Benefits of RAs far outweigh drawbacks
I understand that there are tax benefits to investing in a retirement annuity (RA) fund, but do these really outweigh the drawbacks, particularly the fact that you can’t access your funds until age 55?
Name withheld
Schalk Louw, a financial adviser from PSG Wealth Old Oak, responds: Most people are aware that your RA contributions are tax-deductible. However, fewer people are aware of the significant tax benefits within an RA. In short, no taxes are payable within your RA, ever. There is no tax payable on the interest and dividends earned in your RA, and you don’t have to pay capital gains tax on the growth earned on your investment.
Your RA is also protected from creditors, and it offers amazing benefits in terms of estate planning, including a possible 3.5% saving on executor’s fees, and a maximum saving of 25% on estate duty, because it’s excluded from your estate when estate duty is calculated.
People worry that with an RA they will be “locked in”, but this isn’t quite true. Section 14 of the Pension Funds Act allows you to transfer your RA from one provider to another, and you are also able to access the entire value of your RA, provided you are not a South African tax resident for at least three years. Subject to fund rules, you can also access your funds if you are unable to work due to ill health or disability.
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