Question:

What is the best way to save for retirement?  I just started working and don't know anything about investing.  Retirement annuities seem to be the way to go, but many here at work disagree.

Answer:

Retirement annuities have traditionally had some pretty negative press over the past few years and for good reason. Rob Rusconi was instrumental in exposing and challenging the high costs associated with the older retirement annuities. This, coupled with the punitive penalties imposed by life companies when changes were made, meant that they were not desirable and by and large benefited the company and its agents more than the investor.

Thankfully a lot has changed and, along with costs coming down dramatically, there are options for full flexibility without any penalties for changing your plan.

Of course, National Treasury has sweetened the deal quite substantially over the years with the most recent being that of no Dividend Withholding Tax (DWT).

From the outset, the tax deduction on premiums paid into the fund up to certain limits is an incredible benefit. Although you will pay tax on the retirement income, there is still an opportunity to save more tax in deductions than you will spend on tax in retirement (provided it is structured correctly).

Current limits are as follows:

An annual deduction limited to the greatest of…

• R1750;

• R3500 less allowable current pension fund contributions; or

• 15 percent of the remuneration received during the year from non-retirement funding employment

Then there are the tax benefits whilst invested in the fund. There are a few areas that SARS will target from investments.

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