Five key features of a Retirement Annuity

Published: 12/02/2020

Retirement can be a stressful topic for most, however there are ways of ensuring that even after you have finished working, you and your loved ones are taken care of. One of these tools is a Retirement Annuity (RA) and through an RA you are able grow your future income in a way that won’t be heavily affected by the tax man. RA’s are effective for small business owners and self-employed individuals as well as a top-up for members of Pension and Provident Funds.

We have listed just five key features of an RA which would benefit you.

ONE:

An RA is a long term investment intended to fund and/or supplement your retirement.

TWO:

Tax benefits of monthly and/or lump sum RA contributions are deductible, subject to certain limits. The deduction is limited to 27.5% of your taxable income or remuneration, subject to an overall maximum cap of R350,000 a year. This overall limit applies to contributions to all retirement funds together. A second tax benefit is that there is no tax on any investment held inside an RA, as the RA is a tax-free fund. This means that if you own investments in an RA, you avoid dividends tax, capital gains tax and any tax on interest on those investments.

THREE:

An RA is a useful tool in estate planning as they are excluded from estate duty. From an estate duty perspective, the amount contributed to an RA is removed from your estate immediately. Both the lump sum (accruing after 1 January 2009) and the annuity are not subject to estate duty.

FOUR:

You will only be able to access your RA from age 55. Unforeseen circumstances are a guarantee in life, yet so is needing money when you retire. That is why under an RA you will only be able to access your valuable savings from age 55. This helps avoid irrational decision making and unnecessary withdrawals, keeping your future retirement savings intact.

FIVE:

An RA is protected from Creditors. An RA cannot be claimed by creditors, making sure the money that was meant for you, goes to you.

An RA is an efficient and viable option for anyone serious about their financial future and for those who would like to create wealth over the long term. However, only an estimated 6% of South Africans can retire comfortably. Break the mould and protect your tomorrow by contacting a GIB Financial Planner.