This post covers the most significant pro’s and con’s of the Retirement Annuity product.
You are able to invest in a Retirement Annuity either via a unit trust Linked Investment Service Platform (LISP) or within an Insurance Policy.
- Your invested capital is able to grow without incurring Capital Gains Tax(CGT) or any Income Tax liabilities
- Retirement Annuities are exempt from Dividend Tax
- If you are invested in a Retirement Annuity at the time of your death the capital invested is excluded from your estate duty
- Beneficiaries of your Retirement Annuity can be named in the event of your death
- Your contributions to Retirement Annuities are tax deductible – up to a maximum of 15% of your non-pensionable income per year (This is due to increase next year!)
- When you invest in a Retirement Annuity via a LISP you are able stop/start contributions at any time
- Retirement Annuities can be transferred between service providers (Although there are restrictions when transferring from a Retirement Annuity within an Insurance Policy)
- The Retirement Annuity is also a beneficial investment vehicle for company owners as the capital invested is excluded from their personal liabilities in respect of the company
- The capital invested in a Retirement Annuity is only accessible at age 55 – you are then able to withdraw up to one-third as a lump sum with the balance purchasing an annuity income
- Some Insurance Companies penalise clients who stop paying their Retirement Annuity Premiums
Regulation 28 of the Pension Funds Act limits the exposure of Retirement Annuities to specific asset classes. This is intended to protect investor’s retirement savings by limiting the exposure to more volatile (Riskier) asset classes. The most notable limitations are:
- Equities – 75%
- Property – 25%
- Foreign – 25%
Portfolios have to comply as a whole.
As is evident the Pro’s outweigh the Con’s in a big way. With most South Africans falling short of their retirement capital goals it is important to use products like the Retirement Annuity to take advantage of the available tax breaks and investment flexibility to support the growth of your retirement capital.
Please contact us should you require any further details or if you wish to start investing for your retirement with a Retirement Annuity.