Retirement annuities are designed to supplement retirement benefits from company pension funds or for self employed people wanting to plan for their retirement.
For people in their own businesses where earnings may be irregular, retirement annuities are an excellent way to plan for the future in that the contributions can easily be changed or stopped altogether for a period of time.
These funds restrict access to funds that have been invested until you reach the age of 55 if you are not incapacitated for any reason, however, as voluntary contributions, the tax benefits are available from the first payment. In the event that you are unable to work due to illness or injury on a permanent basis, withdrawals from the fund are allowed under the age of 55.
In general, retirement annuities are invested in unit trusts from some of the worlds top performing funds.
On retirement you are able to take a lump sum payment equal to 1/3 of the capital amount, the remaining 2/3 to be used to purchase income products or living annuities as an example. Discuss this aspect with your retirement planner and ensure that you fully understand the types of investments and realistic income you could expect from these funds.
Recent legislation has removed the compulsory retirement age of 70 and now you are able to remain part of the fund after the age of 70, until death. Upon your death, the funds would become part of your estate and distributed to your beneficiaries.
The Financial services industry is becoming increasingly regulated and offers low risk investments regulated by the SA Government to ensure low risk guaranteed returns.
What are the tax benefits of an RA?
RA’s offer investors significant tax benefits which includes a maximum of 27.5% of you pre tax income subject to a maximum R350 000 per annum. In addition to this, no income tax or capital gain tax is charged on the investment returns within an RA.
At retirement, investors are permitted to withdraw up to one-third of which the first R500 000 of the total withdrawal is tax-free.
How many Retirement Annuities can I invest in?
There are many different Retirement annuities offered by all of the insurance and investment companies. You are entitled to invest in as many RA’s as you wish but subject to the maximums listed above.
When can I access retirement annuity money?
Under normal conditions you are able to access your money after age 55. There are exceptions which will include ill health or emigration.
What happens to my RA when I retire and stop contributing?
When you retire, you are able to draw 1/3 of the capital and the remaing amount MUST be used to purchase in income product like an annuity or pension to provide you with a monthly income. It is important to note that the maximum 1/3 cash withdrawal is optional and the withdrawal is taxable if the amount exceeds R500 000.
What happens to my RA money when I die?
Money in an RA do not form part of your estate and therefore cannot be bequesthed to beneficiaries in your will. Money in an RA would not form part of fee calculation for executors.
Transferring Retirement Annuities when you emigrate
Financial emigration does not mean you have to give up your South African Passport. It is possible to transfer retirement annuities, pension or provident funds to a foreign country for emigration purposes before you turn 55. Some of the reason people are financially emigrating are the following.
Access to your funds
Access the full after-tax cash value of your RA and other retiremernt investments.
Protecting the value of your money
Provide a Hedge against Rand depreciation and economic outlook.
Invest in more stable foreign currencies.
There are many benefits to transferring your savings offshore and this is less complicated than one would expect. Each South African has an annual R1 million discretionary allowance (without SARS approval) they are able to transfer out of the country and a further R10 million (With SARS approval).
For more information on Tax emigration, read the following informative article.