Retirement Part 2

Retirement – Dream or Nightmare! Part 2

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Why should you consider a retirement annuity (RA) to prepare financially for retirement?

They offer:

  • Tax advantages
  • a Disciplined way to save enough to invest for growth

In Part 1 of this series we started exploring why Retirement Annuities are an excellent option to prepare you financially for retirement. We continue that here: Part 2…

Some complex details should be considered when investing through a retirement annuity.

Your over-contributions will roll over

6. Your over-contributions will roll over

  • Your tax-deductible premiums are limited to 27.5% of your taxable income per year (up to a maximum of R350 000).
  • But you may invest more since over-contributions towards your RA will be rolled over to the following year – where they can be used for tax deduction purposes in that year.
  • The advantage – these over-contributions will enjoy investment growth (even though the tax benefit will only be gained in the following year).
RA funds not subject to estate duty

7. The funds in your RA are not subject to estate duty

  • Funds invested in an approved retirement fund (such as an RA) are not part of a deceased estate.
  • So its value is not taken into account when calculating estate duty.
  • RAs can be used effectively to reduce estate taxes.
Use your RA to reinvest

8. Use your RA to reinvest your tax refund

  • Consider reinvesting the tax refunds you receive from Sars.
  • At the end of the tax year, you’ll need to submit your IT3 certificate to Sars as part of your e-filing, providing proof of the contributions made towards your RA in that tax year.
  • When you receive your tax refund from Sars, you can invest the money back into your RA as an ad hoc contribution, further boosting your retirement savings.
You can stop contributing to your RA

9. You can stop contributing to your RA – no penalties

  • A feature of LISP-based RAs is that they are transparent, flexible investments.
  • They allow investors to completely customise their contributions.
  • This means that you can choose to contribute monthly, quarterly, bi-annually or annually.
  • Plus the option of making ad hoc contributions when circumstances allow.
Your RA death benefits are distributed

10. Your RA death benefits are distributed in accordance with the Pension Funds Act

  • The funds held in your RA will be distributed among your financial dependants in the event of your death as per the provisions of the Pension Funds Act.
  • This Act places a duty on the retirement fund trustees to establish the identity of your financial dependants (at the time of your death) and to allocate the benefits accordingly.

While Retirement Annuities are an excellent, tax-efficient option to save for your dream retirement, Paymaster advises that you consult a registered financial advisor to discuss the best way you can invest and prepare for this season in your life.

*LISP – an administrative platform – registered with FSCA – that packages, distributes and administers a range of investment products. (Linked Investment Service Provider).

To prepare for your retirement, see what other retirees have to share –

Navigating Retirement Challenges

In conclusion, Part 2 of our ‘Retirement – Dream or Nightmare!’ series explores critical aspects of Retirement Annuities (RAs). Discover why considering an RA is essential for your financial future. If you haven’t read Part 1, catch up now to make informed decisions about your retirement journey.

Part 1 👉 READ HERE

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Retirement Dream or Nightmare 1

Retirement – Dream or Nightmare! Part 1

by with No Comment Article

Why should you consider a retirement annuity (RA) to prepare financially for retirement?

They offer:

  • Tax advantages
  • a Disciplined way to save enough to invest for growth

However, some complex details should be considered when investing through a retirement annuity.

1. You can transfer your insurance RA to a unit trust platform

  • A traditional, insurance-based RA policy can be transferred to a unit trust platform
  • Check with your insurer if they charge any cancellation fees for this
  • The transfer process can take some months to complete

Ask your financial advisor to prepare a cost-benefit analysis to help you make an informed decision about making a transfer. There are no expensive upfront commissions paid to your financial advisor, (as in the case of an insurance RA) – instead, your advisor earns an advice fee -charged per annum -as a percentage of your invested capital.

How-to-preserve-your-retirement

2. RA vs preservation fund (how to preserve your retirement benefits)

  • A preservation fund – is one way to save employer-sponsored funds

– when you retire, you stop paying into this fund

– you can make a full or partial withdrawal before age 55

  • retirement benefits in an RA structure – you can continue to pay into the fund after retirement (regularly or ad hoc).

– An RA will not allow you to access the funds before the age of 55.

invest in as many RAs

3. You can invest in as many RAs as you like

  • You are permitted to invest up to 27.5% of your taxable income on a tax-deductible basis towards an RA (one or more approved retirement fund)
  • But there is no tax advantage to having more than one RA
  • If your RA is invested on a LISP* platform, you can fully diversify your investment (subject to the limitations of the Pension Funds Act), within a single RA
  • So additional RAs will not mean extra investment diversification
RAs are more tax-efficient

4. RAs are more tax-efficient than TFSAs (Tax-free savings accounts)

  • RAs and TFSAs – no tax payable on any dividends or interest earned
  • No capital gains tax consequences
  • The major difference – your contributions towards an RA are tax-deductible up to 27.5% of taxable income – and your contributions towards a TFSA are made with after-tax money
  • So consider TFSAs once you’ve maximised your tax-deductible contributions towards an RA
RA funds are protected from creditors

5. The funds in your RA are protected from creditors

  • Your RA funds are protected from your creditors in the event of insolvency
  • BUT certain monies can be deducted from your pension fund money, including money owed to SSARS and amounts payable under the Divorce Act and Maintenance Act.

To prepare for your retirement, see what other retirees have to share –

Navigating Retirement Challenges

As we conclude Part 1 of ‘Retirement – Dream or Nightmare!’ exploring the intricacies of Retirement Annuities, stay tuned for Part 2 on our website and social media platforms, where we continue unraveling the remaining essential insights to help you craft a secure and prosperous retirement plan.

*LISP – an administrative platform – registered with FSCA – that packages, distributes and administers a range of investment products. (Linked Investment Service Provider).

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