Are TFSA’s Important?

The Tax Free Savings Account (TFSA) Series

In this article we will answer the next TFSA questions as part of the WellSpent TFSA Q&A Series.

Q12: Are TFSA important savings vehicles given the South African economy and savings landscape?

Shaun Williams, Avior Wealth Services answers:-

There are two important reasons why a TFSA is important and beneficial to one’s investment/savings portfolio. Firstly, South Africa has some of the highest tax rates globally which affect investment returns. Thus, a TFSA plays a crucial role in reducing an investor’s tax liability on investment returns and retirement savings (if the TFSA is used as part of a savings and retirement plan). Secondly, South Africa as a whole has a very low savings rate amongst it’s population. The low savings rate puts strain on individuals when they get to their retirement age.  The low savings rate in South Africa also puts pressure on the government as they are required to support more of the population through retirement. The TFSA was created to incentivise individuals to save and help lessen the financial burden later in life on the individual and the government as well.

Jan van der Merwe, head of Actuarial and Product at PSG Wealth answers:-

Yes, TFSAs provide an important tax-based incentive for people to save in the long-term. It can definitely help investors to achieve better outcomes as part of their overall investment portfolios. It should be noted, however, that the overall lifetime limit means this cannot be the only component of your savings toolkit. It should be part of a well-considered investment plan.


Q13: Are there ‘better’ investment vehicles available for discretionary savings?


Jan van der Merwe, head of Actuarial and Product at PSG Wealth answers:-

This depends on every individuals’ specific circumstances. Understand the components of a well-informed savings decision by reading my article in PSG Wealth’s last newsletter. People often get caught-up in what the “best” choice is – but the answer will depend on what other provisions you have made, why you are saving, and when you want to access the investment. As I have already explained, you would be wasting much of the real benefit if you use a TFSA as a bank account or for short-term goals. Also, remember the “vehicle” (like the TFSA) is only one part of the savings decision. You should also consider the fund (underlying investment) you invest in.

Shaun Williams, Avior Wealth Services answers:-

There is no “one-size-fits-all” investment where one investment vehicle will always be more important or better than the other. The appropriate investment vehicle depends on the individual circumstances of the specific investor. The risk profile needs and objectives will determine which investment would best achieve one’s objectives while aligning to one’s risk profile. We advise one to speak to a financial advisor to determine which investment vehicle is best suited. Additionally, balance is important. The adage of do not put your eggs in one basket is a perfect description when it comes to investing. A TFSA should not be your only investment vehicle but should rather supplement a more diversified investment portfolio of the investor.

Tax Free Savings Accounts – The Questions

Here are the TFSA questions we put to the experts:-

We trust that the information we have provided is helpful and we would encourage you to engage with us, through our social-media accounts or contact us here if you require any additional information.

The WellSpent Editors.


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