You can transfer your TFSA

An update to both regulation and financial transactional systems now makes it possible to transfer your tax-free savings account (TFSA) from one provider to another.

Previously, the tax reporting systems were not in place to monitor these flows, so there was no way for the receiving product provider or SA Revenue Service to identify whether these were new flows or a transfer.

Hence, when individuals sold their TFSA investment and reinvested with another provider, it was considered a new investment which could then exceed the R33 000 per annum allowed into a TFSA.

Treasury issued regulatory updates in December last year to provide guidelines for product providers. They then had until March 1 to update their systems.

City Press confirmed with several product providers including Stanlib, FNB, EasyEquities and SatrixNow that transfers are operational.

However, Earl van Zyl, head of product development at Allan Gray, said that while the fund manager will facilitate a transfer out of their fund, they are not yet accepting transfers into the fund.

“We intend to accept transfers in later in the year, if there is sufficient demand and when we are certain that we can service them well.”

The servicing of transfers could be a challenge for providers if there is a high demand. It is too soon to say how these transfers are being managed, which could involve a fair amount of administrative work.

Anthony Katakuzinos, Stanlib Asset Management’s chief operating officer for retail, said that although legislation requires transfers to be made within 10 days, companies have to collect information on the total contributions made to date, any withdrawals that have been made and contributions made in the new tax year.

A new account opening will require Fica verification and a change in debit order.

“It is not something you want to be doing frequently, so make sure you select a fund that meets your needs,” said Katakuzinos.

Should you transfer? Since the launch of TFSAs two years ago, there has been a great deal of product development and new product providers. For example, Allan Gray only launched its TFSA option in 2016.

Other providers, such as SatrixNow, have aimed to bring down the costs of TFSAs by providing index trackers. Some investors may find that they are in the wrong type of asset class.

For example, many investors initially opted for bank TFSAs, which are invested in deposit accounts, but which may not be suitable for longer-term investments.

Katakuzinos believes that TFSAs are an ideal supplement to retirement planning.

“In retirement, your income from an annuity is taxable, but you can draw your income from a TFSA tax free. This could be used to boost your retirement income.”

Katakuzinos says that, ideally, you should select a product provider who can offer you a range of funds to meet your investment needs, including a global fund.

If you consider that TFSAs are in their fourth year and that, by now, you could have invested up to R126 000 so far, it is not an insignificant number.

Katakuzinos calculates that if you invest your full allocation each year until you reach your lifetime limit of R500 000 (just over 15 years) into a balanced fund, it could be worth over R1.7 million tax-free – which becomes significant as an investment, especially when you consider that the tax saving is between 1% to 1.5% compounding per annum.

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