CityPress - - Business -

One of the more com­mon ques­tions I re­ceive is whether or not a re­tire­ment an­nu­ity (RA) makes sense, es­pe­cially for a self-em­ployed per­son who is not a mem­ber of a com­pany re­tire­ment fund.

The ben­e­fit is that your con­tri­bu­tion to an RA is taxfree up to 15% of your in­come – as­sum­ing you do not con­trib­ute to a com­pany pen­sion or prov­i­dent fund al­ready. This amount will be raised to 27.5% on March 1. There is also no tax paid on div­i­dends, in­ter­est or cap­i­tal growth.

A big plus for busi­ness own­ers is that an RA is com­pletely pro­tected from cred­i­tors. It is the one as­set your cred­i­tors can­not touch – not even the SA Rev­enue Ser­vice. This means that even if your busi­ness fails, your cred­i­tors can­not touch your re­tire­ment pro­vi­sion.

The draw­back of an RA is that in­vest­ment re­stric­tions ap­ply to en­sure the sav­ings are used for the in­tended re­tire­ment pur­pose: You can only have up to 75% in­vested in eq­ui­ties; You can only ac­cess your re­tire­ment an­nu­ity at re­tire­ment age (55 is the ear­li­est you can se­lect); and

You have to in­vest two-thirds into an an­nu­ity to pro­vide you with an in­come in re­tire­ment, and this in­come is tax­able.

In a unit trust or share port­fo­lio, one would have full flex­i­bil­ity and, al­though you would not re­ceive the tax ben­e­fit on the con­tri­bu­tions or on the growth of the fund, in re­tire­ment you do not pay in­come tax on your with­drawals (al­though cap­i­tal gains tax would ap­ply). This in­vest­ment would not be pro­tected from cred­i­tors.

Re­search by Rowan Burger, man­ag­ing ex­ec­u­tive: large cor­po­rate seg­ment at Mo­men­tum, shows that over a 35year pe­riod, the tax ben­e­fit of con­tribut­ing to an RA ver­sus a dis­cre­tionary in­vest­ment for a high-in­come earner in­creases your in­come in re­tire­ment by a mas­sive 67% – even tak­ing in­come tax into ac­count.

Lymp sym on re­tire­ment


30 40 50 65


R500 000 R814 447 R1 326 649 R2 758 008

RA Post-tax con­tridy­tion

R75 000 R122 167 R198 997 R413 710

RA Fyng va­lye year-eng

R78 624 R1 788 115 R7 179 395 R38 710 900

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