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Video: Retirement annuity rules

Sep 17, 2019

A retirement annuity is a great, tax-efficient way to save for your retirement, but they do come with certain rules.  Many people investing in retirement annuities are not fully aware of these restrictions.

Firstly, you cannot access your retirement annuity until the age of 55, which is the earliest date you can select for retirement. You don’t necessarily have to access the funds then either. If you do not need the money, you are able to leave your money in the retirement annuity until age 75.

On retirement from the fund, only one-third of the value of the fund, less tax, can be taken as a lump sum. Two-thirds must be used to purchase an annuity income. This is to ensure that retirees have a regular income in retirement. The only exemption is when the retirement value is less than R247 000. In that case you are able to take the full amount.

You can purchase an annuity with any investment company. You are not limited to investing with the same company that you had your retirement annuity with.

You also need to get good advice about whether to purchase a guaranteed annuity or whether to invest in a living annuity. A guaranteed annuity will pay you a set income for the rest of your life, but the income dies with you.

A living annuity is where you are invested in a fund and can select how much you draw down each year. You can draw down between 2.5% and 17.5% of the capital each year. If you die, any capital is paid to your beneficiaries. But if the money runs out before you do, there is no more income, which could leave you financially destitute.

Your retirement fund is one of your biggest financial assets, so inform yourself.

4 Comments

  1. I have an RA and have invested for 33 years.
    I have been swindled out of the Total amount of my money since 2016, where my values would drop before christmas each year and the excuse given was that ‘the markets have dropped’.
    This was not the case because the Rate of return since inception never decreased to such an extent and neither did the underlying portfolio of the fund.
    What is more concerning is that the value has dropped again and I have just reached 55 and want to retire from the fund and purchase a living annuity but the service provider has given me the value of the 2/3rd’s as the Total value of the investment which is total rubbish. I have to invest into a living annuity and am uncertain as to which one to invest in, given all that I have experienced with the service provider who I believed was looking after my interests! I would welcome your comment and suggestions.

    Reply
    • If you believe your service provider was not providing the correct statements you should lodge a complaint with the Financial Sector Conduct Authority.

      Reply
  2. Good day Maya

    I’m currently having a RA with Sanlam since 1998.

    I started @the age of 23 and is 44 today. By then my monthly installment was R100 and has gone up with inflation to R1 472.90 currently.

    A few years ago an Echo bonus was introduced by Sanlam and my financial advisor advised me to move to this more aggresive RA.

    My concern is about fees they charged on my RA. I’ve done some recearch and was alarmed @how much we loose in capital by paying these absurd fees to these reputable companies.

    I want to pay in a lump sum into my RA to get more out if I retire in 16 years time.

    What can I do to avoid getting a massive surprise the day I receive my RA payout. I am also with GEPF with 27 years of pensiobable service already.

    Hope you can assist me.

    Thanks.

    Reply
    • I’ve been working on a booklet on GEPF – given your years of service that is going to work out to be a nice income in retirement if you remain…
      I asked Sanlam for figures on their Echo product and they argue that if held to maturity the total annual cost is just over 2% per annum. While high it compares with most advised and actively managed RAs. If you want to cut costs then you need to look at investing directly in an index tracking option like 10X, Satrix, Core Shares etc. Marriott Income Specialists have some interesting low cost but managed solutions as well.
      When contributing to your RA make sure you are not exceeding your 27.5% tax-free amount per annum – this includes your GEPF contribution of 7.5% plus 13% from employer – so only leaves you with 7% of income for your RA. If you want to do more than that consider a Tax-free savings Investment – that will grow tax-free and give you flexibility at retirement. You can contribute R33 000 a year into that

      Reply

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Maya Fisher-French author of Money Questions Answered

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