Can we merge our RAs?

(Pic: Shutterstock)
(Pic: Shutterstock)
A Fin24 user wants to know if it is possible to marry separate RAs to increase earnings growth. He writes:

Is it possible to combine the retirement annuities (RAs) of myself and my wife into one, to benefit from the additional growth that goes with this?

What are the tax implications, and can one pay the appropriate tax on this to make it happen?

We both have old generation RAs which can thus be moved to new generation ones.

Danelle Esterhuizen, legal specialist at Sanlam: senior market advice and support, responds:

Separate taxation for spouses was introduced in 1992. Each spouse can claim his or her own contribution to an RA fund as a tax deduction.  

A husband and wife may each be a member of a retirement annuity fund in his or her own right; however, two persons cannot jointly be a member of a fund.

It is therefore not possible for a husband and a wife to combine their individual RAs into one.

When spouses are married in community of property, the Income Tax Act (sec7(2C)) provides that any income payable to a spouse as a member or a past member of an RA fund is deemed to be income received by the spouse from a trade carried on by him or her.  

The annuity received by a spouse married in community of property is therefore taxable in that spouse’s hands, if he or she was the fund member.

So, not even spouses who are married in community of property can jointly be a member of an RA.

It is beneficial for a family to have RAs for both spouses, as pension is linked to a life. Both parties can then retire at different stages and start receiving an income at relevant times.  

Furthermore, both parties can claim a tax deduction on their contributions and the income received after retirement is taxed separately. 

This is to the family’s benefit, as two separate incomes will attract less tax than the same combined amount received by one person.

The biggest difference between old and new generation RAs is maybe the different options of the underlying investment funds.  

In a new generation RA, it may be possible to choose an investment fund (or combination of funds) which suits your investment profile better. Generally more choices are on offer.  

Loyalty bonuses are also something that does not exist on all old-generation RAs. Loyalty bonuses serve as a kickback into your investment, if you stay in the fund over certain longer periods.  

If two smaller RAs (of one person) are added together, it might be beneficial from a cost perspective, and compound interest on the two combined will contribute to higher growth over the long term.  

However, do not lose sight of the fact that you may incur penalties when you transfer your old generation RA to a newer generation, depending on how long the old generation RA was in force.  

You really need to weigh up the pros and cons with the help of a qualified financial adviser.

 - Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.



ZAR/USD
17.04
(-0.38)
ZAR/GBP
21.81
(-0.11)
ZAR/EUR
19.90
(-0.12)
ZAR/AUD
12.03
(-0.12)
ZAR/JPY
0.16
(-1.12)
Gold
1860.65
(+0.03)
Silver
22.87
(+0.11)
Platinum
844.51
(+0.50)
Brent Crude
42.23
(-0.12)
Palladium
2207.00
(+0.59)
All Share
53587.11
(-1.22)
Top 40
49547.74
(-1.16)
Financial 15
9401.28
(-1.95)
Industrial 25
72949.70
(-1.72)
Resource 10
53453.42
(-0.10)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 1368 votes
It depends on how the funds are used.
73% - 8860 votes
No. We should have gotten the loan elsewhere.
16% - 1959 votes
Vote