Retirement Annuity FAQs

Your Questions

1. October 18, 2011 at 11:05 am, Shirley said:

   A holiday from retirement annuity contributions?

   I was retrenched in Nov 2010. I have a retirement annuity with Discovery. I am unable to meet my monthly payments. However, they have said I cannot take a ‘holiday’ from payments.

   Kindly advise. With thanks.

   Reply

   • October 19, 2011 at 11:47 am, 10X Investments said:

     Shirley,

     Unfortunately, most of the assurance companies will not allow you to take a contribution “holiday” irrespective of your circumstances. They usually allow a grace period of about 60 days, before they will deem your policy “paid-up”. If you stop making contributions (ie your policy is made “paid-up”) before the end of your agreed contract term (often your stated retirement date) then they will recover any outstanding initial costs (broker commissions, plus interest) at that point. In other words, they will levy a “termination penalty” which will come off your investment balance.

     In the past there was no limit to the amount of the penalty and some investors forfeited their entire investment (often under circumstances when they could least afford to do so, as on retrenchment). Understandably, this caused much unhappiness, to the extent that the law has now been changed, limiting the recovery to 30% of the investment value. Even better, life assurance RA’s sold from 1 January 2009 restrict the penalty to 15% of the investment value on transfer.

     Some RA’s are more flexible in this regard. For example, the 10X Retirement Annuity Fund would allow you to pause or alter your contributions without incurring a penalty. You can resume contributions once your personal circumstances change.

     Reply

2. October 20, 2011 at 10:15 am, Martin said:

   Indexed funds, who chooses the indices?

   How do I choose which index to buy though? Do you do that?

   Reply

   • October 20, 2011 at 11:03 am, 10X Investments said:

     Martin,

     You do not have to choose the indices – 10X makes the necessary investment decisions on your behalf. This includes your asset allocation (according to your age and expected retirement date) as well the appropriate underlying indices.

     Your money is invested in five asset classes, tracking the following indices:

     For SA equity: the DB 10X SA Share Index (which tracks the 60 largest companies on the FTSE JSE All Share Index, but with a 6% cap per share to reduce concentration risk; the index is listed on Bloomberg)
     For SA Bonds: a combination of the GOVI and the inflation-linked bond index
     SA Property: the FTSE JSE Property Index
     SA Cash: the AF Short Term Fixed Interest Index
     International Equity: the MSCI World Index

     Reply

3. November 15, 2011 at 6:56 am, Gaukes said:

   Early pension withdrawal when emigrating

   I am 38 yrs old. I live in Australia, and I still contribute towards 5 RA’s. Can I take the money to Australia?

   Reply

   • November 15, 2011 at 9:24 pm, 10X Investments said:

     Gaukes,

     As a rule, it is not possible to withdraw or retire from a retirement annuity fund before the age of 55.

     There are however special circumstances when early withdrawal is possible. Emigration is one such circumstance. Provided you have formally emigrated (ie you have officially notified the Receiver of Revenue and have emigrant status), you may withdraw from the fund and expatriate the funds. Your proceeds will be taxed as a lump sum early withdrawal from a retirement fund: the first R22 500 (plus any contributions you did not claim as a tax deduction) will be tax exempt, the balance will be taxed according to the prevailing income tax table for individuals.

     Reply

4. December 20, 2011 at 1:47 pm, Vanessa Reddy said:

   Early pension withdrawal under duress

   My brother has a RA with Sanlam and the value is under
   R 100 000. He has stopped contributing for a while now as he is not working and neither is his wife, who has now been diagnosed with stage 4 cancer and is only 30. They need the monies so desperately now for her care. Is there any way at all that he can apply to have the funds paid out to him. He is 38. Please let me know urgently
   Many thanks

   Reply

   • December 20, 2011 at 10:15 pm, 10X Investments said:

     Vanessa,

     The circumstances under which you are allowed to access money from your retirement annuity before retirement are as follows:

     1) If the member is permanently disabled due to an injury or illness.
     2) Upon emigration
     3) The fund value is less than R 7 500.

     It would be worth you or your brother contacting the Trustees of the Sanlam Fund in order to confirm whether or not they will make an exception to the rule.

     Reply

5. December 28, 2011 at 10:19 am, Phatane Masha said:

   Defining the termination charge

   Hi, I have an RA with one of the big insurance companies in RSA.- I’m not happy with the RA growth and i want to move it to another company. it this possible and what penalties will i be charged

   Reply

   • December 28, 2011 at 2:02 pm, 10X Investments said:

     Phatane,

     It depends on the RA Fund rules whether you will be allowed to move your RA or not. Most RA funds allow you to move your RA. As you have taken out an RA with a life assurance company, chances are you will be quoted a “termination charge” or “penalty”. Scarily, this can be as high as 30% of your investment balance. The goal is to deter you from switching. But it is important to understand the true nature of this charge, otherwise it may lead you to make the wrong decision.

     “Termination charge” or “termination penalty” are phrases used by the life insurance industry to create the impression that you are being punished for breaking a contractual term of the agreement, and that this penalty could be avoided by staying put. That is wrong. The “termination penalty” is nothing more than an accelerated recovery of upfront costs incurred on your behalf. These costs relate to the sales commission and the life company’s “new business” costs. These expenses are incurred up-front and posted as a liability (debt) against your RA. This liability initially grows as the life insurance company charges you interest on its loan. The liability reduces by the fees deducted from your investment. The critical point is that these costs are recovered, irrespective of whether you remain invested or transfer to another provider. They are recovered either over the life of the policy or as a “termination penalty” (on a transfer or making your RA paid-up). For all intents and purposes, these are “sunk costs” that you have already incurred and that you have to pay one way or another.

     The amount of the recovery (“termination charge”) depends on a number of factors including the agreed term (number of years) of your RA contributions, the commission rate agreed with your broker, the period you have held the RA and the interest rate charged by the provider. The longer the contractual term and the higher the commission rate, the higher the recovery is likely to be. The longer you have held the RA, the greater the amount already recovered by the life company, and the smaller the “termination charge” is likely to be. The interest rate charged depends on the service provider; some are known to charge rates not far off the usury rate.

     In the past there was no limit to the amount of the penalty and some investors forfeited their entire investment. The law has now been changed, limiting the recovery to 30% of the investment value. Even better, life assurance RA’s sold from 1 January 2009 restrict the penalty to 15% of the investment value on transfer.

     Reply

6. December 29, 2011 at 12:39 pm, Mark Cronje said:

   Can you contribute to a paid up retirement annuity?

   I have a RA that is paid up, can I start to
   contribute to it again? If not, please can
   you explain why?

   Reply

   • January 05, 2012 at 2:55 pm, 10X Investments said:

     Mark,

     This typically depends on the rules of the fund and with whom you took out the RA in the first place. If it was with a life company in the form of a policy, then you cannot resume making payments to that same RA policy, as it has effectively been closed out. More likely, you would enter into a new RA with that company, and transfer the balance of your paid-up RA to the new RA.

     If you took out the RA with an asset manager (such as 10X), which is not in the form of a policy, then you would probably be able to resume contributing to your existing RA (rules permitting).

     In the event you paid termination fees or penalties on making your first RA paid-up (effectively upfront costs recovered by the service provider), you now risk paying these same costs again on your new RA. You should try to minimise or eliminate these costs by engaging directly with the service provider, and ensuring no termination fees are payable if you make the second RA paid-up. Again, this is possible with some asset manager RA’s, but not with a life company RA (which are only sold through financial intermediaries).

     Reply

7. January 02, 2012 at 9:33 pm, Nazla said:

   Preservation fund vs. retirement annuity

   AT THE END OF 2008 I GOT RETRENCHED AND
   TRANSFERED MY MONIES INTO A PENSION
   PRESERVATION FUND. MARCH 2009 I
   WITHDREW 1/3. IN AUGUST 2009 I WENT FOR
   SPINAL SURGERY AND ON THE OPERATING
   TABLE BECAME PARALYSED. MY 2/3 IS STILL
   IN A PENSION PRESERVATION FUND, AM I ABLE TO WITHDRAW THIS MONIES AS A LUMP SUM.
   I AM A QUADRAPLEGIC AND UNABLE TO WORK
   NEED CONSTANT CARE. I HAVE THE COST
   OF CAREGIVERS AND MEDICAL EXPENSES.
   THE FUND HOLDER ADVISED THAT I CANNOT
   DRAW THESE MONIES BUT PUCHASE A
   RA AND WITHDRAW THE MAXIMUM P/M WHICH
   IS ABOUT R1400 PER AND DOES NOT COVER
   MY COSTS. AM I ABLE TO WITHDRAW THESE
   FUNDS AS A LUMP SUM AS THE MONEY IS
   STILL IN A PRESERVATION FUND,TAKING THE
   FACT THAT I AM PERMANANTLY DISABLED
   HOPE YOU CAN HELP

   Reply

   • January 05, 2012 at 1:38 pm, 10X Investments said:

     Nazla,

     Usually, you can access money from a Pension Preservation Fund before retirement if you are permanently disabled. However, it depends on the specific rules of the fund which you can request from your current administrator. If the fund allows “early retirement” based on permanent disability, then you will be able to take up to a third as a cash lump sum (subject to applicable tax rates); with the remaining two thirds you must purchase an annuity income. Depending on the annuity bought, you can maximise the monthly income. A level/fixed annuity will initially pay more than an escalating/variable annuity, but the purchasing power of the monthly payment will decline over time, as it will not grow with inflation.

     In exceptional circumstances, you may qualify for an enhanced annuity if you can demonstrate that your life expectancy is below average due to your ill-health. This pays a larger monthly amount.

     You will not be able to access the full amount of a pension preservation fund as a lump sum, only one-third. A Pension Preservation fund also allows one partial or full cash withdrawal before retirement – but it appears you have already made use of this.

     Reply

8. January 16, 2012 at 9:14 pm, Peter said:

   A loan from your retirement annuity

   Can i make a loan from my RA and how long will it take to be processed?

   Reply

   • January 17, 2012 at 9:46 am, 10X Investments said:

     Peter,

     Unfortunately (or perhaps fortunately), you are not permitted by law to take a loan from your RA. This is to preserve your retirement savings until you do retire.

     Reply

9. January 17, 2012 at 11:27 am, Danie said:

   Lump sum benefits

   What do I do when I want to withdraw my full fund
   value of a RA while on retirement-I’m over 55
   and Old Mutual insist I can only withdraw 1/3rd
   of the value.

   Reply

   • January 17, 2012 at 12:40 pm, 10X Investments said:

     Danie

     Unfortunately, you are not allowed to withdraw the full value of your RA as a cash lump sum. You may only withdraw one-third as a cash lump sum, with the balance you must purchase an annuity that will pay you a regular monthly income. This is stipulated by South African tax and pension funds law, and is not at Old Mutual’s discretion.

     Reply

     • January 17, 2012 at 12:46 pm, Danie said:

       What does the following then mean as was in the
       news to come into effect on 01-10-2007:

       Lump sum benefits upon retirement or death
       Persons with a retirement-interest of R75 000 or less in a
       retirement fund will be able to withdraw the full amount
       in the form of a lump sum. Prior to this amendment, only
       one third of a person’s retirement interest could be
       withdrawn by means of a lump sum.

       Reply

       • January 18, 2012 at 9:31 am, 10X Investments said:

         Danie,

         As a member of a pension or RA fund, you are compelled to convert two-thirds of the value of the fund into an annuity at retirement. You may take the other one-third as a cash lump.

         However, to avoid the excessive cost and administration of paying out a small annuity every month, the law now provides that if the total value of the pension or RA fund at retirement does not exceed R75 000, then the full amount can be taken as a lump sum.

         Reply

         • January 18, 2012 at 10:04 am, Danie said:

           Thanks for the reply.

           I can just say it was with great effort that I got
           Old Mutual to agree to pay out the amount
           that is below R75000.

           Seems Old Mutual are still trying to make
           their own rules just to keep the money for
           as long as they can.

10. January 23, 2012 at 11:56 am, Shaun said:

    Is a retirement annuity an insurance policy?

    Is the annuity that is purchased at
    retirement with the 2/3 portion of the RA
    always from an insurance company? Which
    annuity would 10x recommend considering
    that insurance companies do not have good
    reputations with regards to investment fees?
    Can I purchase a Swiss annuity while still a
    South African resident at retirement or must
    it be from a local insurer?

    Reply

    • January 23, 2012 at 5:40 pm, 10X Investments said:

      Shaun,

      Presently yes. An annuity is in substance an insurance policy, that protects you from the “risk” of longevity (outliving your capital), inflation eroding your standard of living (with an escalating annuity) and low market returns (eroding your capital).

      You can also use your 2/3rds to invest in a living annuity. That is not really an annuity however, and the hence name has been changed to RIDDA (retirement income draw-down account). With a RIDDA, you carry all the risks above. Moves are afoot to let collective investment schemes offer RIDDA’s, not only insurance companies. This will hopefully lower the cost of post-retirement investing.

      As regards to which annuity, you will have to shop around at the time you retire, to find the best rate at the time (ie the one that will pay the highest monthly amount) as insurance companies change their rates regularly. Be sure to compare apples with apples however, as there are many different types of annuities (fixed, variable, with survivor benefits etc).

      If you wish to purchase a Swiss annuity, you must formally emigrate to do so. You would then claim your entire RA as a lump sum (net of SA tax) and transfer the net proceeds to CH. You cannot do so as a South African resident.

      Reply

      • January 24, 2012 at 10:43 am, Shaun said:

        I find it unfortunate that one has to inevitably hand over your life savings in an RA to the insurance wolves. If legislation permits, will 10x be offering RIDDAs in future with the same life-staged index funds as its backing?

        Reply

        • January 24, 2012 at 11:35 am, 10X Investments said:

          Shaun,

          We fully share your sentiments. It is very much our intention to offer RIDDAs in the not too distant future, applying the same low cost principles and indices underlying all our current retirement products.

          Reply

11. January 24, 2012 at 5:16 pm, Colleen said:

    Compulsory and guaranteed retirement annuities

    does a compulsory retirement annuity have an expiry date, which will allow the balance of the poilcy to be paid out in full?

    Reply

    • January 26, 2012 at 9:48 am, 10X Investments said:

      Colleen,

      A compulsory retirement annuity does not have an expiry date – the annuity you purchase must provide you with an income for life. The annuity you receive therefore factors in your life expectancy at the age you take out the annuity.

      The annuity is in effect an insurance policy that protects you from the risk of longevity and low market returns. There is thus no “balance” that relates to your specific purchase. This is different from a fixed-term annuity that winds down to a zero balance.

      Below is more information on how guaranteed annuities work, and the different types on offer.

      A guaranteed life annuity (also known as an underwritten or traditional annuity) will provide you with a specified monthly pension for the rest of your life. You must purchase this annuity from a life assurance company, who assumes the longevity risk (the risk that you live longer than expected) as well as the investment risk (earning sufficient return on your capital to pay your pension).

      The full pension is paid until you die. The drawback is that your capital dies with you, and no money passes onto your heirs. That is your risk: you (or, indirectly, your heirs) forfeit your savings in the event that you die sooner than expected (unless a guarantee or life assurance is built into the contract).

      Annuity rates (the pension that you receive) are variable and can differ from one life assurance company to the next. As you may receive a different income for the same amount invested, you should shop around for the best available rate at the time.

      Life assurance companies consider a number of factors in determining your annuity rate:

      1. Your age: the younger you are, the longer you are likely to live, and hence the lower your monthly pay-out.

      2. Your gender: women have a higher life expectancy than men, on average, and therefore receive a lower pension.

      3. Interest rates: the higher the prevailing interest rates, the higher your monthly pension is likely to be.

      4. Your choice of annuity: you have a number of product options, with different risk profiles. In general, the less uncertainty you are willing to accept in respect of your monthly pay-out, the lower your annuity is likely to be.

      Products:

      Level or fixed annuity. You receive the same amount every month for the rest of your life. This means that your income does not grow with inflation; the purchasing power of your annuity (and hence your standard of living) will thus gradually decline.

      Escalating or variable annuity. This annuity increases annually, either by a fixed amount, or in line with a pre-determined inflation index, such as the Consumer Price Index (CPI). An escalating annuity will pay out less than a level annuity initially, but will maintain its purchasing power and thus gradually overtake the fixed annuity in value.

      Guaranteed and then for life annuity. This annuity will pay out less than the first two, as it shields you from the risk that you die soon after retiring and thus forfeit the bulk of your retirement savings to the life assurance company. This annuity (fixed or variable) is guaranteed for a set number of years (typically between 10 and 20); should you die within the guarantee period, your heirs will continue to receive your pension for the remainder of the guarantee period. You will continue to receive your pension after the guarantee period, but the payments stop upon your death (ie your heirs no longer benefit).

      Capital-back guaranteed annuity. This combines an annuity (fixed or variable) with a life policy. Your annuity is reduced by a premium, which pays for a life assurance policy, to the benefit of your heirs.

      Joint and survivorship annuity. This annuity ensures that your spouse will have an annuity (fixed or variable) after your death. You select the income level your surviving spouse will receive (typically 75%). This is recommended for couples where only the one spouse has accumulated retirement savings. This type of annuity pays out less than a single person annuity, as the longevity risk increases for the life assurance company.

      With-profit annuity. This is an escalating pension, guaranteed for life; however, the rate of increases is not guaranteed and depends on the net (after cost) investment performance of your initial investment. Increases are declared as bonuses; and once declared, become permanent (ie part of your guaranteed pension). Pension increases are subject to smoothing, ie the life assurance company holds back some of the profit made in high-return years, to soften the blow of low-return years.

      Enhance annuities. In exceptional circumstances, you may qualify for an enhanced annuity if you can demonstrate that your life expectancy is below average due to your ill-health or poor life-style choices.

      Reply

12. January 25, 2012 at 4:47 pm, JJ Kotze said:

    Deductions on RA contributions

    I earn directors remuneration (code)3615 which is non-pensionable. For the last couple of years the receiver only allows a deduction for income tax of R3500 and not 15% of my income. On the assessment the difference betweenmy RA contributions and the R3500 is then added to a balance and shown as amount off to next year. As the 15% is not deducted, I had to make payments hwn assessed to the Receiver for the past couple of years.

    Reply

    • January 26, 2012 at 10:25 am, 10X Investments said:

      JJ,

      The deduction allowed on RA contributions is the greater of:

      15% of non-retirement funding income
      R3 500 less the allowable pension fund contributions, or
      R1 750
      If you are not a member of your company’s pension or provident fund, then all your directors emoluments should be deemed as non-pensionable. In that case, we cannot see a reason why you should not be allowed the full 15% deduction for your RA contribution, other than that the Receiver does view your director’s remuneration as part of your pensionable income. It is worth a query.

      Also remember that if you are a member of your company’s provident fund, your income (other than that specifically excluded) will be deemed as pensionable even though the company is making the contribution.

      Good news: In terms of proposed legislation, you will be allowed to deduct 22.5% of your taxable income as a retirement fund contributions (capped at R200 000 per year), irrespective of whether it is to a pension, provident or RA fund. The whole issue about pensionable and non-pensionable income will fall away. That should address your problem in future years; also you can add any amounts not allowed as a RA deduction in the past to your tax-free cash lump sum at retirement.

      Reply

      • February 02, 2012 at 12:34 pm, Deon said:

        Tax reduction on retirement annuities

        Hi there, do you know when the proposed legislation on the 22.5% tax deduction on RA’s will become effective. Is it Final? I would like to know as I want to increase my RA in good time.

        Reply

        • February 02, 2012 at 1:48 pm, 10X Investments said:

          Deon,

          It was not confirmed in the 2012 Tax Amendment Act, so still appears to be the subject of industry consultation. There may a further announcement at the time of the budget later this month, and possibly the subject of a Bill passed later this year.

          However, it appears unlikely that the rule will come into effect for the fiscal year ending 28 February 2012.

          Reply

13. January 26, 2012 at 2:19 pm, Deon said:

    The transfer of a RA to a pension fund

    Hi there, I have a Pension Fund with my employer. My I transfer my RA value to the Pension Fund? Are there any penalties?

    Reply

    • January 27, 2012 at 9:59 am, 10X Investments said:

      Deon,

      You cannot transfer an RA to a pension fund, per the Income Tax Act. To do so, would enable savers to circumvent the provision that RA investors may not claim their savings before the age of 55 (as a pension fund member, you can
      cash in your retirement savings on changing jobs).

      Reply

14. January 30, 2012 at 9:10 am, Tazz said:

    Resuming discontinued RA payments

    My husband had a retirement annuity with Old Mutual which we stopped contributing to when he lost his job. We would like to resume the payments. How do we go about doing this?

    Reply

    • January 30, 2012 at 10:07 am, 10X Investments said:

      Tazz,

      As you took out the RA with Old Mutual, this will be a life company RA, which is underwritten and subject to a long-term contract or policy.

      When your husband stopped contributing to the RA, the RA would have been deemed “paid-up”. You may have incurred a “termination penalty” at that point, to recover outstanding upfront costs incurred by Old Mutual. This policy is effectively closed, so you cannot resume making payments to that same RA policy. More likely, you would enter into a new RA with that company, and transfer the balance of your paid-up RA to the new RA.

      If you had taken out a so-called “new generation” RA with an asset manager (such as 10X), which is not in the form of a policy, then you would probably be able to resume contributing to your existing RA.

      In the event you paid termination fees or penalties on making your first RA paid-up, you now risk paying these same costs again on your new RA (recovered monthly/deducted from your investment balance). You should try to avoid these costs by engaging directly with the service provider, so that you do not re-incur upfront costs (eg broker commissions). Again, this is possible with new generation RA’s, but not with a life company RA (which are only sold through financial intermediaries).

      Reply

15. February 01, 2012 at 8:58 am, Navin said:

    Limits to RA contributions

    I am employed by an employer who does not
    provide a pension fund. Can I commence a
    new RA and contribute in arrears for the time I
    did not contribute to a pension vehicle?

    Reply

    • February 02, 2012 at 9:35 am, 10X Investments said:

      Navin,

      You can contribute to an RA as much as you wish. However, your tax deduction in any one year is limited to 15% of your non-pensionable salary. As your employer does not have a work place fund, all your income should be non-pensionable. Most funds will allow you to make a top-up payment in February, to fully use you up your allowable deduction.

      You may carry excess contributions over to the next year, but you cannot make good (deduct) past contribution shortfalls (ie you cannot contribute 10% of income one year, and claim a deduction for 20% of income the next year).

      Any amount you contribute to an RA in excess of the permitted deduction will be added to your lump sum payment at the time you retire, and will not be taxed.

      In terms of proposed legislation, the allowable deduction for all forms of retirement forms will in future be 22.5% of taxable income, capped at R200 000 pa (pending industry comment).

      Reply

16. February 06, 2012 at 4:14 pm, Sarah said:

    Why should you top up your retirement annuity?

    What r the benefits 4 topping up an RA?

    Reply

    • February 08, 2012 at 10:16 am, 10X Investments said:

      Sarah,

      Topping up your RA makes sense for a number of reasons:

      Firstly, you increase the absolute amount of your savings; as you may only access your RA savings at retirement (earliest age 55), this means you should receive a higher income in retirement (you have to convert two-thirds of your RA into an annuity at retirement). Remember, you do not just ‘put away’ the top-up payment, but also the return earned on this money until you retire. In other words, with a top-up payment you have more money saved and more money working on your behalf.

      Secondly, top-up payments allow you reach your maximum allowable tax deduction for your RA. Presently, you may deduct 15% of your non-pensionable income (pensionable income is the income used by your employer to calculate contributions to the company’s pension or provident fund).

      This tax deduction is important. If you cannot claim a tax deduction for your top-up payment, this will be added to your untaxed cash lump sum portion at retirement (ie it will not be taxed). The investment income in your RA is not taxed, but you do pay tax on cash lump sums above R315 000 (per the cash lump sum tax table at the time), and on your monthly annuity income (per the personal income tax tables at the time). From a tax perspective, you then need to consider whether you would be better off investing within an RA structure, or without. This depends in part on how you will invest this money (interest income above R22 500 is taxed at your marginal tax rate, dividends and capital gains effectively at 10%).

      Thirdly, any money invested in a retirement annuity fund is protected should the member become insolvent.

      Fourthly, upon death, the RA investment is not subject to estate duty, provided no lump sum is taken.

      Reply

17. February 15, 2012 at 3:19 pm, Andre van Noordwyk said:

    How protected is your retirement annuity?

    Can anybody “touch” my RA at any point in time.
    Is it completely safeguarded against any creditors of what ever nature?

    Reply

    • February 16, 2012 at 12:13 pm, 10X Investments said:

      Andre,

      This is governed by S37 of the Pension Funds Act. As with most things in law, nothing is ever quite straight-forward as it could be and you should read through this section of the Act, to get a fuller appreciation of the underlying complexity.

      In principle, the rule is a as follows:

      Your RA savings are designed to provide with income retirement, and you therefore cannot access this money before retirement (earliest age 55), other than under exceptional circumstances (formal immigration, disability).

      S37a of the Pension Funds Act (covering also RA’s) stipulates that a member’s benefits payable in terms of the rules of a fund (including an annuity purchased by the fund from an insurer for a member) cannot be reduced, transferred, ceded, pledged or hypothecated, subjected to any form of execution under a judgement or order of court of law, or taken into account in the determination of a judgement debtor’s financial position in terms of section 65 of the Magistrates’ Court Act, for an amount exceeding R3 000.

      In other words, only R3 000 may be deducted from your RA in order to pay creditors. That is the rule regarding a debt judgment against you.

      In terms of S37B, pension assets do not form part of an insolvent estate. In other words, the full amount of your Fund is protected from creditors in the event you go insolvent.

      These provisions do not mean that your RA money is “untouchable”. The Act allows certain deductions under S37A(3)(c) – which in turn refers to S37D – and S37A(3)(d), which relates to arrear contributions that may be recovered by the fund.

      S37D permits, among others, deductions from the fund in respect of amounts due per the Income Tax Act, guarantees furnished by the fund on behalf the member in respect of a loan granted by another person [unlikely with an RA], amounts due and payable under the Divorce Act and the Maintenance Act, and damage claims by employers.

      This is a particularly long and complicates section of the Act, and you should consult a lawyer or financial adviser to obtain the exact legal position for your particular circumstances.

      Reply

18. February 20, 2012 at 11:26 pm, Mrs Beverley Kleinhans said:

    Can a retirement fund be ceded to another?

    Can someone claiming to be “common law wife” be ceded the policy, and claim the benefits

    Reply

    • February 21, 2012 at 9:42 am, 10X Investments said:

      Beverley,

      A retirement fund/RA policy cannot be ceded to another person; the proceeds of the fund must flow to the fund member (subject to allowable deductions under the Pension Funds Act). Allowing cessions would give rise to all kinds of tax avoidance opportunities, and potentially prejudice the fund member and his/her financial dependents.

      If the member passes while still a member of the fund, the fund proceeds do not form part of the deceased’s estate. Instead, the Trustees of the fund will allocate the funds according the member’s nomination form, BUT only after providing for all financial dependents (any person who has been reliant on the member for financial support). A common law wife living with the member would usually be considered as financially dependent, and would therefore share in the fund proceeds. The discretion to determine who is financially dependent on the member, and how the funds are to be allocated, rests entirely with the trustees of the fund.

      Reply

19. February 22, 2012 at 5:46 am, Douglas said:

    Tax implications when reinvesting your RA

    I have a RA with Sanlam, that will pay out in +5 yrs time. The question/s is that since 2001 I have not been living or working in SA (i have not officially emigrated), since 2007 i have been working and paying taxes in China where my SA, RA contributions are not tax deductible, what happens at 55, do i still pay tax on the 1/3rd even though i have not had any tax deductions? Can i reinvest the whole amount for say another 5 yrs and then put into a monthly pension, (the full amount not taking a cash withdrawal), what are the tax implications then? Policy is worth about 1m, at 55. Any advice is appreciated, ps I will not be returining to SA.

    Reply

    • February 23, 2012 at 9:11 am, 10X Investments said:

      Douglas,

      This is quite a complicated legal matter and you should consult a tax expert for a definitive answer.

      As a general rule, any RA contributions not deducted for tax are carried forward to the next year. If they remain unutilised, they are added to the tax-free lump sum portion when you claim your RA benefit. In other words, only tax-deducted contributions and the income earned by your RA investment will be taxed, as per the lump sum tables and the personal income tax tables (for the annuity portion).

      In your case, there is a further complication as you appear to be a non-resident. South Africa has a “residence” basis for tax but non-residents are taxed on a “source” basis. Persons who are not resident in SA are only subject to tax in SA on income which is from a SA source. The source of annuity income is the origin of the formal act which gives rise to that income. According to case law, in the case of a purchased annuity the source is the place where the contract was entered into. In your case this is likely to be SA.

      This does not cover the lump sum. Annuities and lump sum benefits also fall under the Act’s “deemed source provisions”. S9(1)(g) of the Income Tax Act deems any pension (including lump sums) or annuity granted to a person to be from a SA source if it is made by a) the SA government, any provincial administration or municipality or b) by any person, residing in SA or not, if the services in respect of which the payment is made were performed in the Republic for at least two years during the ten years immediately preceding the date from which the pension/annuity first became due. Only the period of service in the Republic will be taken into account in determining the portion deemed to be from a SA source.

      The Receiver will likely determine where the money that you used to pay your RA contributions came from, and whether this is related to services you performed in South Africa. For example, if you are renting out your old home here, and using the proceeds to invest in an RA, the Receiver may deem this to be a South African-based service and tax the lump sum accordingly . If you are repatriating money from overseas, chances are your lump sum will not be taxed.

      55 is the earliest you may retire from your RA, but this is not a compulsory retirement age. You can contribute to the RA for as long as you wish, and you can also make it paid-up and leave the funds invested in the RA until you do choose to retire.

      You can opt to convert the entire amount into an annuity; the entire amount will be taxed as an annuity. You will then lose out on the tax-free lump sum portion (currently R0 to R315 000 plus contributions not allowed for tax). However, given the projected value of you RA at retirement, the annual annuity proceeds are not likely to attract very much tax.

      The annuity income may be subject to a Double Tax Agreement South Africa has with your county of residence at the time.

      Reply

20. February 24, 2012 at 9:20 pm, Jess said:

    What are the limitations of investing your bonus in a RA?

    if you earn a bonus that is non-pensionable and use it to buy arrear pension services must it still be included in the non-retirement funding employment income in the raf deduction

    Reply

    • February 27, 2012 at 12:33 pm, 10X Investments said:

      Jess,

      Although you are using your non-pensionable bonus to buy back service this does not render the bonus pensionable; the Receiver would not look at the source of that money (ie whether it came out of your bonus or out of pensionable income). You can therefore still base your RA deduction on your non-pensionable income, including the bonus. However, given the limits of the deduction allowed for arrear services (see below), you can also consider investing your entire bonus in your RA instead, to claim the full 15% tax deduction this year. You can only access your RA at age 55 though.

      Per Notes on South African Income Tax 2011 (Keith Huxam & Phillip Haupt, H&H Publications): “Arrear contributions, where service is bought back, are allowed as a deduction up to a maximum of R1 800 pa. Any excess above the R1 800 limit may be carried forward to the next year of assessment and be deducted subject to the limit. Such arrear contributions to a pension fund may also be deducted from non-trade income.”

      Further, any disallowed portion is allowed as a deduction when retirement benefits are eventually received.

      Reply

21. February 26, 2012 at 12:43 pm, James Brusatori said:

    A retirement annuity or employer scheme?

    I am part of an employer scheme with a pension and provident fund. I can still increase my employer contributions by 7.5% to 20%. Currently my contributions are 7.5%, and total pensionable earnings is 80% of our guaranteed package. Should I increase my contributions to the max, or take out an RA, or a mix? Which would be more beneficial, considering the prices of annuities when I retire? I am 22 years old now and assuming I retire at 60

    Reply

    • February 27, 2012 at 12:27 pm, 10X Investments said:

      James,

      Given your young age, and the pending pension fund reform, I think that your questions regarding whether to choose pension, provident or RA will become largely academic.

      The reason is that government plans to standardise the treatment of these vehicles in due course. Although vesting rights will be protected (this refers to provident funds, which enable members to take the full fund benefit as cash at retirement), the amount involved will be negligible by the time your retire. So, in future, you will be allowed the same deductions for pension, provident and RA funds, they will be subject to the same mandatory preservation, and the same compulsory annuities at retirement (at least two-thirds of your fund proceeds). The cost of the annuity will be independent of the source of the money (ie pension, provident, RA). You will have to shop around when your retire, to get the best rate.

      As a general rule, we believe that a work place fund is a better proposition that an RA as you typically invest at a wholesale rather than retail rates (this may not hold true for small occupational funds, which may get taken for a ride [fee-wise] by some service providers). So topping up your pension/provident fund would make more sense than taking out a separate RA.

      An RA really only makes sense if you are self-employed or do not have access to a work place fund, if you are not allowed to top up your work place contribution, or if you earn a lot of non-pensionable income, and you want to max out your tax deduction.

      Having said all that, you need to consider some essentials in selecting your funds, in particular the investment style (active or indexing) and fees (the lower the better). If your work place fund charges high fees, you may well be better off topping up with a low cost RA, as the long term negative impact of fees is very dramatic.

      Reply

22. March 13, 2012 at 9:22 am, Samantha said:

    Is selling your retirement annuity possible?

    Can I sell my retirement annuity policy as I
    desperately need the money?

    Reply

    • March 13, 2012 at 10:07 am, 10X Investments said:

      Samantha,

      Unfortunately, that is not possible. The proceeds of an RA must be paid to the member who paid the contributions (received the tax deduction); or, on the member’s death, his/her dependents and/or nominated beneficiaries.

      S37A of the Pension Funds Act states that no benefit “shall be capable of being reduced, transferred or otherwise ceded, or of being pledged or hypothecated, or be liable to be attached or subjected to any form of execution under a judgement or order of of a court of law.”

      In other words, the law makes it very difficult for anyone to access your retirement money early (including yourself). The earliest you can access your money is at age 55 (unless you emigrate or suffer a disability).

      Reply

23. March 13, 2012 at 1:11 pm, Anna-Marie Scheepers said:

    May you withdraw from your RA when emigrating?

    What happens when a client goes overseas… he may withdraw his lumpsum RA money?
    Is it correct? What does legislation say?

    Reply

    • March 13, 2012 at 4:14 pm, 10X Investments said:

      Anna-Marie,

      A RA member who formally emigrates (ie officially signs off with the Receiver of Revenue) may cash in their entire RA as a lump sum and take it overseas. They may however incur termination penalties for cashing in early (in the event that this is a life company RA, and subject to the rules and agreed investment term). Also, the lump sum will be taxed as a withdrawal, ie the first R22 500 will be tax exempt, the balance to R600 000 will be taxed at 18%, the balance to R900 000 at 27%, and the rest at 36%. The lump sum tax rates on withdrawal are less favourable than those on retirement.

      Reply

      • March 14, 2012 at 8:48 am, A Scheepers said:

        Your options when taking a living annuity offshore

        The policy is a living annuity, the client has already received the lump sum and wants to take the balance, the annuity portion offshore.
        What are the options for the client?

        Reply

        • March 14, 2012 at 11:04 am, 10X Investments said:

          Anna-Marie,

          As with a guaranteed annuity, once your client enters into a living annuity, they effectively tie up their money in South Africa. They cannot transfer the remaining value abroad, either as a lump-sum, or by transferring the living annuity to an overseas service provider. Instead, the annual proceeds will have to be paid into a South African bank account and then remitted abroad. Using the 17.5% upper limit, the bulk could be remitted within a few years. Once the fund balance falls below R75 000, the remaining amount can be commuted to cash and remitted.

          Reply

24. March 13, 2012 at 9:13 pm, Sifiso said:

    What is the difference between a RA Fund and a Life RA?

    I have an RA and a Life Cover with Discovery. I resigned from my job and I have to withdraw my provident fund. I want to transfer the lumpsum to my RA. My Financial Advisor sent me Discovery forms with an option to invest in a Life RA. I am confussed because I thought I have to invest in a RA Fund. What is the difference between a RA Fund and a Life RA?

    Reply

    • March 14, 2012 at 10:33 am, 10X Investments said:

      Sifiso,

      When you withdraw from your current provident fund, you have choices as what you can do with that money. You do NOT have to invest in an RA. These are your options:

      1. You can cash in. We strongly recommend that you do not do this, as this money is ear-marked for your retirement, or your dependents, and nothing else. If you cash in, you will pay lump-sum tax on the proceeds.
      2. You can transfer this money to your new employer’s pension or provident fund, tax free.
      3. You can preserve this money in a pension or provident preservation fund, but you cannot make further contributions (only further transfers). There is no tax on transfer.
      4. You can transfer to a retirement annuity fund, also free of tax.

      Understand that with a provident or provident preservation fund, you are entitled to claim your entire proceeds as a cash lump sum on retirement. If you transfer to a pension fund, a pension preservation fund or an RA, you must two-thirds to buy an annuity, so you give up some flexibility by transferring the proceeds to an RA .

      There are essentially two types of RA’s: policy-linked, underwritten RA’s issued by life companies, and new-generation RA’s that are not underwritten, and are issed by asset manaers such as Allan Grey or 10X Investments. The former are typically very expensive and restrictive. You typically pay high fees, and if you wish to stop contributing, or change the level of your contribution, you run the risk of incurring significant penalties. New-generation RA’s are far more flexible in this regard, and if you purchase them direct (ie not through a broker), there should be no termination penalties.

      In making your decision, understand the critical importance of fees on the long-term investment outcome. Your RA is unlikely to generate more than a 5% real (after-inflation) return over the long term. If you pay fees of 2% pa, you reduce that return by 40% or more! Over 40 years, this will halve the real value (ie purchasing power) of your pension. Make sure your broker discloses all the fees you will be paying (including his own).

      As a general rule, separate your retirement product and your life insurance products. You do not get the life cover for free, it comes off your contributions, ie you save less towards retirement. And often the cost of that life cover is higher than if you bought it separately. Transparency tends to be poor in these products, so you do not see how much goes towards life cover, and how much towards savings. Beware of complex products that you do not properly understand; this complexity does not serve your interests, but it will likely push up your costs. Please ensure that you speak to a financial adviser who is looking after your interests, not his/her own.

      Reply

25. March 14, 2012 at 3:08 pm, Thabang said:

    What is the best vehicle for retirement saving?

    I currently contribute to a retirement annuity to save for my retirement. Is this the best way to save as I do not contribute to a pension fund. which other safe options are availanble to ensure that I am appropriately covered
    ?

    Reply

    • March 15, 2012 at 10:51 am, 10X Investments said:

      Thabang,

      Retirement funds (pension, provident or RA funds) are the optimal way to save for retirement, as they provide important tax advantages (tax-free contributions, investment returns and lump sum payments) and they foster a savings discipline based on a) regular mandatory contributions and b) restricted access to savings.

      If you do not have access to a workplace fund (pension or provident fund), then a low-cost RA is next best option. The low-cost aspect is critical as high investment fees quickly erode the the tax advantages of an RA. Unfortunately, underwritten RA’s issued by the big life assurance companies often come with these high fees. Also many come with draconian surrender penalties if you are unable to keep up your agreed contribution, meaning you lose a big chunk of your savings at that point. You should therefore consider some of the new-age RA’s that charge much lower fees, and no surrender penalties if you can longer afford to contribute.

      There are other savings options, outside the retirement fund system, but they do not confer the same tax advantages. And ‘safe’ is a vague concept. If you put your money in the bank, you will be taxed on your interest income (above the exempt portion of R22 800). You will not earn much of a real (after-inflation) return before tax, and after tax, the value of your savings will effectively decline. Your money should be safe, but not your retirement as your savings are not growing in real terms. Alternatively, your own share portfolio may provide you with a high real return over time, but you may not feel safe with the intermittent volatility, or with your mix of shares (level of diversification). Or you choice of unit trust is poor, based on the fees charged and the returns earned.

      In deciding on what is “safe”, consider the following:

      • Are my service providers regulated and registered with the FSB?
      • Does my financial adviser have my best interests at heart?
      • Is my investment vehicle transparent on fees, returns, investment style and asset allocation?
      • Are my gross investment returns likely to approximate the market return over time?
      • Do my service providers charge low fees?
      • Does my investment portfolio provide broad diversification?
      • Does my investment vehicle come with strong governance (independent trustees)?
      • Is the asset allocation appropriate for my age and expected retirement date at every point?

      Reply

26. March 26, 2012 at 11:59 am, Cynthia said:

    What are donation PBO’S?

    expalin donation PBO’S ,Retirement annuity fund contributions and pension fund contribution with the aid of an example for each

    Reply

    • March 26, 2012 at 7:14 pm, 10X Investments said:

      Cynthia,

      What PBO’s (public benefit organisations), retirement annuity fund and pension funds have in common is that for each you may deduct your contributions for tax purposes, within limits. To understand these limits, consider the following example: You earn an annual salary of R100 000 pa, on which you pay a pension contribution of 7.5%. You also earn a non-pensionable bonus of R10 000, from which you pay R1 500 into an RA.

      You may deduct your 7.5% contribution to the pension fund for tax purposes from your pensionable income of R100 000 (ie R7 500). Your employer may deduct a further 20%, but we have ignored this for this example.

      You may deduct contributions to an RA up to 15% of your non-pensionable income of R10 000, ie R1 500.

      Your taxable income thereafter is R92 500 (R100 000 – R7 500) plus R8 500 (R10 000 – R 1500), ie R101 000.

      You can deduct contributions to an approved PBO that has donor deductible status, up to 10% of your taxable income. You can therefore deduct a R10 100 contribution to the PBO in the above example (10% of R101 000). The PBO must meet the requirements of the Income Tax Act.

      In terms of proposed legislation, the deduction base for both RAs and pension funds will change to 22.5% of the higher of taxable or employment income if you are below 45, and 27.5% if you are 45 or older.

      Reply

27. March 27, 2012 at 11:22 am, Kim said:

    Implications of cashing in your RA

    If there is a RA of 100 000 and its cashed out at 55 years, would there be costs involved in taking it earlier and if so would it be a large amount on 100 00, eg tax? fees? . if the then amount after all the deductions is 75000 could the balance be taken in cash:)

    Reply

    • March 27, 2012 at 12:00 pm, 10X Investments said:

      Kim,

      It is not possible to cash in a RA before age 55, other than on the basis of (proven) disability and formal emigration. Even cashing in at age 55, you will be required to use at least two-thirds to purchase an annuity that will pay you a pension for life. If the two-thirds amounts to R50 000 or less, you may also commute that part to cash. In other words, if your total RA savings amount to R75 000 or less, you may take the entire balance as cash. The R75 000 refers to the value of your RA, after deducting all outstanding costs. Given the size of your RA (ie R100,000 and assuming you have not cashed in other retirement savings already), no tax would be deducted from your cash lump sum (R33 334) if you could retire from your RA now. Your annuity income would be taxed according to the prevailing personal income tax tables.

      Reply

28. March 31, 2012 at 8:53 am, John Bullock said:

    How is your retirement annuity taxed upon death?

    I have a retirement annuity. If I die and am still contrubuting to the annuity I understand the
    proceeds will go to the dependent as determined
    by the trustees. The question is this. Will the
    proceeds be taxed by taking the value of the
    retirement annuity and adding it to my taxable
    income at time of my death, or will the whole sum
    go to the dependent and be taxed with their
    taxable income? (My marginal rate is much higher
    than the dependent’s).

    Reply

    • April 02, 2012 at 9:48 am, 10X Investments said:

      John,

      The retirement annuity will not fall into your estate, provided you have financial dependents and/or nominated beneficiaries.
      The proceeds are therefore taxed in the hands of the recipients, and not according to your income, or estate duty, tax rates.

      Reply

29. April 02, 2012 at 12:01 pm, Leonard said:

    How withdrawing from your retirement annuity works

    MY Retirement annuity is paid up,how can i get this money

    Reply

    • April 02, 2012 at 5:19 pm, 10X Investments said:

      Leonard,

      You can only access your retirement annuity at “retirement”. The earliest you can retire is at age 55. The fact that you have made your RA paid-up (ie stopped contributing) does not change this fact.

      If you are already 55 years old, you need to instruct your RA provider that you wish to claim your savings. You are allowed to take up to one-third as a cash lump sum; you must use at least two-thirds to invest in an annuity or living annuity. If the total value of your savings is less than R75 000, you can take the entire amount as cash. An annuity will pay you a guaranteed income for life (escalating with inflation if you choose – this annuity will pay out less initially); the living annuity allows you to choose how much you wish to withdraw every year (between 2.5% and 17.5%). However, you then have to decide how to invest your money and you carry the risk that you may outlast your savings.

      Reply

30. April 04, 2012 at 10:36 am, Magnus said:

    Can you cash-out your retirement annuity before you retire?

    Hi

    Can you cashout your retirement annuity before you retire?

    Reply

    • April 04, 2012 at 11:47 am, 10X Investments said:

      Magnus,

      The only time you can cash out your retirement annuity is on formal emigration, or on proven disability. Formal emigration means you have to sign off with the Receiver of Revenue. Otherwise, you cannot access your RA before age 55, which is the earliest allowed retirement date. Even then, you can only access one-third as cash, the balance must be converted into an annuity. Only if the balance is less than R75 000 can you commute the entire amount to cash.

      Reply

31. April 04, 2012 at 12:54 pm, Deepak said:

    How do the deductions on your RA work?

    Would like to know if i contribute to a number of retirement annuity’s can i claim a tax deductible on all my retirement annuity’s. EG. got 5 retirement annuity’s and based on income can claim a deductible of R1750, so my total deductible will be 5 x R1750=R8750 for income tax. Please advise thereof if correct or not.And what happens should my income change during the year which could result in me claiming a higher deductible-will i have to open a new RA or just notify the life insurance company of my change in income to calculate my new deductible and contribution.(eg if my deductible is calculated at R1750 and now my income changed, and i now earn non-pensionable income of R80000 -deductible will be 12000(15% of R80000).What is the process to be followed.

    Reply

    • April 05, 2012 at 10:11 am, 10X Investments said:

      Deepak,

      You can only claim the minimum R1 750 deduction once per year, irrespective of how many RA’s you own. This deduction is also irrespective of your income. But your allowable deduction is the higher of R1 750, R3 500 minus your allowable pension fund contribution and 15% of your non-pensionabe income. If your non-pensionable income has increased, you can deduct more of your current RA contributions, without having to take out another RA. But if your current RA contributions are fully deductible already, and you do not have the option to increase your contribution, you would have to takeout another RA. This is a very inefficient way of saving however, as you are duplicating (six-folding?) administration costs. You should rather then investigate a new age RA that will enable you to change your contribution, much like a unit trust. You may even consider consolidating all your unit trusts into one.

      Reply

32. April 05, 2012 at 12:04 am, Kuby said:

    What is the minimum amount for commuting your RA into cash?

    With the 2012/2013 legislation did the min amt
    Of R7500 change for the encashment of an
    RA?

    Reply

    • April 05, 2012 at 10:58 am, 10X Investments said:

      Kuby,

      You may commute an RA entirely into cash if the balance, at retirement (earliest age 55), is R75 000 or less. This limit was not raised in the latest budget.

      Reply

33. April 07, 2012 at 1:30 pm, Pule said:

    How can you access your annuity funds?

    Hi,
    My father have a FlexiLife Maxium and RA with Old Mudual. My question is how can he acces his annuity funds since he is 59 years old and not working?

    Reply

    • April 10, 2012 at 5:34 pm, 10X Investments said:

      Pule,

      You need to contact Old Mutual and advise them that your father wishes to retire. He may do so at any time after the age of 55. If the total amount of his RA is less than R75 000, he can request the entire amount as cash. If it is more, he must use two-thirds to purchase an annuity, and can only request one-third as cash.

      You are not compelled to buy the annuity from Old Mutual. Shop around with other life companies to ensure you get the best price at the time.

      Reply

34. April 09, 2012 at 9:49 am, Kevin Ferreira said:

    How to terminate a RA and withdraw the funds

    I have emigrated and now live in New Zealand.
    I have a small RA fund I’d like to terminate
    and withdraw the funds – policy 13444557X6
    Please advise

    Reply

    • April 11, 2012 at 11:16 am, 10X Investments said:

      Kevin,

      You need to contact your service provider (administrator/asset manager) and inform them that you have emigrated, and wish to withdraw from the fund. Provided your emigration is cleared/approved by SARS, this can be done. If you have not formally emigrated (ie you have not checked out with SARS), you can only make your RA paid-up. The earliest you can then access your money is at age 55. If the balance is below R75 000 (present rule) you can withdraw the entire amount as cash and transfer it abroad. If it is more than R75,000, you must buy an annuity with at least two-thirds. This will be paid out in SA, and you will have to transfer the individual payments abroad.

      Reply

35. April 09, 2012 at 3:00 pm, Cheryl said:

    Can you cede your retirement annuity?

    I want to sell my paid up retirement annuity.

    Reply

    • April 10, 2012 at 5:19 pm, 10X Investments said:

      Cheryl,

      It is not possible to sell or cede your RA, paid up or not. This is per the Pension Funds Act. An RA is intended to provide for you in retirement, or your dependents in the event you pass away. The State accordingly offers certain tax deductions to encourage individuals to save. These tax deductions attach to the individual and cannot be transferred or sold to another person.

      Reply

36. April 13, 2012 at 4:04 pm, Maurice Jacobs said:

    Can you cede a paid-up policy to someone living overseas?

    Is it possible for me to cede a paid up policy to a family member that is currently overseas

    Reply

    • April 16, 2012 at 9:58 am, 10X Investments said:

      Maurice,

      This is not allowed by our pension fund law. In terms of S37A of the Pension Funds Act, no benefit provided for in the rules of a registered fund, or right to such benefit may be reduced, transferred or otherwise ceded, or be pledged or hypothecated. This is irrespective of whether the policy is paid-up or not. The main reason for this is that retirement funds are tax-advantaged; these tax advantages (tax breaks) relate to the person saving and cannot therefore (by way of the paid-out benefit) be transferred to another.

      Reply

37. April 20, 2012 at 10:17 am, Anita du Plessis said:

    Can you claim paid-up RA’s before the age of 55?

    I have 3 Retirement Annuiity policies that is paid up and I am 53 years old can I get that money now because I am unemployed and need the money

    Reply

    • April 20, 2012 at 11:02 am, 10X Investments said:

      Anita,

      That is not possible at the moment, unless you suffer from ill-health, or plan to emigrate from South Africa. Otherwise, you can only access your RA’s at age 55, even though they are paid up. Remember, you will have to use two-thirds of your fund value to purchase an annuity (unless the fund value is less than R75 000), and the younger you are, the less your annuity will pay out annually.

      Reply

38. April 26, 2012 at 1:29 pm, Rob Cooke said:

    How are your South Arican RA’s taxed if you’re not a resident?

    I have several RAs which I accumulated whilst I worked in South Africa during the ’80s. I have lived in the UK since then after formally emigrating from RSA back to the UK. I have just cashed in a policy for R60,000 and have been taxed on this, less an allowance of R22500. I am 62. Shouldn’t I be taxed on the basis of a cumulative £300,000 allowance even though I am a non resident?

    Reply

    • May 04, 2012 at 9:11 am, 10X Investments said:

      Rob,

      The R300 000 tax-free portion (now R315 000) relates to cash lumps on retirement from a pension, provident or RA fund. As you are no longer a South African resident, cashing in your fund is deemed as a “withdrawal” rather than “retirement”. On withdrawal, only the first R22 500 is paid out tax free, the balance is taxed. In return, you are allowed to take this money out of the country, and you are not forced to buy an annuity. Given the amoumts involved, you would not be required to buy an annuity in any event, so unfortunately, in your case, the rules have “conspired” against you.

      Reply

39. May 04, 2012 at 10:53 am, George said:

    If i encash my pension fund, will i be taxed according to PAYE tax rate or not.

    Reply

    • May 04, 2012 at 12:08 pm, 10X Investments said:

      George,

      You can only enchash your pension fund if you withdraw (as opposed to retire) from your fund. If you retire, you can only encash up to one-third, with the balance you must purchase an annuity. If you withdraw (eg on changing jobs) you can encash the full amount, but the tax you pay on the cash lump sum will be more than if you retire from the fund (earliest age 55).

      If you withdraw, the first R22 500 is not taxed. The balance up to R600 000 is taxed at 18%, the balance up to R900 000 at 27%, and the remainder at 36%. The effective tax rate you pay on a cash lump sum is lower than if the PAYE tax rates were applied.

      Reply

40. May 04, 2012 at 3:37 pm, George said:

    Beware of a brokerage fee deduction on your pension fund statement

    The brokage fee that Old mutual charges when i withdraw my pension (R12000), is it regulated or it differs from company to company

    Reply

    • May 07, 2012 at 3:11 pm, 10X Investments said:

      George,

      Without more detailed information it is not possible to answer your question. It is not clear what you mean by “withdraw your pension”. Are you withdrawing entirely from your pension fund, or are you receiving a monthly annuity, guaranteed by Old Mutual? Neither is tantamount to drawing a pension. In SA, only members of defined benefit funds effectively still draw a monthly pension. Either way, you should not expect to see a brokerage fee deduction on your statement.

      Brokerage fees (trading costs) are incurred on the sale of underlying securities. Trading costs are normally incurred at a fund/portfolio level, and the fund performance/return is stated net of brokerage fees. Funds may disclose the total amount of brokerage paid, but this should not appear as a deduction on your statement as this would then amount to double-counting.

      Reply

41. May 05, 2012 at 6:58 am, Nelson said:

    How to claim from a retirement fund

    If you resign or are retrenched, can you claim
    benefits from RA or Pension Fund or Provident
    fund or from all. How do you claim and what
    document do you need.

    Reply

    • May 07, 2012 at 1:30 pm, 10X Investments said:

      Nelson,

      If you resign, or you are retrenched, you are allowed to withdraw from your employer-sponsored retirement fund (that is a pension or provident fund). The “benefit” you can claim is the balance in your retirement account. Once you have withdrawn, you have no other claim against that fund. You cannot withdraw from a RA if you leave your employer as this product is not linked to your employment. You can only retire from an RA from age 55 onward (unless you formally emigrate or become too ill to work).

      On leaving your employer, you should issue an instruction advising what to do with your accumulated savings (pay out, or transfer to a preservation or to your new employer’s retirement fund). Your employer (usually the HR department) should have the necessary instruction form.

      Reply

42. May 05, 2012 at 7:23 am, Nelson said:

    What to do when your pension fund pays out

    Resigned in 2009 and only received RA cash
    Lump sump. No idea on the Pension and
    Provident fund. Please advice on legitimacy of
    the claims and closure on PF.

    Reply

    • May 07, 2012 at 1:22 pm, 10X Investments said:

      Nelson,

      We cannot address your question without the necessary background context. Please understand that we can only answer questions of a conceptual nature in this forum; you should refer case-specific problems to your former employer or to a financial adviser.

      In general though, a resignation does not trigger a RA pay-out as this is an individual savings product, not related to your employment. If you resigned and received a cash payment, this must relate to a pension or provident fund. The onus was on you to instruct your former employer to either pay out your savings balance, or to transfer it to another fund. You need to follow up with them if they disregarded your instructions. If you chose to withdraw, you would have been paid out, and you will then have no further claim against the fund, in the absence of an administrative error.

      Reply

43. May 05, 2012 at 8:34 am, Clinton said:

    Can the debtor at which you alos have an RA use it to settle your bedt?
    i have a RA at old mutual which is paid up. I liquidated my business and owe Nedbank some money. Could Nedbank not be able to collect some of my RA fund on my behalf.
    Regards Clinton

    Reply

    • May 07, 2012 at 1:26 pm, 10X Investments said:

      Clinton,

      This is not possible. The purpose of your RA is to provide for your retirement, and to this end your savings are shielded from creditors. You cannot access this money before retirement (earliest age 55), other than under exceptional circumstances (formal immigration, disability).

      S37a of the Pension Funds Act (covering also RA’s) stipulates that a member’s benefits payable in terms of the rules of a fund cannot be reduced, transferred, ceded, pledged or hypothecated, subjected to any form of execution under a judgement or order of court of law, or taken into account in the determination of a judgement debtor’s financial position for an amount exceeding R3 000. (In other words, only R3 000 may be deducted from your RA in order to pay creditors if there is a debt judgment against you.)

      In terms of S37B, pension assets do not form part of an insolvent estate. In that event, the full amount of your Fund is protected from creditors in the event you go insolvent.

      Reply

44. May 05, 2012 at 1:34 pm, Elzette said:

    How to calculate the tax deduction on a retirement annuity

    Ryan is 30 years old. He took out a life annuity with a consideration value (capital amount) of
    R 150 000. The annuity contribution is R5 600 p.a. The deduction which he could claim for income tax purposes for a full year would be:

    Reply

    • May 07, 2012 at 1:34 pm, 10X Investments said:

      Elzette,

      It is not clear what you mean by “life annuity”. This traditionally refers to a cash lump sum payment in return for a series of future payments. A deduction is then permitted in terms of the capital paid for the annuity. The formula to determine the deductible amount pa is as follows (in your case): R150 000/(R5 600 x no. of years to be paid) x R5 600. If the amount is to be paid for life, the ‘number of years’ will be determined with reference to the life expectancy tables.

      In the event that you referring to a retirement annuity with a life cover component, the allowable deduction is the greater of:
      - 15% of non-pensionable income
      - R3500 less current deductions to a pension fund; or
      - R1750

      Reply

45. May 06, 2012 at 1:01 am, Sindisiwe said:

    How the trustees of a retirement fund see to the beneficiaries

    what if i am the beneficiary and the policy holder dies before we get married?

    Reply

    • May 07, 2012 at 1:16 pm, 10X Investments said:

      Sindisiwe,

      It is not clear to which financial product you refer. In the context of a retirement fund (pension, provident, retirement annuity or preservation fund), the beneficiaries of a deceased member’s savings are ultimately determined by the Board of Trustees. Members are encouraged to complete a nomination form, to nominate the persons who should benefit from their retirement savings on their early passing, but the Trustees must first ensure that all the member’s financial dependents have been provided for. They may refer to the nomination form, to identify such dependents, but otherwise they are not required to follow the member’s wishes. However, if the member leaves no financial dependents (children, parents relying on financial support etc), they most likely will follow the nomination form.

      If you are financially dependent on the policy holder (ie you relied on him for financial support), the trustees will allocate you a portion of the benefit (the amount is subject to their discretion). If the policy holders leaves no (other) financial dependents, and has nominated you as the only beneficiary, you will most likely receive the entire benefit, irrespective of whether you were married or not.

      Reply

46. May 07, 2012 at 5:22 pm, Cobus said:

    Documents that are considered adequate proof of emigration

    I am living and working overseas and don’t plan on coming back to SA, although I haven’t signed off from SARS. Can this be seen as emigration and if not, what is considered as adequate proof of emigration?

    Reply

    • May 08, 2012 at 5:38 pm, 10X Investments said:

      Cobus,

      Formal emigration requires that you do sign off with SARS. In other words, you need a formal tax clearance certificate as proof of formal emigration. This certificate confirms that your tax affairs are in order and up to date, and that you have paid all your taxes, including any outstanding capital gains tax on your assets in SA (emigration is tantamount to an asset disposal, so CGT becomes due).

      Reply

47. May 09, 2012 at 12:06 pm, Ian Rall said:

    Can you revive a paid-up RA to regain past incurred penalties?

    I have 3 retirement annuity’s that are paid up my broker tells me that if I revive the one he can do a section 14 transfer on the other 2 RA s & I will not be penalized and the money that was taken off my RAs when they where paid up will be paid back to me. Is this correct Thanks Ian Rall.

    Reply

    • May 09, 2012 at 1:03 pm, 10X Investments said:

      Ian,

      This is a matter of the specific fund rules, in particular whether you can revive your RA, and whether you will be credited with any past termination penalties. The latter can only happen if all your RA’s are with the same provider. Termination penalties are in effect an accelerated recovery of upfront costs (mainly brokerage commission) that are otherwise collected over the term of the RA contract. The RA provider effectively creates a loan account against your name, and charges you interest on that loan. This loan is recovered over the contract term and you are deducted the balance if you make your RA paid up early. If you revive, and are credited with termination fees, the underlying costs (with interest) are then once again amortised, ie deducted, on a month-by-month basis from your account.

      You are allowed to transfer paid-up RA balances to another RA as suggested by your broker. By consolidating your RA’s you should save on the monthly admin fee (which you were “triplicating” by having three separate RA’s).

      If the fund rules permit all of the above and you decide to go ahead, make sure you understand all the costs involved. You should not be pay or incur any further broker commission (you have already paid these) and you should request to waive transfer fees, if any.

      Costs impact critically on the long term investment outcome. As you can tell from the above, the termination penalty is in effect a sunk cost, and you will pay the underlying fees one way or another. You should perhaps request your broker to also compare the annual fees you pay on your RAs to other rates available in the market, and whether it would not make more financial sense to rather transfer all three paid-up RA’s to one low cost RA.

      Reply

      • May 10, 2012 at 7:56 am, Ian Rall said:

        Useful retirement advice if you’re approaching 50

        Further to my question, The RA my broker wants to revive is an momentum balanced growth fund. The 2 RAs he wants to transfer are Old Mutual smoothed bonuses funds. The amuont at Mutual is R 1025 000.00 & the amount at Momentum is R 446 698.00. My broker wants to transfer the old mutual funds to the Momentum policy. I am 48 years old in august this year what is your best advise on my way foreward to retirement?

        Reply

        • May 10, 2012 at 2:02 pm, 10X Investments said:

          Ian,

          We cannot use this forum to offer individual advice, and obviously we have far too little information to do so. Our answer therefore has to be somewhat generic.

          Firstly, retirement saving is a (working) life time pursuit. Life expectancies are increasing, which means we all require more money to fund our retirement years. This is a global phenomenon. You therefore need to keep saving (contributing to a retirement fund) until you stop working. Resuming your RA contributions is therefore a good idea. Consolidating your RA’s is also a good idea as you are presently duplicating some costs.

          When will you have enough? That is the critical question. The answer depends on the life style you expect to retain in retirement, and when you plan to retire. The sooner you plan to retire, obviously the more money you will need to have saved. The money that you have saved should be enough to allow you to purchase an annuity (monthly income) that replaces at least 60% of your final salary.

          You can find out more about this concept on the 10X web site in the Financial Education sector. This section also includes a very simple but powerful retirement calculator, that will give you a sense where you stand relative your retirement goal (final income replacement ratio), based on your current income, your accumulated savings and your age/expected retirement date. It factors in normalised long-term real market returns, but you can simply change this input (raising or lowering the return). All our projections are in real (after-inflation) terms to give you a true sense of what your money will buy in retirement. The calculator will give you a sense how much you still need to save monthly to reach your goal. If the amount required is unaffordable, it will give you a sense of how much you (will) need to cut back on your life style.

          As you are saving through RA’s, I presume you do not have access to a work place retirement fund. There are two things you need to focus on in your RA: fees and your asset allocation. Your fees should be as low as possible. Understand that a balanced portfolio (75% in equities) has historically delivered a real (after-inflation) return of only around 5% pa – before fees! Fees of 2% or 3% therefore reduce your real (wealth-building) return tremendously. The average fee for SA retail investors such as yourself is 3% – that means you lose 60% of your real return (actually more like 75%, after compounding for 40 years). It effectively halves the value of your final pension. So find a low cost RA.

          Your asset allocation should match your time horizon. At 48, you can still afford to assume considerable equity risk, if you plan to retire at 65. At 10X, we maximise the equity exposure until 10 years before retirement, to (hopefully) benefit from the long term high real returns delivered by equities over time. In the last ten years before retirement, your focus should shift from growth to preservation. At 10X we gradually (and automatically) reduce the investor’s exposure to equities, and replace it with bonds, and, near retirement, primarily with cash.

          Finally, think about whether you want your savings managed actively, or through indexed funds. Active managers typically charge higher fees, but many studies have shown that, over time, very few of them deliver higher returns than index funds. It is not possible to predict who those “winners” will be. By investing in a market index fund, you secure the average market return at a low cost. Plus you do not have to place bets on individual RA fund managers, some of whom may do very well for you, but some may do very badly. Remember: past performance is no guarantee of future performance. You cannot afford poor (well below average) outcomes. Retirement saving is about securing your minimum goal with the least amount of risk. Anything more is a bonus. Holding on to the one bird in your hand is definitely the safer, more sensible and more pragmatic option than speculating on two in the bush.

          Reply

48. May 11, 2012 at 9:10 am, Hanna Smit said:

    The tax deductions on a RA in a divorce settlement

    In my divorce settlement I do get 50persent of my ex husband annuity gratification amoumt.he is now 64 and it pays out in a week.he is going to pay my part,the tax if any will allready been deducted,in my bank. Am I going to be taxed again on ths amount and do I have to declared it in my next sars assetment next year?if I do so,will I needed to pay tax agqain on this amount.is there a code or something that I can provide to sars to so that they will know that this amount was allready taxed.my ex is going to get the whole amount in his bank direct from old mutual and is going to deposit my part into my bank.- am not going to invest this amount into an annuity,- needed it to trade my old car in for a newer one.

    Reply

    • May 11, 2012 at 11:03 am, 10X Investments said:

      Hanna,

      You say your ex-husband will receive the proceeds from his retirement fund next week. If it is from an RA he can only take a third of this as cash; he must use at least two-thirds to buy an annuity. The same applies if the proceeds are from a pension fund. Only if your husband was member of a provident fund, can he receive the whole amount as cash.

      Any cash lump sum paid out by Old Mutual will paid out after deducting the applicable cash lump sum tax (based on a tax directive from SARS). If he shares the net proceeds with you, you will not be taxed again on your portion. Any monthly annuity is paid out before tax. The onus is on the recipient to declare this as income, and to pay the relevant tax as per the prevailing PAYE tables. If your husband receives the full annuity, he will pay the full tax thereon. If he then shares the net proceeds with you, you will not be required to pay tax again on your portion. It is not SARS’ intention to double-tax income.

      Using the appropriate categories in your income tax form will ensure that SARS treats these amounts correctly. If you have any problems you should consult a tax adviser, but it should be quite straight-forward.

      As a word of caution, please remember that the purpose of a retirement fund is to cover your living expenses through-out retirement. You cannot fall back on the state or anyone else to help you when you run out of money. You should therefore think long and hard whether a large capital expenditure such as a new car is the most prudent way to spend these savings.

      Reply

49. May 14, 2012 at 7:39 pm, Renee said:

    What are your options when you are the beneficiary of a RA death benefit?

    My late father passed away 12 years ago and
    despite many attempts to get the RA death benefit
    sorted out, it has dragged on for this amount of time.
    The trustees have now made a decision. Am I entitled
    to interest for this period and what is the normal
    procedure regarding how long I will be paid as a beneficiary?

    Reply

    • May 15, 2012 at 9:43 am, 10X Investments said:

      Renee,

      12 years seems an incredibly long time to resolve such a matter – usually it should take no more than twelve months. It entirely defeats the RA’s secondary objective, of providing for the deceased’s financial dependents.

      The savings underlying your late father’s RA death would have remained invested until the trustees determined the beneficiaries. As the investment time horizon would have been uncertain, the savings were most likely held as cash. The interest income would have been capitalised, compounded at the prevailing cash interest rates (less management and other fees). The value of the death benefit today should therefore already include interest for the past twelve years.

      You have the option to take the death benefit as a cash lump sum, or to use it to buy an annuity. You can choose to purchase a fixed term annuity, which will pay out for a specified number of years, or a life annuity, which will pay you an income for the rest of your life. The monthly amount you receive on a life annuity depends primarily on the amount of the death benefit, as well as your current age and statistical life expectancy.

      Please be sure to shop around for the best annuity prices available at the moment. You are not compelled to to purchase an annuity from the RA provider, and the price of annuities offered by different insurance companies can differ quite significantly.

      Reply