The end of the year and the start of another is nature’s reminder to take stock, reflect on the past year, and commit to doing things differently in the new year. We find ourselves in a period of change and reflection.
Retirement annuities (RAs) are tax-efficient products, and the looming tax year-end in February means you should act soon if you still want to maximize tax savings for this year.
We have gathered five common investor questions on RAs to steer you in the right direction; adapted from David Chard, Head of Life and Investment, PSG Wealth
1. What are the key tax benefits of saving in an RA?
Your RA contributions reduce your taxable income, up to certain limits. This means that you pay less income tax, up to the specified limit (up to 27,5% of the higher of taxable income or remuneration, capped at R350 000 per tax year). This effectively means that your contributions are partly subsidised by tax savings.
Another advantage is that the growth on your investment is tax free. Also, at retirement, the lump sum benefit portion is exempt from tax up to a specified limit.
2. Are my RA benefits safe from creditors?
Good news, your RA saving are safe from creditors and any form of personal financial liabilities you may suffer during your pre-retirement years. This ensures that you will still have retirement saving available when you retire.
3. Can I access my RA before 55?
An RA is designed to help you save for retirement and can usually be accessed once you have reached 55. There are some exceptions in special circumstances; for example, if you become disabled or decide to emigrate.
4. What will happen if I decide to emigrate?
The South African Tax Act allows members of an RA fund who have not retired, but have emigrated, to access a lump sum from their RA contracts. However, this requires permission from the South African Reserve Bank (SARB), and will only be granted to someone who has formally emigrated.
5. Do I need to save in an RA every month?
The minimum initial lump sum investment for the PSG Wealth Retirement Annuity, for example, is R20 000, and the minimum amounts for debit order investments are R500 a month, R1 500 a quarter, R3 000 half-yearly and R6 000 yearly. You won’t be penalised if you miss, stop or reduce debit order investments, but the growth of your retirement savings will be impacted.
RAs are designed to help you save before retirement, to ensure that you have a pool of savings to draw once you retire. Make the most of the time you have, and the tax-benefits RAs provide as you get one year closer to retirement.