Reap the benefits of a retirement annuity (RA)

RAs have proven to be beneficial savings vehicles for many clients, because it encourages disciplined savings with accompanying tax incentives as well as a number of other benefits:

Contributions reduce the client’s taxable income
RA contributions reduce clients’ taxable income up to certain limits. Part of their contributions is funded by tax savings! E.g. if a client is taxed at a marginal rate of 30%, then for every R100 the client contributes, R30 is effectively paid by SARS.

Growth on the investment is tax free
No tax is payable on income, interest, capital gains or dividends received in the underlying investment funds.

Favourable tax treatment of the lump-sum proceeds at retirement or death
On retirement or death the first R500 000 of all retirement funds (cumulatively) is tax-free and the rest of the lump sum taxed at favourable scales.

Protection against creditors
An RA is protected against creditors and therefore provides protection in the event of insolvency.

Withdrawals can be transferred to an RA tax-free
A withdrawal from a pension fund, pension preservation fund, provident fund and provident preservation fund can be transferred to an RA tax-free.

Contributions not allowed as deduction will reduce tax on life annuity income
From 1/3/2014, any client contributions to a retirement fund that has not already been allowed as a deduction will reduce the tax on the income from a compulsory life annuity.

Life annuity and lump sum exempt from estate duty
A compulsory life annuity and the lump sum are currently exempt from estate duty at the death of the client (member of the retirement fund). However, if any retirement fund contributions were not allowed or deducted, the amount of such contributions will be dutiable in the estate of the deceased client.

Provide a monthly pension in retirement – various options available
Conventional life annuity with or without capital protection; linked life annuity – more risky but offers investment fund choices and more flexibility

This article is part of Sanlam’s on-going support to intermediaries.
It does not constitute advice by Sanlam.