Why choose an RA?

A Fin24 reader writes: 

I am a 30-year-old man and recently qualified as a medical doctor. I like my job at the private hospital I am working for, and don't plan to leave anytime soon. I want to start saving for retirement. A friend of mine recommended looking at retirement annuities (RAs). Please give me details only of the advantages of RAs.

Heather Robertson, a certified financial planner at Blink Consulting, responds:

RAs offer protection from creditors. Only a limited number of institutions or people may claim money invested in your RAs. Those that can do so include the South African Revenue Service (in the case of unpaid taxes) and a previous spouse (in terms of a court-approved divorce settlement).

The only time a creditor may lay claim to the money in an RA - or any other retirement savings vehicle - is when you retire, and then only from any lump sum amount you are paid. A creditor may also not claim money that is paid to you as an annuity bought with the benefits of an RA.

For this reason, you cannot borrow against an RA or use it as security for a loan. A retirement annuity is therefore an important asset for business persons, who are often required to sign personal surety with banks and other creditors.

In addition, the growth in RAs is not taxed. This means that your investment can grow much faster than another investment in the same fund.

The government incentivises you to save for your retirement by allowing contributions to be deducted from taxable income. If you are not on a pension or provident fund, you could be allowed to deduct as much as 15% of your taxable earnings. 

Other advantages of using RAs include the fact that they offer a cost efficient and transparent pricing structure and can now be accessed prior to retirement if you decide to emigrate. Lastly, they are an investment choice.

Within the most modern retirement funds you will have a large selection of  specialised, professionally managed and risk profiled funds, including property funds, local and offshore shares, government and corporate bonds, money market instruments and unlisted preference shares.

 -Fin24

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