Why RA?
- You get tax benefits – Your contributions to a retirement annuity are tax deductible and the returns you earn while invested are tax free.
- You only need R500 a month – You decide how much to invest – at least R500 a month or a single lump sum of R20 000 if you don’t want to make a monthly investment. You can make changes whenever you need to, no transaction fees and no penalties.
- Your investment is safeguarded – The restrictions in a retirement annuity aim to ensure your money is kept for your retirement and that it is protected from potential creditors.
Is this for me?
Reasons a retirement annuity may not be suitable for you
To ensure that your retirement savings are kept for your retirement, the following legal restrictions apply to all retirement annuities:
- Prescribed legal investment limits restrict how much you can invest in the types of investments that are considered higher risk, for example equities and offshore investments.
- You can only access your money after the age of 55, except in certain circumstances.
- When you retire you can only withdraw up to one-third of your investment as cash. The rest must be transferred to a product that can provide you with retirement income.
Suitable for you if:
- You are looking for steady, long-term capital growth
- You are ideally investing for at least three years
- You are comfortable with taking on some risk of market fluctuation and potential capital loss
- You wish to invest in a unit trust that complies with legal investment limits for retirement funds
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FAQ
Frequently asked questions about RA’s — retirement annuities in South Africa
When is the right time to start saving for retirement and how much should I save?
One of the main risks retirees face is outliving their retirement savings. Many of us will live for 30 years beyond retirement age, so we expect our retirement savings to ‘work’ for as long as we have worked. With this in mind, the ideal time to start saving for your retirement is with your first pay cheque. A good rule of thumb to allow you to maintain your lifestyle later on is to save 17% of your salary starting at age 25. If you start later, you will naturally need to save more or consider retiring later.
Do I have to commit to a fixed monthly premium for a set term?
No. When you invest in our unit trusts, there is no fixed amount that you need to commit to for a set investment period. It’s your investment – you decide how much, when and how you would like to invest. You can:
- Set up a monthly debit order of R500 or more which you can change, stop and restart as your needs change.
- Start with a once-off lump sum (minimum R20 000) or
- dd a smaller lump sum (R500 or more) with your debit order.
Once your investment has started, you can add lump sums of R500 or more at any time.
What are the tax benefits of contributing to a retirement annuity?
Contributions to a retirement annuity are tax deductible (subject to certain limits). This means that you may be taxed on a lower taxable income amount and could receive money back from SARS at the end of the tax year. The income and capital growth earned on your investment until you retire is also tax free.
Example 1
You earn a salary of R300 000 in the 2018/2019 tax year, as well as a bonus of R100 000, and you invest R50 000 in a retirement annuity. From 1 March 2016, the maximum allowable deduction will be determined as the greater of:
- 27.5% of taxable income, or
- 27.5% of remuneration
Limited to R350 000 per year.
In this example, your taxable income is your remuneration (a total of R400 000). 27.5% of R400 000 is R110 000. This is less than the annual limit of R350 000, so your full contribution of R50 000 will be allowed as a deduction for the 2018/2019 tax year.
Example 2
You earn a salary of R900 000 in the 2018/2019 tax year, as well as commission of R400 000, and invest R370 000 in a retirement annuity. From 1 March 2016, the maximum allowable deduction will be determined as the greater of:
- 27.5% of taxable income, or
- 27.5% of remuneration
Limited to R350 000 per year.
In this example, your taxable income is your remuneration (a total of R1 300 000). 27.5% of R1 300 000 is R357 500 This is greater than the annual limit of R350 000. The difference between the actual contribution made (R370 000) and the maximum deduction allowed (R350 000), R20 000, will be carried over to the next tax year and will be seen as a ‘current’ contribution made in that year.
So I can’t ever access my money before 55 years?
You can withdraw your full investment if you have less than R7000, or if you emigrate. If you become permanently disabled, you can request early retirement.
What happens when I reach 55 years?
Your retirement annuity investment continues until you decide to take your money out after the age of 55 to use it for a regular income. You must put at least two-thirds of your retirement annuity into another investment that will provide you with an income. At retirement, you can take up to one-third as a cash lump sum if you need to. You can take the full benefit as a cash lump sum if the pre-tax value of your benefit, on the date of retirement, is equal to or less than R247 500.
What are the prescribed legal investment limits and how do I comply with them?
When you invest in a retirement fund, Regulation 28 of the Pension Funds Act limits the maximum exposure that you may have to various asset classes. In order for your account to be compliant, your selection of unit trusts should have no more than 75% in equities, 25% in property and 30% in foreign assets (with an additional 10% in African assets). You may also simply invest in a unit trust that already complies, such as a balanced fund.
What happens if I die before I retire?
Your retirement annuity does not form part of the value of your estate, which means that your money will not attract estate duty. A board of trustees is responsible for running the retirement annuity and protecting the interests of all members. If you die while you are still invested in your retirement annuity, in terms of legislation, the trustees must thoroughly investigate your dependants and/or beneficiaries and allocate your money according to need. This process can take up to a year.
How much does it cost to invest in an Courtney Capital Retirement Annuity?
The fees depend on the unit trust you select. When you invest in Allan Gray, Coronation & Franklin Templeton unit trusts our investment management and administration fees are charged within our unit trusts and deducted before we publish the unit trust’s performance. This means that all the costs of investing in the retirement annuity are taken from these unit trust fees and no additional fees come off your initial investment, or from your investment balance as you go along. The return you see is what you get.
Can I transfer my existing retirement annuity to Courtney Capital?
One of the benefits of a retirement annuity (RA) is that when you leave an employer you are not required to transfer your savings and you can continue investing in the same RA in your own capacity. However, you can transfer your existing RA to Allan Gray if you wish to. It is a good idea to check the terms and conditions of your existing RA to ensure that you understand any potential impact on your investment.