Should I invest in a retirement annuity?

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Johannesburg - With a focus on Savings Month, readers want to know the best way to start growing their wealth.

Ntsakisi writes: 

I am working for a municipality and we contribute towards a pension fund and a provident fund. Is it necessary for me to have a retirement annuity even if I am contributing towards the above-mentioned funds? 

Michelle Dubois, legal marketing specialist at Liberty, replies:

A retirement annuity is used either by individuals who do not have a company retirement fund or by those who wish to supplement their company retirement fund.

This can be helpful if, for example, you have started saving a bit late in the day and need to boost your retirement funds.

A retirement annuity is very tax efficient because not only are your contributions tax-free up to a limit, but there is no tax on dividends or capital gains within the fund. It is also protected from creditors.

It is important to note that you cannot access the funds in your retirement annuity until you are 55. At this point, you would only be able to access up to one-third of the lump sum, and two-thirds would be used to purchase an annuity income in retirement.

If you are already contributing to your company retirement fund, you would be limited as to how much you can save tax-free into a retirement annuity. You can save up to 15% of your non-pensionable salary – this is any income that was not included in the calculation of your company fund contributions.

You can usually save 15% of your bonus, or 13th cheque, into a retirement annuity.

An alternative strategy would be to ensure you are maximising your pension/provident contribution through your employer and have an additional long-term savings plan, like a tax-free savings account, where you are allowed to save up to R30 000 a year (or R2 500 a month). Although it does not provide a tax deduction from your income, there is no tax payable on the investment.

Amos writes:

I have R1 million that I want to invest. Where should I do this?

City Press writes:

Any money that you have to invest must always form part of a holistic financial plan.

These are the types of questions you would need to answer, or information you’d need to give to a financial adviser, to make the correct decision:

. Do I have short-term debt? Short-term debt is very expensive and should be settled before investing. The money that you will no longer be paying towards your short-term debt can now be used to start investing each month.

. Do I have a mortgage? You could possibly use the funds to settle the mortgage, but then, as with the short-term debt, use the additional cash flow to start investing each month.

. Do I have sufficient funds for retirement? How do these funds fit into your retirement plan? If you do not have sufficient money for retirement, you could use the money to boost your retirement provision. You do not have to invest it in a retirement product, but by understanding when these funds will be needed – for example, in 20 years’ time – to supplement your income, you will be able to provide a basis for the type of investment you require.

. What other financial liabilities do I have? If you have children, have you made provision for their education? Would you want to use some of these funds for their education?

. What other assets do I have? Have a look at your overall investment portfolio and ensure you are sufficiently diversified. For example, if you have property investments, it may be a 
good idea to consider investing in the stock market. If you have investments in local shares, you may want to diversify with some offshore investments.

Charles writes:

I want to buy shares on the JSE, but I do not know how to start. 

Enkosi writes:

I would like to invest in the stock market as I am not earning much interest with my bank savings account. I have R1 000 to start.

City Press replies:

One of the best ways to start investing in the stock market is through exchange-traded funds (ETFs).

When you invest in an ETF, you are investing in a fund that tracks a basket of shares.

Even though you are only buying into one share, you have exposure to many different companies on the JSE.

For example, one of the more well-known ETFs is the Satrix Top 40 and this ETF allows you to invest in the top 40 companies listed on the JSE.

You don’t have to buy or sell shares to ensure that you maintain a holding in the top 40 companies.

As companies fall off or join the top 40 list, the market maker, Satrix in this case, adjusts the holdings in the ETF. 

If your aim is to start a share portfolio with a stockbroker, which you aim to build over time, you need to open a stockbroking account.

Several online brokerages are aimed at the beginner investor and provide free educational material that can help you become a more confident investor.

These include Absa Stockbrokers, Sanlam iTrade and PSG Online. You would need to start with an investment of at least R5 000 for this to be cost-effective.

If you don’t intend to build up your own share portfolio but want to just invest on a monthly basis, you can invest directly in ETFs via different trading platforms such as etfsa.co.za or Satrix.

They have fairly low minimum investment criteria, starting with a R1 000 lump sum or a R300-a-month debit order.

Efi writes: 

My ex and I divorced in 2013 and he kept everything while I kept the child and he was meant to pay maintenance which has not happened. How do I find out that he’s still working and can I claim from him if he is unemployed?

Kristy Giva Knill Director at McLoughlin Clark Attorneys replies: 

In this case there is already an existing maintenance order in place, which your ex-husband has failed to comply with.

You (the complainant) must apply to the maintenance court in the area where your ex-husband is resident for:

. authorisation to issue a warrant of execution against your ex-husband; or

. a garnishee order (deducting money from your ex-husband’s salary).

The clerk of the maintenance court will assist you in completing the necessary forms and advising you of what supporting documentation you will require. 

It is imperative that you know the whereabouts of your ex-husband before approaching the court, so that sheriff can serve the necessary documentation upon him.

You do not need to know whether he is currently employed. The court will determine this when he appears at court.

If your ex-husband is unemployed, the magistrate will postpone the enquiry, allowing him an opportunity to seek work. 

Remember that even if your ex-husband is unemployed, but he own assets (such as a motor vehicle, or furniture etc.), the court will order that he sells these assets to comply with his maintenance obligations. 

Non-payment of maintenance is a criminal offence and the defaulter can be fined or even imprisoned for up to one year, or both. The maintenance officer may also order that the defaulter is blacklisted.

To avoid such action, the defaulter must show to the satisfaction of the court that he could not pay maintenance due to a lack of money or income.

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