A retirement annuity is a tax effective retirement investment vehicle for individuals. The primary target market is individuals who do not participate in a pension or provident fund.

WHO SHOULD CONSIDER A RETIREMENT ANNUITY?

Retirement annuities are suitable for :

• Self employed people
• Employees in organisations that do not provide a pension or provident fund
• Employees who earn a significant amount of non pensionable income and wish to increase their savings towards retirement

Retirement annuities can also be used to house the proceeds of your pension or provident fund when terminating your employment.

WHAT ARE THE TAX BENEFITS OF A RETIREMENT ANNUITY?

There are three tax benefits :

• Contributions are tax deductible – up to a maximum of 15% of non pensionable taxable income. If you contribute more, you may claim excess amounts in future tax years. You may also add your excess contributions to the tax free portion of any lump sum you receive. Or R3 500 minus allowable pension fund contributions or R1 750.

The concept of non pensionable income falls away from 1 March 2016. From that date you may deduct up to 27,5% of your gross remuneration or taxable income (whichever is the higher) in respect of your total contributions to a pension, provident or RA fund, subject to an annual limit of R350 000.

• Investment returns are tax free – there is no income tax or capital gains tax on the investment return earned in an RA.
• Benefits are taxed on a favourable basis – lump sum benefits are taxed on a sliding scale with a portion of the benefit tax free (see details under “What is the tax on your RA benefits?”).

WHEN CAN YOU ACCESS YOUR RETIREMENT ANNUITY?

In general you can only access your RA at retirement. However, you can withdraw your full RA investment in cash if you emigrate or if your RA investment is less than R7 000.

You may retire and claim your benefit from the age of 55 onwards (unless you are in ill health, in which case you may claim earlier). You can take a maximum of one third of your investment as cash (plus any amounts invested not deducted for tax), with the balance you must purchase an approved compulsory annuity, which will pay you a pension for life.

If your benefit is R75 000 or less at retirement (R150 000 or less from 1 March 2016 (or possibly 1 March 2017), you can elect to receive the full benefit as cash.

HOW ARE YOUR RETIREMENT BENEFITS TAXED?

Tax on lump sum benefits according to the following scale :

Retirement Lump Sum

Annuity payments are taxed as income, according to the personal income tax tables.

WHAT HAPPENS IN THE EVENT OF A MEMBER’S DEATH?

In line with Section 37 of the Pension Funds Act, the trustees of the retirement fund will distribute the proceeds, considering first the needs of your dependents and then the beneficiaries listed in your nomination form. It is thus important to fill in and update your nomination form annually. Your investment will be taxed on the same basis as on retirement.