I am 63 and have two questions I would be grateful if you could answer:
1) For years I have contributed to three endowment policies now worth R1.6m. I won't need the money for five to 10 years. What options should I consider?
2) If I invest in a living annuity at retirement and immigrate thereafter, will I be able to cash in the investment and transfer the funds overseas once they are in operation?
Yolande H Reynecke, a certified financial planner (CFP®) at Hereford Group, Bryanston responds:
I do not know how your endowment is structured (whether the amount is guaranteed or not).
However, there are different factors to be taken into account when looking at a solution to your question. These include tax, liquidity/accessibility, time horizon, risk tolerance, your age, etc.
Tax is one option we have to look at as companies where the investment/endowment is held pay tax on your behalf according to the four fund approach - for individuals, this is 30%.
Capital gains tax is also taken into account and the lump sum(s) at the end of the term is paid out tax-free.
Endowments are specifically suited to higher tax paying individuals, and for estate planning purposes.
A tax calculation is required to ascertain which will be more beneficial to you, taking into account income from all sources, deductions, exemptions and rebates. This will give us an idea of your marginal tax rate and what effect an “outside” investment will have on your taxable income.
Your risk tolerance (appetite for risk) - whether you would want to take on the risks to your capital associated with investing in an exchange-traded fund, unit trust or other non-guaranteed investments - also needs to be taken into consideration. A fixed deposit may also be considered (once again, depending on your marginal tax rate).
It is also important to take into account the effect of inflation, as you should try to stay ahead of inflation eroding the buying power of your investment.
Your time horizon is between five to 10 years; if your current investment/endowment term is up, you can make as many withdrawals from this as needed (depending on your contract/policy).
If you choose the route of another investment and it is more beneficial to you, you may have to pay commission and/or fees.
Living annuity and emigration/immigration
Legislation currently prohibits a living annuity which originated in South Africa from being transferred to another financial services provider abroad. So if you emigrate, you have to leave your living annuity with a service provider in South Africa.
Service providers are obliged to pay an income to the client from the living annuity. The South African service provider will pay the income in rand, so if you emigrate you have to keep a South African-based bank account open.
The income is paid into the blocked account from which the funds are transferred to your foreign bank account. There may be tax implications depending on your tax residency status. If SA does have double tax agreements with the country you are emigrating to, you will either be taxed in SA or the new country of residency.
The authorised bank that places your emigration on record is required to submit an exchange control application to the Reserve Bank, requesting permission for the income from the living annuity to be remitted abroad.
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