RA - Retirement annuity

[tcat]

As usual there are a lot of myths being perpetuated regarding RAs. There are numerous threads already with detailed info. But nonetheless let me add a few things now:

1) The tax benefits are significant. Currently you may contribute 15% (going up to 22.5%) of your income and receive a tax rebate (The rules are different if you have a pension or provident fund). Simple example is that you earn R10 000 per month and contribute R1500 towards an RA. Instead of paying tax on R10 000 you only pay on R8500. As mentioned above the growth on investments is also not taxed. Then the biggie is you may have R315 000 (not 300 000) as a tax free lump sum at retirement.

2) At retirement you may take up to one third as a lump sum and the rest is used to buy you a monthly annuity (various options here). You will then be taxed on your income as per the tax tables.

3) The new generation of RAs are significantly cheaper. The IOL article by Bruce Cameron is full of holes and misleading.

4) RAs are very useful for self-employed people or others who do not have the option of belonging to a pension or provident fund at work.

Thank you - This is food for thought .
I have been advised to top up my RA payments before end Feb to take advantage of the the tax benefit.
However when I called Sanlam - they said that I could not just 'top up' (amount R50k) my existing RA, but go through an advisor who will provide forms for the request and obviously get a comm on my input. When I asked how much comm will he get -- they said that the advisor will tell me.
Looking at your info above - would it not make financial sense to just buy a new age RA (R50k lump sum ?
I have another RA with Old Mutual as well - will call them hopefully they will just take my contribution without all this 'go thru a broker' run around.
Thanks for you advice.

Note: I am currently contributing to both policies - have never seen or heard from the advisor since policy inception (1985 Zero transparency era).
One passed away and the other is around somewhere - but no contact what so ever - not even a Christmas card

 

[Freshy-ZN]

Seeing as though you don't want to pay for advice then I shall not be giving you any more....

Sanlam uses advisors so go thru one or don't top up. Or get a new RA through Alan Gray because they don't charge for advice, they just build it in elsewhere. I understand you feel neglected so the solution is to get an advisor who will look after you, not to shoot yourself in the foot. It could be beneficial staring a new RA instead of adding to the last one. Yes there will be some duplication of fees but the savings and flexibility could more than mitigate this. Hard to say 'over the phone'

 

[ClintZA]

The reason they state you have to contact an advisor is because the call centre agents are not allowed to provide advice based on the FAIS act. Increasing your RA requires advice. Someone will need to advise on your current portfolios, whether investing R50k in them will affect your Regulation 28 compliance, discuss any charges and penalties associated with this lump sum increase and also advise, as already asked by yourself, whether you would not be better off doing something else with your money. And dependent on your existing RAs this may in fact be worth looking at.

My understanding is that increasing an existing RA will generate commission for the original adviser anyway based on whatever the agreement was at inception, so trying to bypass them is not going to save you anything. Yes, you can take a new RA directly with Allan Gray, or the like, but again they will not be willing to advise but will happily take your money and your application if you are happy to do it this way. If you want advice, they too will point you in the direction of an adviser. It all has to do with the FAIS Act.

 

[tcat]

Thank you Freshy-ZN and ClintZA -
My bad - Clearly I am ignorant of these intricacies.
I thought that the person who sold me the policy only collected his comm for a year or two.
After which there would only be service fees.
It is not that I do not wish to pay for advice - my original advisors have set an awful precedent.
I would feel very peed off if I learned that after my 'top up' - this invisible advisor will still get rewarded.

If I start afresh with a new advisor - will I still be married to the first guy?
I will contact a new Sanlam advisor and declare my predicament.

Clint you are correct about help from the call centers - I was not aware of their limitations as per the FAIS Act.
The centre did not explain that either

This whole thread including your valuable comments has been an education for me.
Thank you for the sense of direction.

 

[ClintZA]

It is not that I do not wish to pay for advice - my original advisors have set an awful precedent.
I would feel very peed off if I learned that after my 'top up' - this invisible advisor will still get rewarded.

If I start afresh with a new advisor - will I still be married to the first guy?
I will contact a new Sanlam advisor and declare my predicament.

A new RA would not benefit the original adviser but whoever was the new one that signed you up. Even if you were to contact Sanlam, and got hold of a new adviser (although I'd rather suggest an independent one), he/she could probably arrange that the comm from any increase does not go to the original adviser but rather himself. I only say probably as I am not 100% familiar with the workings of the old Sanlam RAs.

Just compare an older generation RA to the new ones though. The costs and penalties on the older generation RAs were often a lot higher. Many of them would penalise you for stopping contributions right up to retirement age and often at up to 30% of the investment value. The new generation ones often only penalise you if you stop contributing in the first 5 years and are limited to 15% of the investment value (and this is usually in the first six months before reducing on a sliding scale down to nothing after 60 months).

By the way, I am more than happy to provide information where I can, without getting paid, so feel free to ask away

 

[supersunbird]

Talking about RAs...

At bottom:
http://www.iol.co.za/business/perso...ncial/top-up-retirement-savings-now-1.1458970

Next tax year will be different

On March 1 this year, a new retirement savings tax regime comes into force. The following will apply. If you are:

* Below the age of 45, you will |be able to claim as a deduction total maximum contributions to all funds (for example, an occupational and an RA fund) from all sources (member and employer contributions) of up to 22.5 percent, on the higher of your employment or taxable income, with a R250 000 annual limit.

* Aged 45 and older, you will be able to claim as a deduction total maximum contributions to all funds from all sources of up to 27.5 percent, on the higher of employment or taxable income, with a R300 000 annual limit.

In both cases, employer contributions will be added to your taxable income as a fringe benefit.

 

[tcat]

A new RA would not benefit the original adviser but whoever was the new one that signed you up. Even if you were to contact Sanlam, and got hold of a new adviser (although I'd rather suggest an independent one), he/she could probably arrange that the comm from any increase does not go to the original adviser but rather himself. I only say probably as I am not 100% familiar with the workings of the old Sanlam RAs.60 months).

By the way, I am more than happy to provide information where I can, without getting paid, so feel free to ask away

Thank you Sir.
I am looking forward to chatting with my new independent advisor -
thanks to you, FreshyZN and others on this forum - I am more informed about my navigation.
Will report the outcome here.

TBH you and FreshyZN are most welcome to bill me for your input -
just don't ask for my dog

 

[SauRoNZA]

Also a good idea to not spend that tax rebate on other nonsense but re-invest it back into something else and therefore keeping your eggs in a different basket and maybe building up some shorter term capital for buying a property or whatever.

 

[tcat]

Report back - Spoke to an independent advisor and was most impressed with his service.
Certainly altered my pre conceived impressions from previous experience.
I indicated that I was considering Allan Gray Balanced Fund (which is Reg 28 compliant).
He did not try to sell me anything else - simply agreed that AG was appropriate for my needs.

Yes, trying to top up my existing policies created a problem with regulation 28 - costly to change.
Easier to start a new lump sum directly with Allan Gray which I did.

Thanks again Freshy-ZN and ClintZAfor your advice.

 

[wizdumb]

Personally i think there are better more flexible investments, so perhaps have a chat with a good FA and be openminded.
all the best

like what other options for example?

 

[^^vampire^^]

like what other options for example?

I'd also like to know.

It seems that most people say rather than an RA you should invest on the JSE. Unless you have copious amounts of time to research each and every trade you make and have a decent amount of experience with previous trading you have a great chance of losing your money.

So I wonder what other alternatives there are to an RA that could give you the returns brought on by the tax benefit (which should be re-invested into the RA to really be a benefit) and a decent return from selecting decent underlying unit trusts?

 

[ClintZA]

I'd also like to know.

It seems that most people say rather than an RA you should invest on the JSE. Unless you have copious amounts of time to research each and every trade you make and have a decent amount of experience with previous trading you have a great chance of losing your money.

So I wonder what other alternatives there are to an RA that could give you the returns brought on by the tax benefit (which should be re-invested into the RA to really be a benefit) and a decent return from selecting decent underlying unit trusts?

That alone is difficult to match. Some will, correctly, argue that tax is merely delayed, however, this overlooks the fact that the 1st R315,000 at retirement is tax free; you get preferential tax rates over the age of 65; returns within the portfolio are taxed favourably and you are very likely to be working off a lower income, and hence tax, base when you reach retirement.

 

[supersunbird]

I'd also like to know.

It seems that most people say rather than an RA you should invest on the JSE. Unless you have copious amounts of time to research each and every trade you make and have a decent amount of experience with previous trading you have a great chance of losing your money.

So I wonder what other alternatives there are to an RA that could give you the returns brought on by the tax benefit (which should be re-invested into the RA to really be a benefit) and a decent return from selecting decent underlying unit trusts?

Personally I think a mix of direct investments in the JSE and other places (by way of ETFs and Unit Trusts - for diversification) and unit-trust and/or index RAs is the way to go.

With the ETFs and Unit Trusts, you have accessible discretionary funds which are not restricted by Regulation 28, so you can have however much you would like in what you like but negatively they are not protected from yourself and other parties like a RA is. With a RA you can be invested in the JSE, just up to certain limits (like 75% in shares), but you do get a tax benefit.

You do not have to be a expert in the picking stocks to invest in the JSE.