cheeses crust, 300k will be worthless in 2045
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Retirement Annuity (RA) or not?
- Thread starter Gamos
- Start date
cheeses crust, 300k will be worthless in 2045
TheJman
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I was in a similar position, the company I worked for previously didn't offer any form of provident or pension fund so I took out an RA for the tax benefit.
The negatives that I was not aware of were the massive fees as well as the fact that they front load the fees onto the product (well they did on mine at least). So when I stopped it and made it fully paid up (plus minus 7 years in) I had to pay some form of penalty which was a couple thousand Rand in order to actually stop paying.
I was happy to cancel mine because of the fact that my new employer offers a provident fund (which is much cheaper with an annual fee of 0.5%).
As far as what to do, it comes down to subjective choice, on the one hand, by contributing to an RA, the government are effectively subsidizing your contributions by giving it to you pre-tax. So if your marginal rate is say 30%, R900 of your R3k contribution is the 'extra' you're able to put away. The flip side of this is that you are restricted in terms of the different exposure your funds can be exposed to (such as a limit of equity and offshore exposure) as well as the risk of government requiring a certain percentage be allocated to things like SOEs.
On the other hand, if you decide to invest the money post tax (ie less the R900), you could get much better diversity of exposure to long term growth assets and potentially at a cheaper annual cost.
For me personally, I haven't found an investment yet that I would be willing to put my retirement money into that could make up the marginal tax 'loss' - ie the R900.
The negatives that I was not aware of were the massive fees as well as the fact that they front load the fees onto the product (well they did on mine at least). So when I stopped it and made it fully paid up (plus minus 7 years in) I had to pay some form of penalty which was a couple thousand Rand in order to actually stop paying.
I was happy to cancel mine because of the fact that my new employer offers a provident fund (which is much cheaper with an annual fee of 0.5%).
As far as what to do, it comes down to subjective choice, on the one hand, by contributing to an RA, the government are effectively subsidizing your contributions by giving it to you pre-tax. So if your marginal rate is say 30%, R900 of your R3k contribution is the 'extra' you're able to put away. The flip side of this is that you are restricted in terms of the different exposure your funds can be exposed to (such as a limit of equity and offshore exposure) as well as the risk of government requiring a certain percentage be allocated to things like SOEs.
On the other hand, if you decide to invest the money post tax (ie less the R900), you could get much better diversity of exposure to long term growth assets and potentially at a cheaper annual cost.
For me personally, I haven't found an investment yet that I would be willing to put my retirement money into that could make up the marginal tax 'loss' - ie the R900.
Nerfherder
Honorary Master
yes, and right now I need to come up with exactly R300 k for transfer duties on my new house.
You can imagine my frustration in finding out that not only is this useless to me in the future but even more useless right now.
maybe those who speak for RA's can help you out with that, there are quite a few RA/pension fans on this forum who think my views on property are weak, and yet here you are in a problem
supersunbird
Honorary Master
Well, it will grow to at least R1,3 million at a low growth of rate of 6% pa., but probably more like R3 million realistically.
supersunbird
Honorary Master
Sounds like an old school life insurance RA, my condolences for these aholes scamming you into one of those. Unit trust RAs are much better.
supersunbird
Honorary Master
Why is it useless in the future? Can't do a section 14 transfer to a better low fees provider?
EDIT: Oh my soul, I see it's with Liberty, one of the worst, and most expensive.
in terms of what its worth, when I use the term worthless, I mean its purchasing power will be minimal
can you tell me what R3m will purchase in 2045?
supersunbird
Honorary Master
Section 14 transfers:
An RA can only be moved to an RA from another provider or withdrawn if emigrated (as explained).
A pension or provident fund from employer can be moved to a new employer sometimes, or it can be put into a preservation fund (which allows one withdrawal in it life time, there is tax) or an RA
An RA can only be moved to an RA from another provider or withdrawn if emigrated (as explained).
A pension or provident fund from employer can be moved to a new employer sometimes, or it can be put into a preservation fund (which allows one withdrawal in it life time, there is tax) or an RA
supersunbird
Honorary Master
It will be able to purchase more than R0 will be able to purchase. Which is what most people end up with of they don't put money somewhere safe (even safe from themselves, like their satisfy immediate urges spending).
What is your investment solution where you are also protected from creditors and yourself* like an RA does?
*you thus cannot invest all your savings in your best buddies bar or into the next MTI or the next Sharemax property syndication (ex-gf ex-parents-in-law sold a farm, had R5 million which was their retirement money, R4 million went into The Villa Shopping Centre mall, that is still unfinished and unoccupied a decade later, they will likely never see that money again).
Speedster
Honorary Master
Two points here. Firstly, huge difference between insurance based and fund based RAs. Secondly, the whole point of an RA is to make it really difficult to spend it upfront. It is meant for retirement after all.
Speedster
Honorary Master
The cost involved is the "fault" of the provider, not the RA wrapper. There are a number of "free-to-move" RAs available.The transfer is dealt with in terms of Section 14. It could be a lengthy process and it is not free.
supersunbird
Honorary Master
Yeah property, property rights are greatly respected by government and tenants can easily be removed as the law favours the landlord... oh wait!
It can be part of a mix, but as an only retirement option, I'd not recommend it for most people.
the guy is literally sitting with his deposit for his own property in an annuity and you talking about tenants
the reality is you cannot guarentee what R3m can purchase in 2045, hell, you can't even guarentee he will live to 2045
supersunbird
Honorary Master
And you cannot guarantee that where he is being his house won't be the next Nigerian(or whatever)ville by 2045, think the next Sunnyside or Hillbrow.
Why didn't he save up for the deposit somewhere else? I bet you he would still have had R0 in his pocket if the money didn't go to an RA, now he has R300 000 in an RA at least and R0 in his pocket, which is better.
Gtx Gaming
Gtx Gaming
I would put half RA and half tax free ETF.
RA you can claim money back from SARS also, so you get money back even if you RA does not perform.
RA you can claim money back from SARS also, so you get money back even if you RA does not perform.
I don't expect this guy to live in the house until 2045, I never said anything to that effect nor have I guaranteed anything until 2045
not to mention the fact he can't buy a house now in 2021 because of the
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Nerfherder
Honorary Master
The projected value of the RA is only 1.8 mil if I continue to invest. There is no way it will get to 1.3mil on 6% alone
I see its not even at 300k... I may have the buying price when checking the other day.
if you didn't have to contribute to the RA, do you think you would have had accumulated savings sufficient enough to cover the transfer costs you referred to?
Nerfherder
Honorary Master
yup..
just an interesting side note. I'm selling my current property for about 2.6 mil and the neighbours across the road paid about R175 k for their house way back in the 80's. So the rands required for the property has jumped to roughly 20 times over the 40 or so years.
So as an investment if you had the R175k back then and chose either to put in an interest bearing account vs investing in a property - which would have done better ?
I checked with a compound interest calculator and you would be 1 mil short if you left that in the bank.