Jola
Honorary Master
I've had these for a long time, they are just dogs !
I would have been way better off just investing the after-tax cash flows in a few blue chip shares. The costs pretty much kill any tax benefits.
-
Join the MyBroadband community
South Africa’s biggest forum. Discuss, discover, and connect with thousands of members.
-
Question of the Day: Will you be subscribing to the new Disney+ R49 streaming package?
Retirement Annuity Funds
- Thread starter krepunk
- Start date
I've had these for a long time, they are just dogs !
I would have been way better off just investing the after-tax cash flows in a few blue chip shares. The costs pretty much kill any tax benefits.
Well then you're probably in the wrong RA. If the costs are offsetting your tax benefits then you need to head off to the ombudsman, yesterday already. There is legislation in place now afaik to protect from exorbitant fund costs...
Jola
Honorary Master
Well, the Liberty RA was invested in the wrong fund, and the Momentum ones are just generally poor.
I know that, I am just trying to point out that RA's have their pitfalls too, it's not a positive one-way street.
Blue chip shares are often way better investments - just look at the prices of, for example, Sasol and Standard Bank 15 or 20 years ago.
There is something to be said for just paying the tax, and investing your after-tax cash flows in blue chips - you may well be significantly better off than investing in RA's - but you do have to be disciplined.
Last edited:
LancelotSA
Banned
Nope, unfortunately that does not apply to an RA. You can do that with a pension or provident fund only. Confirmation below :
Not the most sensible advice I have ever heard!! Please point me in the direction of any other investment that guarantees you a 40% return per annum (assuming you are on the maximum tax rate of course and your contributions qualify as a tax deduction)?!?! People always fail to factor this in when looking at RA returns... even if you ignore the return on the portfolio of choice the tax deductibility alone is worth it!
True, but any contributions not allowed as a tax deduction do increase your tax free lump sum amount at maturity.
Why thank you. The cheque is in the mail
Last edited:
LancelotSA
Banned
It is not the RA itself as an investment vehicle that dictates your returns but your choice of portfolio! Most modern RAs will offer you a range of portfolios from which to choose. You can usually invest in anything from a gold fund to a money market. The RA is just the investment vehicle.
As above, you can choose those "better performing assets" as part of your RA portfolio with the better companies. You choice of asset class is not limited with an RA. Yes, some of the older generation RAs were horrific in that they offered a choice of about six portfolios... not much of a choice!
Yip, the formula, for those interested is the greater of:
15% of non retirement funding income
or R3500 less allowable pension contributions
or R1750 per annum
Oh hell, I wasn't aware of that. It wasn't always this way...
+1. I have a number of investments with AG. If OM and Liberty were not so greedy with their penalties, I'd move my existing RA's to AG as well.
The biggest adv's with AG is that you can vary your premium / stop without penalties and you can move to another company without penalties as well.
LancelotSA
Banned
Indeed the lack of penalties with Allan Gray is a great benefit! Unfortunately for some people, who are not disciplined with their savings, those penalties could be the thing that keeps them saving and not just stopping their contributions at a whim. I know many people who stop the retirement funding first when times are tough but will still happily spend +R500 on DSTV and thousands on social cell phone bills. Investing can be encouraged through the carrot or the whip. Some people need the whip
Of course we cannot always totally plan what happens to us and at some point anyone could hit troubled financial times. A lot of companies have now catered for this by allowing clients to take a six month break on their contributions without penalty, thus giving them a chance to find their feet.
Last edited:
Nerfherder
Honorary Master
But few are are as safe.
LancelotSA
Banned
Just out of interest, did you bother reading the thread? Retirement annuity contributions are tax deductible to certain limits (up to 15% of your monthly gross income). For someone on a 40% tax rate this means a guaranteed 40% "return" on investment before even considering your portfolio returns, and the accessible portfolios are usually pretty vast nowadays (you can invest in any asset class you choose). Yes, tax is delayed until retirement but then you should probably be on a lower tax rate (assuming your retirement earnings will be lower than your employed income as well as the fact that those over 65 get preferential tax rates) and there are tax free lump sums applicable. Even without these savings on tax at retirement you would still have had the ability to earn returns on your full investment amount while getting a refund from SARS on these contributions. Not sure if that makes sense so let me illustrate :
You decide on a R1000pm RA contribution
The full R1000 goes to your investment (OK perhaps a couple of rands comes off for investment costs)
R1000 per month is allowed as a tax deduction therefore a R400 tax saving (assuming a 40% tax rate). You get R400 back! There is your 40% guaranteed return already!
You earn investment returns on the full R1000 you have in your RA even though you have R400 back in your pocket....
Do the maths for a period of 20 or 30 years with even a 5% return on your portfolio and see the benefits!
For a business man you also have the protection provided by an RA. If your business fails all other assets you have can be attached by creditors (if you have not used trusts and the like to protect them). An RA cannot be attached as it is protected by legislation.
RustyPrincess
Expert Member
Would your company pension fund contributions contribute towards that 15%?
LancelotSA
Banned
Retirement annuity contributions are deductible as follows, the greater of :
15% of non-retirement funding taxable income
R3500 minus any allowable pension fund contributions
R1 750
Your company pension contributions would not count towards the 15% but they would form part of the formula. If you had a pension or provident fund, and the contributions to that were calculated as a percentage of your gross income, then that full income would be regarded as "retirement funding income" and would therefore not form part of the first step of the formula. In other words any income that is used to calculate your pension contributions is referred to as retirement funding income. You would then need to move on to the second and third part of the formula (which is rather feeble to tell you the truth!).
Bear in mind, however, that any contributions you make to an RA which are not allowed as a tax deduction now will increase the tax free lump sum you receive at maturity. Not as beneficial as the up front benefit but not to be sniffed at none the less.
You can invest in the same funds without going through an RA so why would an RA be safer?
LancelotSA
Banned
The protection from creditors is one of the reasons.
Ou grote
Honorary Master
Your wife can still get it though.
LancelotSA
Banned
...by that I assume you mean ex wife.
Yes I did bother to read it.
I hear you and fully understand these benefits.
With respect to you, I feel this sounds like the usually brokers sales pitch. I assume you are a broker?
Yes, there is a place for RA's, they are designed exactly as you say to protect your savings from creditors, and for the uneducated investor who requires a forced savings vehicle.
As you said yourself, these amount are taxed at the end of the period, and will be taxed with all the growth.
The commissions earned by brokers are also massive on these products, which makes them argue the pluses, often neglecting the negatives.
I do have RA's and their performances have been abysmal to say the least.
Even when the tax saving is taken into account, I have far out performed RA returns, after tax, by investing in stocks, property etc.
Please note that my response is not to start an argument with you or anyone else.
I just believe that RA's have massive benefits for brokers, hence the hard sell, and should only be taken out by certain individuals who fit the criteria discussed above.
diabolus
Executive Member
At the end of the day, it's all about whether you are actually putting money aside for retirement -somewhere-. I always find it interesting how people will blurt out how RAs are bad, or pensions are bad, or property is bad or just plain saving is bad, but neglect to add that you do still need SOMETHING. If you are just spending the money each month, then an RA is a zillion times better . Yes sure there are obviously options with higher returns, but then your risk is higher too.
In my case i've also steadily been increasing my RA simply because i know if i don't "just do it" i will hit 50 with nothing. It's quite shocking when you ask around how many people heard somewhere that Annuities and/or Pensions are crap and useless and then they do nothing instead......
In my case i've also steadily been increasing my RA simply because i know if i don't "just do it" i will hit 50 with nothing. It's quite shocking when you ask around how many people heard somewhere that Annuities and/or Pensions are crap and useless and then they do nothing instead......
I could not agree with you more.
Any saving is better than no saving.
It depends on how much time you are prepared to put into eductiong yourself, and controlling you investments.
If you don't want to put in the time, which is fine, an RA can be a good "fire and forget" investment.
But it's not for everyone.