Question:
I am a first year trainee and have lately been thinking about making investments and starting to save for retirement (believe or not, at my young age!).

I read somewhere that unit trusts are the best option to begin with, but the problem is that I am not sure which financial institution offers them at the best of terms. If possible, please advise on other investment plans for a beginner without lots of extra money.

Answer:
Congratulations for starting to plan at a young age. With this kind of attitude, you could be part of only six percent of South Africans that retire with sufficient funds.

If a person is really serious about saving for retirement (which means putting the money away for 30 to 40 years, and not for a "rainy day") then the best vehicle for that purpose is a retirement annuity (RA). When you save your money this way, you get two tax benefits which enhance your savings:

1. The contributions to an RA are tax deductible as long as it does not exceed 15 percent of your non-retirement funding taxable earnings. Let me explain:

   If you are not contributing to an employer pension or provident fund scheme, then none of your income is "retirement -funding" so a full 15 percent of your salary can be used. If you do have a work pension scheme then only 15 percent of your bonus or other taxable income (e.g. income from a rental property) can be applied to get your tax deduction. If you don?t get a bonus or any other income, then you are allowed to save R145 per month (or R1750 per annum) and still get a tax deduction on that.

2. The investment growth within an RA is tax free. Initially, on smaller amounts, this benefit may not seem like much. Over time, however it is a huge advantage.

   If you compare this to a large unit trust investment wherein returns will be taxed at your own rate of tax, which could be anything from 18 percent up to 40 percent. That?s quite a large slice off the top of your savings!

The problem with putting all your savings into an RA is that you cannot access any savings in an emergency. If you have enough to simultaneously invest in a unit trust fund, that would be the best plan. If not, I would start with a unit trust fund until I had enough of an emergency fund saved up (about three to six month's salary is usually adequate) and then begin a new RA.

Now that we have the savings strategy sorted out, let me answer the second part of your question. Which financial institution offers the best option (with either RAs or unit trusts)?

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