Reduce tax and drive wealth

Key decisions have a major impact on the amount available at retirement:

The amount you save monthly/annually

Reducing the impact of tax on savings How long you stay invested What you invest in – the more time available, the more risk should be taken.

Maximise contributions to retirement savings: a pension/provident fund, or a retirement annuity (RA).

You can contribute up to 27.5% of the greater of remuneration or taxable income up to a maximum of R350 000 per annum to one or more of these vehicles. Income tax is only paid on income when drawn as an income after retirement.

You can contribute up to R33 000 per year to a tax-free investment account (TFIA), with a R500 000 lifetime maximum.

TFIA investments aren’t subject to tax, and are tax free on withdrawal. A TFIA should form part of your long-term investment and retirement plan.

Further savings can be made into a discretionary investment portfolio, taking the form of a share portfolio, exchanged traded funds, or collective investment schemes (unit trusts).

There are no restrictions on contributions, tax is payable on all capital gains, dividends and interest and investments can be made offshore.

Tradeoffs:

Retirement funds, RAs and TFIAs have access restrictions and shouldn’t be accessed for short-term needs.

However, this is a forced way of saving.

Contributions to retirement funds, RAs and TFIAs must remain in SA. Offshore exposure can be gained through investments within the vehicles via asset swaps.

It’s advisable to seek the guidance of a wealth manager who should analyse your entire longterm plan, consider your lifelong lifestyle needs, risk-willingness, and capacity to take risk – taking into account the period available.

Philip Faure is head of wealth advisory at Standard Bank Wealth and Investment.