergencies, extended family financial obligations or ad hoc requests for financial support and paying for school or university fees.

Although there are often suggestions that poor financial decision-making is the result of a lack of education, the findings suggest that this is not the case. More than 95% of the respondents had a post-matric qualification. Almost 80% of respondents had a diploma, degree or post-graduate degree. Just over 10% had a Masters or Doctoral degree. More than 60% of the respondents earned more than R300 000 per annum.

While very demanding economic conditions have contributed to the financial difficulties many South Africans are facing, the culture of consumerism has added to consumers’ woes.

Maharaj says the South African economy is being driven by consumerism. Research from UCT’s Graduate School of Business suggests that when it comes to generational shifts – particularly in the black population – conspicuous consumption is a means of demonstrating competency.

The country also has fantastic advertisers that create a demand that people feel the need to fill. While this is what the advertising industry is supposed to do, it also speaks to a culture of consumption on steroids, which needs to be addressed, he says.

Although short-term debt obligations are already at the top of the list of stress sources, “frictionless lending” is still common and it may be easier to get a loan than to invest a similar amount.

While the National Credit Act includes various checks and balances and has protected South Africa against many bad outcomes experienced internationally, it doesn’t address the fact that being able to pay for something is not the same as being able to afford something, he says.

Similarly, although the Financial Advisory and Intermediary Services (Fais) Act has been implemented for good reason, it acts as a barrier for lower income earners to access advice because it is too expensive, Maharaj adds.

The findings suggest that most middle-class South Africans may be struggling to make ends meet in the short term, which may limit their ability to adequately provide for their retirement.

According to the survey, not being on track to retire ranked as number 6 as a source of stress, implying that individuals may rather be focusing on their immediate financial concerns.

Maharaj says over the last number of years they have progressively discovered that the problem of retirement funding cannot be addressed in isolation. Moreover, there is no silver bullet that would solve the retirement funding issue once and for all.

How to manage the self payment gap

It’s not even halfway through the year and your medical savings have run out, leaving you in the dreaded self-payment gap (SPG). Sound familiar?

It’s something that happens to many medical aid members, but about which many are in the dark.

“Of those members, two thirds reach their annual threshold and receive extended cover for day-to-day healthcare expenses.

What is it?

The SPG is an amount assigned to members, that they must pay in full for day-to-day expenses, once their medical savings have run out. These claims are submitted to the scheme, not for refunding, but to reduce and close the gap – after which the above-threshold benefit takes effect and the scheme again pays for day-to-day claims.

It’s applicable to schemes/plans with an above-threshold benefit (limited or unlimited) – usually top-end plans.

SPGs are mechanisms “which the scheme can use to transfer some of the ‘out of hospital expenses’ risk from the scheme to the member,” adds Jill Larkan, GTC healthcare consulting head. This allows schemes to reduce premiums and make [the plan] appear more attractive.

That the SPG’s not fixed may be a surprise.

What adds to the gap?

Some claims made from savings, may add to the SPG.

Some reasons why Discovery’s SPG increases:

  • Medical savings accounts smaller than the annual threshold;
  • Members claim for over-the-counter (OTC) medicine – including schedule 0, 1 and 2 – from savings;
  • Claims submitted from the previous year and paid from savings;
  • Claims paid over a plan’s annual benefit limits;
  • Special payment applied for from savings;
  • Procedures and medicine that don’t count toward closing the SPG paid for, e.g. certain alternative treatments such as reflexology and acupuncture.

Tips for closing the gap

SPGs are only reduced by claims members pay for that are at medical aid rates, among other things, writes Ross.

For example, if you pay a GP who charges R500 – and submit the claim to the medical scheme to reduce your SPG – if the medical aid rate for a GP consultation is R320, your SPG will only reduce by R320.

As such:

  • Evaluate your medical aid plan: what you’re covered for, at what rates, with which providers and if a specific hospital or pharmacy network much be used, says Kotze. Members really wanting to avoid any SPG, must consider a comprehensive top plan, which can be costly, adds Pascale Bargehr, Total Risk business development officer.
  • Ross concurs. Ensure you really need a plan with an above-threshold benefit. If you’ve been on a plan for two years or more and have never closed your SPG, you’re likely a little over-insured. A financial advisor can assess your needs and place you on an appropriate plan.
  • Look for schemes offering benefits paid from risk. These benefits offer more value for money and are in addition to savings and day-to-day benefits.
  • When entering an SPG, ask your scheme what counts towards closing the gap. Then manage your spending efficiently to maximise benefits, writes ThinkMoney here.
  • Always use a partner network hospital, doctor or pharmacy: you won’t be charged over the rate agreed on with the scheme. This helps avoid copayments, deductibles and additional out-of-pocket expenses, says Gerhard van Emmenis, Bonitas Medical Fund acting principal officer.
  • While using your medical savings, and when in your SPG, use service providers (GPs, dentists, etc) who charge medical aid rates. Then your SPG will be at the same amount originally indicated on the benefit schedule, says David Narun of Informed Healthcare Solutions.
  • “If [hospital] procedures attract a copayment, negotiate with the provider on alternative/more conservative treatment protocols where possible, explains Ann Streak, Alexander Forbes Health senior consultant.