Performing Retirement Annuities vs. Fee's

xrapidx

xrapidx

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I've cancelled my RA being done by ABSA AIMS due to the complete incompetence of ABSA Private Bank - unfortunate - but its the same bank - and I don't see why I should be paying fee's to a bank as incompetent as ABSA.

Could anyone advise me as to which institutes allow you to open RA's with them directly - how there fee's work out when compared to performance, etc.
 
In my experience insurance companies charge you fees even if you go direct, the commission is still paid but it does not go to the broker it goes directly to the company direct account or company coffers. I think that looking at the fees charged is not the whole picture as more importantly how is the investment going to perform ? and what guarantees are you going to get ? If you achieve outstanding investment returns you are not going to worry about the costs and an important feature in this turbulent economic environment is get a minimum guarantee on returns.PM me and I will show you some options.
 
take your money and invest it into something like money market.

let me tell you about these RA's. you pay until retirement and get the deduction for tax, all wonderful. then comes to retirement age and you get your third lump sum and the annuity pays you a monthly income.
when you submit your tax return each year this annuity is then added to your other income taking you into a higher bracket and the end result is you pay in every single year.
i had a screaming match with my broker about this. i asked him straight out, do you actually tell your clients what happens at the end when the people retire and they submit their returns. they then have to start paying in year after year. he told me they must go get a tax directive issued to the annuity fund. so i said but do you tell them as they signing the piece of paper. he was all stuttering and stammering so i said "EXACTLY" you don't.

i hate these RA's, people don't realise what happens on retirement. it's all hunky dory when you get the deduction each year but when you have to start paying in when you are at retirement age that's a whole different ball game. when you retire you don't want to still have to think about paying the tax man money each year when you submit your return.
 
I've cancelled my RA being done by ABSA AIMS due to the complete incompetence of ABSA Private Bank - unfortunate - but its the same bank - and I don't see why I should be paying fee's to a bank as incompetent as ABSA.

Could anyone advise me as to which institutes allow you to open RA's with them directly - how there fee's work out when compared to performance, etc.
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You should have a broker who will manage investments, this means you only deal with one person, of course he/she must be comepetent and commited to you. In terms of fees they are limited on RA's, but you will always have fund charges because there's a fund manager who trades the shares within a specific fund, what you need to look at is what exposure you can get from different companies. For example Momentum is a very good company but when it comes to RA's your investment exposure is so limited that you can only invest into 4 different protfolios which are basically fund of funds created by them.

@Celine - Your opinion is very narrow minded and ignorant. I'm sorry to say that, but it doesn't look like you have much knoledge in this area. I'm in this industry so I will give you some tips and explain why what you saying is wrong. First investing into money market for a long term is proven to be a loss statistically, this is because the returns are very low and inflation generally overperforms money market in the long run. Secondly on money market you will pay tax on earned interest which adds to your annual income, when you have little money in there it would be ok because SARS allows exclusion of R22 800 on interest earned per year the rest you pay tax on. In a money market account all profits made are from interest that means that if you have R1 000 000 in money market earning 5% interest p.a. you will pay tax on R27 200 (interest 50 000 - annual exclusion 22 800 = 27 200 taxable income), now imagine you are in the 40% tax bracket that means you will only get R16 320 (27 200 - 10 880 @40% tax). That means that you get R39 120 (22 800 + 16 320) which is actually 3.9% return p.a, now bear in mind that this excludes any fees, so when don't be surprised if you only get 3% p.a. and you telling me this is good??? What if you don't have a million in the money market, what if you start contributing into money market on a monthly basis, there's no way that you will earn 5% p.a., depending on the account, bank and etc you might start earning that 5% only when you've build capital more than say R200 000 (it depends on different factors, not an exact figure), while in a RA you receive the full growth regardless how much you have contributed. Something else to thinnk about is that when you have access to your money in a money market you will be tempted to use the money and when you get to retirement you will have nothing!
Let's look at an RA investment then. First the money you investing into an RA is tax deductuble and the proceeds are not taxed within the fund as many other investmet platforms like endowments, unit trusts and etc, so what does that mean than? That means that not only that your tax reduces but the growth on the RA is not taxed which contributes to higher interest on interest growth. At the same time you have exposure to different funds(depends on which company you use) and you can invest in equities for example who have statistically outperformed all other asset clases in the period of 15 years, obviusly this would depend on how aggressive the client is, what are his/her planning objectives and so much more that has to be sorted out with the client. It's very important to note that when you invest into say aggresive fund only a tiny part of the growth will be interest, let's say 5% for argument sake so on a million rand you will pay no interest because only 5% of your invetsment is in cash and the R22 800 will be more than enough to cover that, also local dividents are not taxed(that will change from next tax year) so all that means that on that million you won't even pay any tax. With regards to paying tax on retirement, yes you will pay tax, but as you get older there are higher rebates given from SARS and besides that while you are receiving the RA proceeds as a pension income on a monthly basis on retirment your money will still grow. The simpliest answer to that is you will earn 3-4 times more than a money market account and even after paying tax you will have more money than in a money market.
Now let's say you invest into modderate fund on your RA and you make an average of 10% p.a compared to your 3% on money market, that means 7% per year which year on year will be huge, in 20 years time the difference between would be that you will have about 3-4 times more money into your RA compared to money market. Are you still convinced money market is better and financial advisors are useless??? Please let everyone do their job and let everyone be the best at what they do, get your facts straight first before giving an advice because that advice might affect somebody else's life in a negative way!

If anyone has any questions you can PM me and I will be more than glad to help.
 
+1 for Allan Gray.

While I haven't done all the research one could into fees versus returns, and I don't have a broker, Allan Gray were awesome. Too easy to sign up with, everything done online (with the right papers obviously). I can adjust my RA fund daily with no fees. I can stop/change my deposit daily with no fees - although doing these things daily would probably annoy them but you get the point. When the new Section 23? act came into effect they phoned me and discussed how I have to re-distribute my RA (I'm young so i figured go large and put over 90% into equities... alas the tax man thinks this is too dangerous).

My view is the sole purpose of AG is to make money by doing the research and playing the stocks, so if you need an RA, they're pretty much the only people who can do it well. And someone who I think knows more about this than I do once told me their fees are linked to their returns so unless they make me lotsa money, they don't make lotsa money.

@celine... money market? really? for an RA? over 40 years? inflation will kick your ass and you'll retire with enough money to pay the taxi fair to get you to the soup kitchen. you won't even have to pay tax because your RA wont be able to put in the bottom tax bracket!
 
Please do no listen to Celines advice. My goodness Celine, dont you do tax or accounts for people and you are that ignorant?
 
Thanks for the response guys, my main reason for not wanting a broker is because these days its all about the money to them, not performance, how many clients they can get, and how high they can get that % they earn on contributions.

Zdenek said:
While I haven't done all the research one could into fees versus returns, and I don't have a broker, Allan Gray were awesome. Too easy to sign up with, everything done online (with the right papers obviously). I can adjust my RA fund daily with no fees. I can stop/change my deposit daily with no fees - although doing these things daily would probably annoy them but you get the point.
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See...this is something that interests me, I like the ability to manage something like this down to daily if needed, purely because I am a contractor, and my income fluctuates, so I'd like to be able to change the amount I deposit monthly - currently, if I decide to up or down the amount, I have to fill in a form each time and submit to ABSA.

I already have an Alan Gray, RA in my AIMS portfolio, but don't want to be with just one company.
 
xrapidx said:
Thanks for the response guys, my main reason for not wanting a broker is because these days its all about the money to them, not performance, how many clients they can get, and how high they can get that % they earn on contributions.
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Actually these days it is less like that. There have been serious changes in the law that just about prevents brokers/advisors from not acting in your best interest. There were always a few bad apples as there are in every business or profession but do not be swayed by the misconception that the practise of lining their pockets ahead of yours is commonplace. Commisions allowed by law were halved a few years ago and if you look at the time an adviser spends seeing you, planning a solution, the back office admin staff, telephone calls etc then you will see that measely R1000 or whatever commision you might pay is very reasonable.
 
Another thing: If you had a Sanlam RA for example you could invest in Sanlam Unit Trust, Coronation, Allan Gray, Investec and many more. The Annuity itself is just like a container really with the underlying unit trusts doing the actual work. I think having Alllan Gray as the "container" seems to be limiting as you only have AG asset managers.
 
This is just a guide figures may have changed etc . "Use it don't use it"

How Retirement Annuities Work

Say your income is R360000 per year.

You can contribute up to a maximum of 15% of this income or R 3750.00 per year and get a FULL Tax deduction.
Your marginal tax rate on this contribution is 35%. That is R 1313.00 per month.

This amount is what SARS is giving you back (as a tax-deduction) for saving into a Retirement Annuity.
Or looking at it another way, for every R1000 you invest, SARS is contributing R350 for you.
Therefore, you are actually contributing only R 2,437 from your pocket (R 3,750 less R 1,313).
The rest comes from SARS.
So for just R 2,437 invested by you, YOU IMMEDIATELY GET R 3,750 invested into your RA.
That is an IMMEDIATE RETURN OF 54% - BEFORE YOUR INVESTMENT EVEN GROWS!!
A return you cannot beat!

But that's not all….

If your RA grows at say 10% per year, ANY OTHER INVESTMENT MUST GROW BY 69% to equal your RA.
This is because your actual contribution is less, as a result of the exemption from SARS.
You don't get the exemption with any other investment!
R1,000 grows to R1,100 - or a 10% return.
You paid only R 650 to get the same growth of R1,100.
That is a return of 69%!
Assumes only R1,000 invested and the contribution qualifies for a tax deduction.
No guarantees implied.
 
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OH PLEASE DO LISTEN TO MY ADVISE!!!!!!
these people who are calling me ignorant are none other than insurance brokers themselves and couldn't care a continental about the person. i have too many clients on my profile who sit with the problem when it comes to end of the year tax return. there is someone else on this forum who's father is sitting in the same predicament each year now because of the RA he took out that is now paying out a monthly annuity. when you save for your retirement you don't want to still have to pay once a year to SARS the debt that this monthly annuity pays to you because it takes you into a higher tax bracket and 9 times out of 10 it doesn't get taxed per month depending on the amount it is.
i used the money market as an example to invest your money into rather than take out a retirement annuity. you still will pay tax on the interest depending on the annual interest you will accrue. there are other ways to invest your money i.e. dividends, property etc. BUT PLEASE DO NOT TAKE OUT RAF'S.
typical insurance broker to come here and sell his wares. :mad:
 
Uh no Celine, I'm an engineer not a broker and I did not say you're ignorant.
Yes, you HAVE to pay tax, it's the LAW. Just because you're older, doesn't mean you get to shoot people or break the speed limit or NOT PAY TAX.
Do you know why? Because someone has to pay for the hospitals, the schools, the roads and the unbelievably high government wage bill.
If you ARE paying lots of tax when you retire, GOOD FOR YOU!! It means your monthly income is plenty enough to live on!
If you're clever about it though, your RA(s... if you wanna be really clever) will give you such a large living annuity that your returns outweigh any concern you have about taxes.
Once you retire you tax brackets are a little further.

I must admit, I'm a little concerned about what you've said about having clients on your profile. If you're a financial advisor this is not ok.
 
I agree, if your clients are paying such a lot of income tax it means they have a fat pension or if it puts them in a 'higher tax bracket' as you claim then it means the pension from the RA isnt their only source of income. Either way it means they are very comfortable and should stop bitching or get proper advice.

You get a tax rebate on contributions (currently 15% of non pensionable income, going up to 22.5% next year) then you get a tax free lump sum (currently R315 000) on retirement. Only the pension bought with the rest of the RA is subject to income tax. Where are you under the impression Celine that your clients are not liable for tax or that it is the RAs fault they are paying tax?
 
Zdenek said:
Uh no Celine, I'm an engineer not a broker and I did not say you're ignorant.
Yes, you HAVE to pay tax, it's the LAW. Just because you're older, doesn't mean you get to shoot people or break the speed limit or NOT PAY TAX.
Do you know why? Because someone has to pay for the hospitals, the schools, the roads and the unbelievably high government wage bill.
If you ARE paying lots of tax when you retire, GOOD FOR YOU!! It means your monthly income is plenty enough to live on!
If you're clever about it though, your RA(s... if you wanna be really clever) will give you such a large living annuity that your returns outweigh any concern you have about taxes.
Once you retire you tax brackets are a little further.

I must admit, I'm a little concerned about what you've said about having clients on your profile. If you're a financial advisor this is not ok.
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i am not a financial advisor - i see what happens to these RA's at the end of the "cycle". the insurance brokers do not explain it to the people when they take them out in the beginning.
and no, it doesn't mean that you are earning a lot of money if you have to pay in on your assessment. what it means is that your pension that you are receiving is being taxed correctly, but then add the RA onto the pension and any other income then this takes you into a higher tax bracket and this is what people don't understand. all they see is that they have paid their taxes and try explaining about tax brackets it becomes tiresome.
i had a huge argument with my own insurance broker about this exact same thing when i asked him if he told people what happens at the end of the RA. it's well and good that you get a deduction on your tax return each year and this is what people see, not the end result. he stuttered and stammered and told me then people must get a tax directive. right, like people really understand that now.
 
Freshy-ZN said:
I agree, if your clients are paying such a lot of income tax it means they have a fat pension or if it puts them in a 'higher tax bracket' as you claim then it means the pension from the RA isnt their only source of income. Either way it means they are very comfortable and should stop bitching or get proper advice.

You get a tax rebate on contributions (currently 15% of non pensionable income, going up to 22.5% next year) then you get a tax free lump sum (currently R315 000) on retirement. Only the pension bought with the rest of the RA is subject to income tax. Where are you under the impression Celine that your clients are not liable for tax or that it is the RAs fault they are paying tax?
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what exactly are you talking about in your last sentence??????? please make sense or don't speak to me at all.
 
Let me get this straight. Your clients received years of tax rebates and then are confused that they have to pay tax on all income they receive as a pension? Good grief....my old grandma (may she rest in peace) who received a pitance of a state pension and she was taxed on that. Even she understood. You dont make sense. If your clients have a heavy tax burden it means they either a) are receiving multiple pensions including the one bought with their Retirement Annuity or b) there Retirement Annuity fund is so large it is attracting a high tax bracket.

I think its more of a case of you not understanding your broker. If you have such a problem 'explaining about tax brackets' .....
 
Celine said:
...
what it means is that your pension that you are receiving is being taxed correctly, but then add the RA onto the pension and any other income then this takes you into a higher tax bracket and this is what people don't understand. all they see is that they have paid their taxes and try explaining about tax brackets it becomes tiresome.
i had a huge argument with my own insurance broker about this exact same thing when i asked him if he told people what happens at the end of the RA. it's well and good that you get a deduction on your tax return each year and this is what people see, not the end result. he stuttered and stammered and told me then people must get a tax directive. right, like people really understand that now.
Click to expand...

Ok lets make this quite clear... your options are:
1. Get a company pension that is essentially an RA... which lets for arguments sake gives me R10kpm when I retire. This puts me in the bottom tax bracket of like zero tax because I'm getting, well, very little pm. And because I'm putting away so little for retirement, I'm only using up about 8% of my possible tax rebate. Cool. Poor.

2. I get a company pension and open my OWN over and above that. This also means I get my full 15% tax rebate right now. So SARS are paying for my retirement. Sweet... now when I retire might get like R20kpm. This puts me in (oh no heaven forbid) tax bracket one. So I actually only take home, I dunno I'm not doing the math, but like R16k...

And you're saying: No no **** THAT! I don't wanna pay tax when I'm 65, I'd rather take home R6000pm less and pay NO tax. So forget it. I'm going to only get a small tax rebate on my pittance of a company pension NOW... AND get less money when I retire. YES! Hooray, **** SARS when I retire! They'll get nothing from me, and I'll starve to death because bread costs R500 a loaf (inflation).
 
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