Retirement Annuity - Allan Gray?

[supersunbird]

So, with the new dividend tax coming into effect, things like retirement annuities and pension funds are not taxed with this 15% and thus your total dividend is reinvested, unlike with normal private investing (like satrix EFTs) where the dividends will be taxed and thus only part after tax reinvested (if you choose to reinvest).

So I was wondering, what are the pitfalls with retirement annuities like the Allan Gray one? I know that you can only get the money when 55 and only then a certain part of it, that regulation 28 limits you to 75% in equities (which sucks). Is there anything else?

I see unlike with the old style retirement annuities the fees are quite reasonable and you can stop and start contributions at will without penalties and switch between the underlying funds and do others things without attracting fees.

Are there other funds similar to the Allan Gray Retirement Annuity and how would they be better?

Opinions would be appreciated.

Note: I'll be keeping my Satrix Divi and Rafi and me and employer do contribute to pension fund, the RA would be additional.

[Billy]

A big advantage with Allan Grey is that their fees are lower than most and geared to performance.

Also there is no problem with doing your own thing and dispensing with "Financial Advisors"

There online facilities are top notch, and their associates seem to be empowered, no "I'll have to get back to you".

Check on Hello Peter, AG actually had a complaint in the past 12 months, then check the other financial Companies records.

[xrapidx]

Yeh - I'm about to do the same RE: Alan Gray, mainly for the backup retirement option.

[Sepeng]

I'd speak to someone in the know about this, or hopefully someone online is already an expert, but for what it's worth:
Yeah there is the whole "wait till you're 55" thing which is good and bad - good 'cos it forces you to wait, bad 'cos it's less flexible than say investing in unit trusts directly. And that would be my main negative I guess - not that flexible. If you have the time, skill and courage to invest directly in shares you could outperform the RA, but Allan Grey are a good company to let do this stuff for you.
And also, if you're already contributing to a pension fund then apparently the tax perks are less for the RA as opposed to say the RA being your sole pension fund (but please confirm the exact details with a pro).
Coronation also have an RA but both these companies are pretty good, allow you to choose individual unit trusts and change at will I think.
Note: I'm just an average-joe with a passing interest in financial matters, please feel free to correct me!

[supersunbird]

Thanks for all the input so far.

I'm more a DIYerv Sepeng .

[Tigerman]

"So I was wondering, what are the pitfalls with retirement annuities like the Allan Gray one?[/B] I know that you can only get the money when 55 and only then a certain part of it, that regulation 28 limits you to 75% in equities (which sucks). Is there anything else?

I see unlike with the old style retirement annuities the fees are quite reasonable and you can stop and start contributions at will without penalties and switch between the underlying funds and do others things without attracting fees.

Are there other funds similar to the Allan Gray Retirement Annuity and how would they be better?"

If one has a lump sum to invest, income funds offer slightly better yields than money markets, but not enough. Eg. AG's stable fund unit trust at 12% is good. Are RA's - AG or any other - a better alternative than unit trusts or income funds etc if one compares tax liability (now and future) and rates of return. What are the costs of the funds - i hear they can be high-ish?

Broad suggestions/guidelines please.

[Greg C]

Hi Super

I am a professional and would like to answer just a few of your questions and some of the posts here.

First off in terms of your pension generally the rule is 1/3 of the pension contributions are paid to you to do whatever it is that you wish to do. The 2/3 is the lump sum portion where generally you purchase a living annuity,and or reinvest it an Annuity or fund. However as stated above,this portion is not available to you to withdraw,WHY? because if you start withdrawing from this you have nothing left,and secondly, you already decided to take the 1/3 and blow it on your trip around the world unless you also reinvested this amount,so coodles to you

It is also correct to state that the RAF or retirement annuity fund is reduced if you have a pension fund WHY?
In your tax calculation pension funds deductions are the greater
7.5% of pensionable salary
or 3500 - deduction allowable by SARS
or R1750
This is first calculated then relates directly to the next calc
RAF Greater of R1750 or 7.5% of non pensionable retirement

In essence the RAF will always be less than the pension fund as above and correctly stated ,RAF should be used to prop up any shortfalls you need for retirement as well as to take full advantage of the very small tax deductions individuals receive(Not business owners)

If you want my suggestion,A fund through allan grey,coronation or even prudential that diversifies yourself,and or is a Interest bearing money market fund will give you the ability,depending on SARS and how the fund is taxed to get the 22 800 interest special allowance.

Myself I would look to invest the money in say The coronation Balanced fund,instead of the RAF as the tax is minimal,and the best returns over a 5 year period.

Hope all this helps abit

[Freshy-ZN]

Four Tax benefits:
1) Currently there is a 15% (going up to 22.5%) rebate on non-pension funded income.
2) Growth on investments within the underlying funds are not taxed
3) At retirement the first R315 000 of the one third you are allowed to take is currently tax free
4) If you over contribute by contributing more than the allowances mentioned in 1) above the it is carried forward each year and you could end up with a much bigger tax free allowance at retirement. This works even if you have a pension or provident fund and contribute to an RA as well- you wont see much tax relief now but at retirement you will.

You should be throwing every spare cent at retirement savings. These days people are working 40 odd years and having to fund retirements that last up to 30 years and more. If you think you are battling now wait till retirement! RAs are very good vehicles, even my two year old twins have one