What is a Retirement Annuity (RA)?

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18 December 2019
Depending on who you ask, it would appear that a large portion of South Africans fall short of their retirement savings goals. Much of this has to do with the fact that life simply gets in the way of a good financial plan and people don’t identify a mechanism to save consistently and tax-efficiently.  

This is where a retirement annuity (RA) is a powerful tool for long-term savings and should be the cornerstone of your retirement planning if you are not part of a workplace pension fund.

A key reason for considering an RA is that they qualify for the same tax incentives as pension and provident funds. You may deduct contributions to an RA fund up to 27.5% of taxable income or gross remuneration (whichever is the higher) for tax in a tax year.

Importantly, you can have multiple RA’s but your tax benefit is based as an aggregate across all of the RA’s, not per RA.

The overall tax-deductible limit is R 350 000 per annum. Contributions over the annual rand limits may be rolled over to a future years but will still face the same annual limits.

When you set up your Retirement Annuity, you will be asked to select a Retirement Age (typically 55, 60 or 65).

When you reach retirement age, you will have the option to withdraw one third of the capital in cash from your RA and use the balance to purchase an annuity that provides you with an income in your retirement years.

A retirement annuity is a great tool for building disciplined savings habits as you are not able to withdraw from the RA unless:  

  • Your current fund balance is less than R 7000

  • You financially emigrate

  • You become permanently disabled

This prevents people from withdrawing from their savings whenever they have to settle debt or are looking to fund short-term purchases. 

It also means that you can take advantage of compounding – one of the most powerful financial forces in the world! Instead of regularly withdrawing funds when you need them, your investments are compounding year after year.  

Another important benefit of a retirement annuity is that you can nominate a beneficiary in the event of your death, rather than it going into your Estate and waiting for your Estate to be settled.

It also is protected from creditors, meaning that even if you die insolvent, your nominated beneficiary will receive the funds rather than creditors.

A Retirement Annuity should be a key part of your financial planning journey and the team from OUTvest now allows you to setup an RA from the comfort of your PC or mobile phone and put yourself on track for a sustainable retirement.



Marc Ashton
OUTvest is an Authorised FSP.  All investments are exposed to risk and not guaranteed


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