By Ian Groenewald, TBI Group CEO
February saw the end of the tax filing season in South Africa, a time when many investors take stock of their finances and tax liabilities. We’re not financial advisors, but because our two Sanlam funds are designed to offer investors tax-efficient returns – whether they’re headed into retirement or want to invest their discretionary cash – it’s worth unpacking the role tax plays.
Tax planning shouldn’t be a once-a-year consideration, but an ongoing strategy – especially for income investing. The real measure of financial security in retirement isn’t just what you earn, but what you get to keep. And this is why we prioritise after-tax returns in our investment philosophy.
Why After-Tax Returns Matter More Than You Think
The focus on pre-tax returns has been driven largely by the structure of the investment industry. Most fund managers cater to institutional investors—pension funds, retirement annuities—where tax isn’t an immediate concern. But when individuals start drawing from their savings, tax becomes a very real factor.
Retirement is a welcome milestone for many but when the taxman targets your pension withdrawals and other discretionary investments, stepping away from your desk might be more of a pain than a pleasure.
If your portfolio isn’t structured with this in mind, you could pay far more tax than necessary, reducing the income you rely on to maintain your lifestyle.
The Cost of Ignoring Tax Efficiency
Let’s take a simple example. If you invest R1 million in a money market fund earning 8% interest, and you’re in the 45% tax bracket, you’ll owe around R36,000 in tax. Your after-tax income is R44,000. Compare that to receiving dividends instead—where only a 20% withholding tax applies. In that case, your after-tax income is R64,000 – nearly 45% more. In a nutshell, if you invested in a more ‘traditional’ income fund, your returns might be higher, but are eroded because of the way their returns are structured. Adjust this structure, and you’re looking at a much improved outcome.
This is not just about numbers; it’s about quality of life. That additional income could cover healthcare costs, fund travel plans, or support your grandchildren’s education. Yet, the industry remains fixated on pre-tax performance metrics that mean little to retirees who need real income.
A More Strategic Approach to Retirement Income
Discretionary investments—funds outside traditional pension and annuity structures—are often overlooked by advisors. Too many focus on compulsory retirement savings but fail to ask: How will I actually live off my money?
This is where financial advisors and investors need to change their mindset. It’s not simply about investment income, but how efficiently that investment delivers income. Tax treatment of different income sources—interest, dividends, and capital gains—must be considered as part of the investment strategy.
The Role of Income Funds in Optimising After-Tax Returns
At TBI Investment Managers, we have made it our mission to focus on after-tax income, not just pre-tax performance. We believe treating customers fairly means helping them keep more of their money.
Most income funds in South Africa focus on delivering the best pre-tax returns, catering to institutional investors. Our approach is different. We structure our funds to optimise the mix of income streams, ensuring tax efficiency for investors who are actually drawing down their savings.
A Call to Action for Investors and Advisors
With tax season behind us, now is the perfect time to take a proactive approach to income investing. The industry should look beyond selling returns that look good on paper but don’t translate into real, usable income. Investors, too, need to challenge their advisors: Are you optimising for after-tax returns? Are you structuring my investments to ensure I keep as much of my money as possible?
At TBI Investment Managers, we are passionate about providing solutions that truly serve investors’ needs. If you want to make your investments work harder for you in retirement, keep your eye on what’s behind the headline numbers. After all, financial security isn’t about what you earn—it’s about what you keep.
Disclaimer: Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. There is no guarantee in respect of capital or returns in a portfolio. Representative Office: Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za. The TBI Global Multi-Asset Income Fund is registered and approved under section 65 of CISCA.
