Why invest in a Retirement Annuity?

Tax-efficient

Legislation which became active on 1 March 2016, we saw an increase in the percentage of your allowable tax-deductible contribution (personal income tax) from 15% to 27.5% of your taxable income or remuneration, whichever is the greater, up to an annual limit of R350 000. 

This means that if you have an existing provident fund at your current employer to which you contribute 15%, you can now enjoy an additional 12.5 percentage points as an allowable tax deduction in an RA.

Furthermore, an RA is exempt from tax on dividends and interest, and you won’t have to pay capital gains tax on the growth earned on your investment. 

You will enjoy a boost on your total retirement savings of up to 30% with the Discovery Retirement Optimizer. 

It teaches us discipline

Many of us are simply not doing enough to ensure a comfortable retirement and delay saving enough.  An RA is like a safe that can only be opened at retirement when you need it.  

You will have yourself to thank for a comfortable retirement

The reality many South Africans are facing is having to retire and survive on only the current government pension grant. I have touched on this subject so many times before, but I will say it again: the more you can save towards your retirement the better especially while you still have time. In today’s terms you would need to have R3 million saved just to pay your medical aid for twenty years.

Cutting back on luxuries may not be much fun, but you will be extremely thankful if you are able to someday retire and still be able to, at the very least, maintain your current lifestyle. 

Your RA benefit is not subject to estate duty

In the unfortunate event of your death prior to retirement, your RA benefit will not be subject to estate duty. 

Make and appointment today, to discuss your retirement plan. Call 074 136 7775 

Retirement Investing for Income

Retirement was invented by the German's I believe who allowed workers to retire at the age of 65. In those days the average life expectancy was 65! Needles to say not many got to enjoy a retirement! I believe we are in a era where the concept of "retirement" will fade. The primary reason is that people are not saving enough to afford the luxury of a comfortable retirement. So, if you are young the topic of savings is frivolous however foolish decisions well you are young will catch up later.

I was in our local pizza outlet the other day, while waiting for my order an elderly gentleman I would say late 60's or early 70's came into the store dressed in the delivery uniform. His facial expression was one of stress and I am sure embarrassment as clearly he had a career of some sort in the past. Now he is having to deliver pizzas! This made me revisit this topic as the reality of not providing for later days was clear and left a lasting impact. 

So, here are the facts:

1. The average age of retrenchment in SA is forty four years old (white males).
2. The average person will change jobs every two to three years
3. The majority of people in SA work in the SME sector and receive no pension benefits.
4. The average lifespan has increased to over 80 and scientists believe generation x will live to over   
    100.
5. In today's terms a very average pensioner will need around R20,000 per month to cover living
    costs and medical expenses. This of course assumes that person has a paid for home and is out of
    debt. This equates to around R4 million in capital needed. 

The Solution:

1. Get out of debt and start saving, save, save focus on your net worth.
2. While you have an income (gear) buy income yielding property not residential.
3. Do not put all your eggs in one basket diversify your investments  in income producing
    investments look for yield not gains!
4. Think of ways to generate extra income streams - income is every thing.

Reg 28 and Retirement Funds

New reg 28 and your investments

April 24 2011 at 12:45pm
By Laura du Preez

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New retirement annuity (RA) policies have to comply with the revised regulation

All retirement fund policies issued after April 1 this year must comply with regulation 28. 
Policies bought before April 1 will be allowed to continue as they were before regulation 28
was revised.

Christo Terblanche, the head of product development at Allan Gray, says that Allan Gray
and,he expects, other large product providers will continue to offer the range of funds that
are available to retirement fund members now. However, your investments into these funds
will have to comply with the new regulation 28.

Providers that cannot monitor compliance with regulation 28’s investment limits may, 
however, be forced to restrict their underlying fund offerings to those that comply with the 
revised regulation 28 – such as asset allocation funds that comply with
regulation 28’s guidelines.

Mark Kitching, the general manager at Aims, says that Aims will limit its offering
to retirement fund clients to collective investments that comply with regulation 28
and to more conservative funds in the fixed-interest sub-categories. 


This may limit your ability to structure more aggressive portfolios or select specialist funds,
he says.

Underlying investments for RAs or other retirement funds may have to change
to comply with regulation 28

Existing regulation 28-compliant funds will adapt to the revised investment limits.

Money market funds may also have to adapt. At a recent National Treasury
presentation on regulation 28,it was pointed out that, as they near retirement,
many RA members cash out of their underlying investments and move 
into a money market fund.

In terms of the Collective Investment Schemes Control Act, a money market fund can have up
to 30 percent of the fund exposed to money market instruments from a single bank. 


However, regulation 28 restricts retirement funds to an exposure of 25 percent of the fund
to a single issuer of investment instruments.

Adri Messerschmidt, a senior policy adviser at the Association for Savings &
Investment SA, says it is likely that money market funds will be separated into
those that comply with regulation 28 and those that do not, and only compliant funds
will be offered to retirement funds and their members.

Changes to policies will trigger the need for you to comply

The revised regulation 28 states that any investments that you have made before April 1
in terms of the previous regulation 28 can remain compliant with the earlier version
of the regulation.


This means that fund members whose investment choices allow them to breach
the investment limits at member level will be allowed to keep their investments as they are.

If you have a debit order into a fund with an investment choice that does not comply
with the revised regulation 28, you may continue to make those ongoing investments.

However, should you increase your contributions above the historic annual increase, 
switch underlying funds or make an ad hoc top up to your contributions after April 1,
this will be regarded as a substantive change to your investment contract,
and it will trigger the need for your investments to comply with revised regulation.

Roland Grabe, the chief investment officer at Old Mutual’s Symmetry Multi-Manager,
says you may want to consider “ring-fencing” your existing holdings to ensure that
no changes are made to them.

If you are forced to bring your investments in line with regulation 28,
it may not always be at a suitable time. 


For example, as offshore equities are currently generally regarded as
offering better value than local ones, now is not a good time for members to
reduce over-the-limit exposure to 25 percent of their savings,
Marius Fenwick, the chief operating officer of Mazars Financial Services, says.

If your policy becomes non-compliant

Market movements could result in your policy becoming non-compliant.
In terms of the revised regulation 28, your fund will be expected to report
this breach to the Financial Services Board, and you will be expected to
bring your investments back in line within 12 months.

Product providers may want the right to keep your investment in line

Your fund will be responsible for ensuring that any retirement fund policy bought after 
April 1 this year complies with the revised regulation 28,
and your fund will probably expect you to give it the right to rebalance your investments
if they breach the levels allowed by regulation 28.

Product providers will have to ensure that, once your underlying investments
are in breach of regulation 28, any further investment you make – 
for example, your next monthly contribution – is not invested in a way
that it exacerbates the breach.

For example, if you have breached the permitted equity investment level of 75 percent of the fund,
your future contributions should not be invested in equities until your equity level falls below
75 percent.

Terblanche says that the Allan Gray RA and preservation fund rules already cater for rebalancing
in the event that a fund breaches the regulatory limits.

Allan Gray will notify fund members who become non-compliant with the revised regulation 28.
Only if they have not rectified the breach within 12 months will the administrator rebalance 
the portfolio on the member’s behalf.

Kitching says that it will be a challenge for linked-investment services providers to manage
the investments of fund members who are making regular contributions into funds
or portfolios that do not comply with regulation 28. 


He says the administrator would be prohibited by the Financial Advisory and 
Intermediary Services Act from making unilateral changes to the member’s portfolio.

Johann de Wet, the head of business solutions, and Elsjemar Bronn,
a legal adviser at Sanlam’s Glacier, says retirement funds might refuse to accept unit trust
fund units when transfers take place between funds in terms of 
section 14 of the Pension Fund Act if the transfers will result in the accepting fund
not complying with regulation 28.

Messerschmidt says that complying with the revised regulation 28 introduces a massive
administrative burden for product providers and administrators of funds with 
member-level investment choice. This could result in increased costs, 
De Wet and Bronn point out.

How to qualify for a goverment pension fund in SA

The South African Goverment "State Pension Fund" is known as an "Old Age Grant" and this should not be no be confused with the "State Pension Fund".

Whom Can Apply for the State Old Age Grant?

Woman from 60 years or older and men who are 61 years or older, in 2010 men can also apply from age 60. If you qualify for the old age grant you will recieve monthly payments currently of R1010 p/m.

To Qualify:

You must be a citizen or permanent resident of South Africa and living in South Africa at the time of applying for the grant. Must not be maintained or cared for in a State Institution (such as a state old age home), living in a psychiatric hospital, getting care from a state treatment centre, or if you are getting state care for a drug habit. Must not be in receipt of another social grant in respect of yourself and your spouse must comply with the means test. A 13 digit bar coded ID (identity document) must be submitted.

Means Test:

Only people whose financial situation is below a certain level can get the grant. The test to decide this is called a means test. The means test changes every year and for the old age grant this depends on your income, whether or not you are married, and on the income of both you and your spouse if you are married.

View the Means Test here

Old Age Grant 2009

The 2009, grant is R1010 per month.

If you cannot look after yourself and need full-time care from someone else, you may also apply for a Grant-In-Aid which you can get in addition to your old age grant. Also remember that people who get an old age pension have special housing subsidies available to them

APPLYING FOR THE GRANT

You can apply for the old age grant by filling in an application form at your nearest District Welfare office or counter service point of a District Office. You do not need to pay anything to make the application. If you live in The Helderberg Area you fall under the Esteriver Office.

The application process should not take longer than two hours. You will be interviewed, have your fingerprints taken, and given information on whether you qualify for the grant.

Documents Needed:

Your South African identity document (ID), which must be bar-coded.
Information about your marital status:
If you are single, an affidavit stating that you are single.
If you are married, your marriage certificate.
If you are divorced, your divorce order.
If your spouse is dead, your spouse's death certificate.
Information about your income and assets:
If you are employed, your wage certificate.
If you are unemployed, your Unemployment Insurance Fund (UIF) 'blue book' discharge certificate from your previous employer.
If you have a private pension, proof of the private pension.
If you have a bank account, your bank statements for three consecutive months.
If you have investments, information on the interest and dividends you earn.
If you cannot go to make the application yourself, a friend or family member can bring a letter from you and a doctor's note saying why you can't visit the office yourself. A home visit may then be arranged.

When you make the application, you should say how you would like the money to be paid. The money can be paid out in cash on specific days at a Pay Point, or you can get the money paid elecronically into your bank account.
It takes about 30 working days for your application to be processed and checked to see if your application is either approved or refused. If your application is refused you will get a letter explaining why it has been refused and how you can appeal.
If it is approved you will start getting payments within three months. The payments will be backdated to the day you applied for the grant.
You can find out what has happened to your application and when you can expect payment by calling the South African Social Security Agency's (SASSA) toll-free helpline on 0800 601 011.
The old age grant will be cancelled if you die, if you are admitted to a state institution, or if your income or assets improve so much that you no longer qualify in terms of the means test. You must inform the Department of any changes in your circumstances.

Further Information and Enquiries:

South African Social Security Agency (SASSA)
Toll-free helpline: 0800 601 011

The impact of recent legislative changes on Retirement Anunuities

Today's Talk Money Show, I covered two of the latest legislative amendments of The Taxation Laws Amendment Act 3,2008 and how these changes affect Retirement Annuities in South Africa.
(This will be covered in more than one part, so follow future Talk Money shows over the next few days)

So what are some of the changes affecting Retirement Annuities?

1. One of the amendments has moved the maximum retirement date from beyond age 70. Prior to March 2008, individuals were forced to take retirement at age 70. This will be helpful to individuals who have not yet retired from their Retirement Annuities at age 70 and would like to continue their contributions! Personally I have yet to come across anyone at age 70 that has not yet retired from their Retirement Annuity, but who knows in the future and with the magic of the little blue pill and medical wonders there may be many young 70 year old "spring chickens" that have no intention of retiring!

2. Until recently one could not access retirement annuity savings until age 55. You can now have your retirement annuity paid to you if your RA is paid up (lapsed) and the total value is less than R7000. If you emigrate you are also entitled to withdraw from your retirement annuity entirely. Both these options are of course subject to Tax.

If you are overseas and would like help with this please contact me as I can help you with this online, or if you are planning to emigrate I will gladly assist you in this regard.

If you have any questions in connection with your retirement annuity I will gladly assist you. Over the next few days I will be cover some other aspects around Retirement Annuities and Linked Life Annuities.

Goverment's Pension Fund Reform Looms...

Following the release of National Treasury’s second discussion paper on retirement reform in February 2007 and other research studies released by the Department of Social Development in September 2007, Government promised to provide a collective view on retirement and social security reform by the end of 2008.

This collective discussion document has been delayed due to the different views on the significant issues being debated. Considering the timing of the elections in early 2009, it is likely that a collective view will be delayed until after the elections and once a new Cabinet has been appointed and settled. Any Government view of such an important reform will also be up for further discussion with stakeholders as well as at Nedlac.

Planning for the changing environmentFinancial services companies and financial advisers should already be planning for the changing environment and thinking what changes the reform could bring to their business mix and models.

Pension Fund Members should be advised not to panic and to preserve their retirement savings. Any legislative change regarding pensions will be widely consulted and will take quite some time to pass through the Parliamentary legislative process.

A period of transition will also be necessary to fully phase in the reforms over a number of years. Proposed changes will be widely communicated to all stakeholders beforehand and a significant challenge for Government and regulators will be to communicate the changes effectively to ordinary members of the public.

The ultimate goal of the reform is to improve pensions provision for members, enabling them to retire in a better financial position. Integration across the various “pillars” of social security and pensions provision is an important step in this regard, and the reform seeks to do exactly that.

I suspect Goverment is looking at nationalizing the private pension fund arena and this should be resisted at all costs.

Wait till after 1st March for your "package" for reduced tax...

The old "average rate of tax" laws still apply in cases of resignation or retrenchment up until 1st March 2009 when the following tables will apply to what SARS calls "pre-retirement withdrawals" from Retirement Funds.

This will finally see the end of the "average rate of taxation formula" for lump sums as well as the end of the tax-free R1,800 on resignation and R30,000 on retrenchment.

Here are the new tables:

R 0 – R 22,500 0%
R 22,501 – R 600,000 18% of the amount above R 22,500
R 600,001 – R 900,000 R 103,950 + 27% of the amount above R600,001
R 900,001 and above R 184,950 + 36% of the amount above R900,001

Effective from 1 March 2009 which means these new tax brackets (for pre-retirement lump sum withdrawals) will be introduced