The Wealth Room

Retirement Annuity

What is a retirement annuity?

A retirement annuity, or an RA, is the most tax-efficient way to save for your retirement. Certain tax deductions are allowed on your contributions towards an RA. This could mean that your salary is taxed at a lower rate or SARS pays you some money at the end of the year. The other advantage of an RA – that no other investment product can beat – is that the returns on the RA are also not taxed.

How do you invest in retirement annuities?

There are two ways that you can invest into an RA. One is by means of a lump sum contribution. The second option is by setting up a monthly debit order.

You can also transfer existing RA fund benefits to another RA, if your fund rules allow it. However, this is a bit more complicated and takes longer.

Your investment choice in an RA is to select an underlying unit trust that is compliant to Regulation 28. See this discussed in more detail below.

The negative or positive part (we view it as positive!) of a RA is that you only have access to the fund when you retire or reach the age of 55. At retirement, you may only access one third of the fund and the rest of the fund must be invested into a living annuity that will provide an income stream during your retirement.

So what is Regulation 28?

Regulation 28 governs or limits the exposure you can have to various asset classes, to prevent you from taking too much risk on your retirement savings. One of the main ideas behind Reg. 28 is to ensure that your investment is adequately diversified across all the different asset classes, to ensure you don’t have too many eggs in one basket.

How do you comply with the limits?

When selecting the unit trust for your retirement fund investment, it is always best to make sure it is compliant with Reg. 28. Most asset managers will be able to give you this information.

All video clips and pictures supplied by Allan Gray.