Retirement Annuities Q&A

A retirement annuity can be an excellent vehicle to save for your retirement, particularly if you are a small business owner or a self-employed professional – and therefore do not contribute to a corporate pension or provident fund.

Furthermore, even if you do belong to a corporate pension/provident fund, there may be tax benefits to be gained from contributing to a retirement annuity.

To provide further insights into this, we have put together a Q&A which explains what retirement annuities are, and how they work…

What is a retirement annuity?

Retirement annuities are private pension schemes (and are therefore not affected by any change of employment).

Who can invest in a retirement annuity?

Only individuals can invest in a retirement annuity.

Are retirement annuities taxed?

• There is no tax on net rental income, foreign dividends and gross interest income payable within the fund.
• Currently, retirement annuities are capital gains tax exempt.

Under current tax laws you can therefore enjoy tax-free investment growth in a retirement annuity.

Can I get a tax deduction on my retirement annuity contributions?

Contributions are deductible from taxable income, subject to limitations set by the Income Tax Act.

Can I take a loan on my retirement annuity?

No, you cannot.

Are retirement annuities subject to estate duty?

No, they are not.

Can you select beneficiaries on a retirement annuity?

Yes, you can.  However, in accordance with the Pensions Funds Act, the trustees of the fund are obliged to meet the needs of dependants first before giving effect to a member’s nomination.

Are there any restrictions on the amounts invested in the various asset classes in a retirement annuity?

Yes, retirement annuities have to be Regulation 28 compliant which means that there are restrictions on the maximum exposure you are allowed to the various asset classes. You are allowed a maximum of:

• 75% in equities (shares)
• 25% in property
• 45% in offshore assets (updated March 2022)

Can I make withdrawals from a retirement annuity?

You can only make withdrawals in the following scenarios:

• when you retire from age 55;
• if you have proven that you are permanently disabled and have to retire;
• or if you emigrate.

Can I transfer my retirement annuity to another person?

No, you cannot.

What happens when I ‘mature’ my retirement annuity?

You can take one third as a cash lump sum – the first R500 000 of which is tax free – and thereafter up to R700 000, there is taxation of 18% (as mentioned in our article “In the News:  Budget 2014”).

The remainder (two thirds) has to be invested into a life or living annuity (see our recent article “Life and Living Annuities (Q&A)”).

Sourced from Momentum and Old Mutual.

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