Conservo: Case study

South African Sportsman

Sports professionals face a unique challenge when it comes to planning for their financial future. With the average retirement age of 33 years, making the right financial decisions early in a sports career, preferably before the peak-earnings period, will have a profound bearing on lifestyle later in life. When planning for their financial future, sports professionals need to consider carefully what their life may look like when they have retired from their sport:

  • Will they begin a second career in a related or entirely separate area?
  • Do they have, or intend to have, a family to support?
  • Are current purchases, such as real estate, aligned to their wider financial goals?

A robust pension plan that adequately caters for the needs of the principal and any dependants will always be a vital element in a good financial plan. Good pension plans should be flexible and tax efficient, as well as having a transparent cost structure and excellent administration.

Sovereign has created an International Retirement Plan, called the Conservo, which is a low cost and highly flexible vehicle for retirement savings. The Conservo is structured as a Guernsey-based, multimember retirement trust. The trustee of the plan is Sovereign Trust (Guernsey) Limited, a trust company licensed and regulated by the Guernsey Financial Services Commission.

The Conservo is an ideal plan for South African tax residents who wish to consolidate offshore assets and utilise their annual foreign investment allowance (which was increased from R4 million to R10 million as of 1 April 2015).

Facts

Francois is a 31-year-old South African professional rugby player now based in France. Having played for a South African provincial team in both the Currie Cup and Super Rugby competitions, he has signed a two-year contract to play for a French Top 14 side.

Francois also plays for the South African national team. Excepting injuries, he would have won more than the 40-plus international caps currently to his name. He does not have a Springbok national contract but, under his French contract, is available for the Boks for certain parts of the year.

As a senior Bok in South Africa, Francois earned upwards of R4 million per year, including his provincial contract, win bonuses and commercial work. He opted to contribute 12.5% of his fixed remuneration towards the South African Rugby Players Association (SARPA) Retirement Fund. Under his new Top 14 contract in France, Francois has increased his potential earnings by a further R3 million per year.

Francois has currently saved R1.2 million in an interest bearing account with Absa Bank and a further R6 million in unit trusts. He has invested in real estate worth a total R14 million in South Africa and has business interests in a gym and a winery in South Africa.

Francois is married and currently has two children under the age of five. They have now joined him in France, where he has just acquired property that is valued at €900,000 (approx. R12.8 million). Having the bulk of his assets in South Africa, Francois has concerns about South Africa’s political stability, the Rand’s volatility, inflation, as well as the high tax regime. Francois is also concerned about his ability to support a family in the longer term given the brevity of a sports career and the ever-present risk of a career-ending injury.

Actions

The SARPA Retirement Fund is specifically designed for professional rugby players and confers favourable tax treatment on receipt of retirement savings from age 32 rather than from age 55. Francois and his advisor therefore decide to leave these investments in place but instruct a currency expert to transfer both the R1.2 million in his Absa account and the R6 million from his South African unit trusts to his Conservo account.

In addition to future savings, Francois can also make ad hoc transfers to the Conservo account, as and when he receives sums from signing fees, bonuses, sponsorships or endorsements. The plan is very flexible and accepts most assets. Funding is uncapped. Funds transferred to the Conservo are generally globally invested and would be expected to generate annualized returns of at least 3% to 5% over a full market cycle.

South African Sportsman

Benefits

  • Investment Diversification: Francois is reducing his investment risk by investing in a much wider international market;
  • Rand hedge: Francois is reducing his exposure to the Rand by investing in hard currency as well;
  • Tax Efficient Structure: Retirement trusts are not liable for tax on income or gains in Guernsey, ensuring maximum growth. The capital contributed by Francois may be returned to him without triggering tax. Payments from growth will be taxed as follows: 33% of growth will be taxed at Francois’ marginal rate at the time of receiving the benefit;
  • Estate and Succession Planning: Francois’ heirs can benefit from the assets owned by the Conservo without unnecessary delays or restrictions due to the probate process. The assets will fall outside his estate and therefore no estate duty (20%) or executor’s fees (up to 3.99%) will be applicable;
  • Flexible drawdown options: Francois may have access to the funds held by the Conservo at the age of 50 or later in life. He may also receive loans from the Conservo (up to a maximum of 50% of the total asset value) before he turns 50;
  • Peace of mind: Francois has funds in a strong currency in a safe environment which he can access at short notice should he have to relocate for whatsoever reason;
  • Asset protection: Trust assets are protected from future claims against Francois’s estate

Costs

The plan starts at £750 to establish and £900 p.a. to administer. Charges may vary according to the plan investments.


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Sovereign Trust (Gibraltar) Limited
Tel: +350 200 76173