THE ADVANTAGES OF SAVING IN A RETIREMENT ANNUITY

TAX-EFFICIENT

Up to a 27.5% of your taxable income or remuneration, whichever happens to be the larger sum, up to an annual cap of R350 000, qualifies as a permissible tax-deductible contribution towards personal income tax. This means that if you're currently only contributing 15% to a retirement fund through your employer, you're entitled to an additional 12.5% deduction which you can benefit from by investing in a retirement annuity. Moreover, the beauty of a retirement annuity lies in its exemption from taxes on dividends and interest, not to mention the blissful exemption from capital gains tax on your investment's growth. It's like a fiscal oasis in a desert of taxation woes.

IT TEACHES US DISCIPLINE

Many might contest the notion that this holds any real merit, yet the stark reality persists: South Africans aren't adequately preparing for their golden years. Unless you're contemplating emigration or face early retirement due to health concerns, or if your fund value is below R15 000, accessing your retirement annuity funds before retirement is not typically possible (pending the amounts available via the National Treasury's proposed 'two-pot' system). For those prone to impulsive spending and lacking in discipline, an RA serves as an indispensable investment vessel. However, exercise caution and make sure you follow a budget that aligns with your means, mindful of life's unforeseen curveballs. Avoid overinvesting at the expense of neglecting an emergency fund, a vital safety net during times of need.

YOU WILL HAVE YOURSELF TO THANK FOR A COMFORTABLE RETIREMENT

The stark reality confronting many South Africans is the prospect of retiring solely reliant on a government pension grant. I've delved into this matter numerous times, yet its gravity demands repetition: If one can comfortably subsist on the maximum grant of R2 090 (or R2 110 for those aged 75 years and older) per month, then there's little cause for concern, and further reading may be unnecessary. But let's be honest, it's hard to imagine anyone living well on so little money. That's why it's crucial to save as much as possible for retirement while you still have time. It might not be fun to cut back on luxuries now, but you'll be thankful in the future if you can retire and still afford to maintain your current lifestyle.

YOUR RA BENEFIT IS NOT SUBJECT TO ESTATE DUTY

In the unfortunate event of your death prior to retirement, your retirement annuity benefit will not be subject to estate duty. Always ensure that you list all your dependants and/or beneficiaries on your retirement investment application, or that you contact your adviser for the necessary requirements to have them listed, if you didn’t do so on your original application form.

YOU CAN INVEST DIRECTLY IN SHARES IN YOUR RETIREMENT ANNUITY

A Personal Share Portfolio (PSP) allows you to tailor your own bespoke share portfolio as part of your retirement investment strategy. Most RA platforms in South Africa offer the solution for a portfolio manager to choose a selection of local and international shares, which, as a direct share portfolio, can be included in your retirement investment and be actively managed.

Any RA is subject to Regulation 28 of the Pension Funds Act, which means that you will be subject to certain restrictions in terms of the weights you will be allowed to allocate to different asset classes (up to 75% may be invested directly in shares, both locally and offshore). Based on historical data, it is well-known fact that equities offer the best long-term return potential and for some it may come as a disappointment that they are not able to invest 100% directly in equities. On the flipside, however, Regulation 28 was implemented as a risk management measure to benefit broad spectrum investors in both good and bad market environments, so when the markets become volatile, Regulation 28 should offer you more investment protection.

In conclusion, echoing the timeless wisdom of Morgan Housel in "The Psychology of Money," let us heed his words: "Doing well with money has a little to do with how smart you are and a lot to do with how you behave." Whether you're already on the path to retirement security or just beginning your journey, the key lies in taking action now. Maximize your contributions before the fiscal year-end to unlock the tax advantages within your reach. And for those yet to embark on their retirement savings journey, remember, the best time to start is always now. Act swiftly, and you can still make a meaningful contribution before the 2023/2024 financial year-end, setting yourself on a course towards financial resilience and peace of mind in the years to come.