Retirement annuity ?

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James 77

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Hi guys

I’ve been thinking of taking out a retirement annuity lately. From personal experience is/was it worth it ? And which one would you recommend ?
 
Gosh, invest your money in your own name. Never give others the use of your money at your expense for most of your life and then accept the leftover to try live on in old age. Besides, with inflation at such high levels, most people will never be able to 'retire'.
 
James 77 said:
Hi guys

I’ve been thinking of taking out a retirement annuity lately. From personal experience is/was it worth it ? And which one would you recommend ?
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This is easily the best form of long term saving in South Africa as you are able to invest pre-tax funds.

My personal RA is with Allan Gray (balanced fund) and we put my wife's in 10x. Those two, together with Sygnia, are probably your best options at the moment.
 
There's nothing intrinsically wrong with the investment vehicle, but there are questions concerning the security and value of your investment:

www.businesslive.co.za

Pensions may fund recovery

ANC proposes greater financial intervention to revive economy after pandemic
www.businesslive.co.za www.businesslive.co.za

If government get their way (and they've had their eye on it for a while now), covid might be the catalyst that will allow them to use your pension to fund their endeavors.

If I were you, I'd invest in your TFSA instead and send remaining money out of the country to foreign brokerage accounts (e.g, TD Ameritrade).
 
You need to answer the following :

1. Does my company contribute?
2. If private, can the company offer the tax deduction up front?
3. Do you need access to the money?

An Ra is locked till retirement so if you need access to funds, it's not the vehicle for you. If your company offers you a portion of Salary into pension and matches, it's worthwhile.

The question is when in your own capacity. An ra allows a substantial tax deduction/recovery, either upfront or during tax season. If you choose to use it, you then have a choice of enabling your company to give you the deduction up front, or, put the funds into a debt killer or high yield liquid and transfer the amount you want rebate on into your ra at the end of February to take the tax break into account.

I'm working on the last but you should consult a proper financial advisor and let them advise you. Everyone's situations are differant and one size does not fit all.
 
Remember that there are distinct differences between retirement annuities, pension funds and provident funds.

If you battle to save monthly RA contributions are a good way to get the money our of your account before you have the chance to spend it. The issue with RA's is that the funds are locked in until age 55. The only way to get the funds before the 55 is if you officially emigrate. Then at age 55, the max cash that you can get is one third of the fund value. The rest is paid out to you on a monthly basis.
 
My advice, read up about costs. Its important to start right! You cant really rewind lost time (as its a very expensive lesson)

Also max your abroad exposure
 
I used to contribute to RAs and get the rebate paid upfront by my employer each month. SA has an extraordinarily high rebate of 27.5% so this makes it great from a tax saving perspective.

The drawback is that I would be hesitant to have my money locked up in a country like SA now with government continually trying to get at peoples RAs and trying to force legislation that RAs should invest a portion into SOEs. This hasn't happened yet but in my own opinion it's going to be forth coming as one of the next phases of money grabs as it's something that has been actively discussed by the ANC.

You also need to factor in to the equation the high volatility of the Rand. Even if you start factoring in that you would want (expect) your investment to grow if you stopped monthly contributions the fact is that many of the RAs have slipped backwards over the last few years. I had R400k in RAs when I left SA just over 4 years ago and they have slipped in value by about R15k (sitting at about R385k). Factor in an average reported inflation by government of 6% yearly (probably closer to 12% in reality) and just to keep up with inflation they should be around the R500k mark now. That means in real terms I've lost over 20% of my investment according to government reported inflation and probably 40% based on a realistic inflation figure for SA. Taking that one step further if you want to move your money overseas then the Rand to AUD usually sits around R10 mark but currently it's been trending around the R12 mark. That alone is another 17% devaluing of my portfolio.
 
Speedster said:
This is easily the best form of long term saving in South Africa as you are able to invest pre-tax funds.

My personal RA is with Allan Gray (balanced fund) and we put my wife's in 10x. Those two, together with Sygnia, are probably your best options at the moment.
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Thanks, I will take a look
 
Thanks, everyone, I will definitely take the route of saving abroad. We have started looking at options of emigrating in the short/medium term, so a retirement annuity in SA with all the extra factors won't be feasible.
 
James 77 said:
Thanks, everyone, I will definitely take the route of saving abroad. We have started looking at options of emigrating in the short/medium term, so a retirement annuity in SA with all the extra factors won't be feasible.
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Just also keep in mind, international interest/investment is low compared to SA ( that's why they try drum it up as an investment zone ). You would be effectively hedging it against a rand devaluation with a small interest return. I would consult an advisor though but the idea of not locking up your funds is a good one.

Obviously one should follow the normal router -> Short term debt -> Long Term Debt -> Savings -> Long Term investment but that's my 2c, not to be construed as sound advice :p . And if you serious about emigrating, start shoving money into a highish yield liquid option.
 
^^vampire^^ said:
I used to contribute to RAs and get the rebate paid upfront by my employer each month. SA has an extraordinarily high rebate of 27.5% so this makes it great from a tax saving perspective.

The drawback is that I would be hesitant to have my money locked up in a country like SA now with government continually trying to get at peoples RAs and trying to force legislation that RAs should invest a portion into SOEs. This hasn't happened yet but in my own opinion it's going to be forth coming as one of the next phases of money grabs as it's something that has been actively discussed by the ANC.

You also need to factor in to the equation the high volatility of the Rand. Even if you start factoring in that you would want (expect) your investment to grow if you stopped monthly contributions the fact is that many of the RAs have slipped backwards over the last few years. I had R400k in RAs when I left SA just over 4 years ago and they have slipped in value by about R15k (sitting at about R385k). Factor in an average reported inflation by government of 6% yearly (probably closer to 12% in reality) and just to keep up with inflation they should be around the R500k mark now. That means in real terms I've lost over 20% of my investment according to government reported inflation and probably 40% based on a realistic inflation figure for SA. Taking that one step further if you want to move your money overseas then the Rand to AUD usually sits around R10 mark but currently it's been trending around the R12 mark. That alone is another 17% devaluing of my portfolio.
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Why not financially emigrate and get your money out while you still can?
 
Kosmik said:
Just also keep in mind, international interest/investment is low compared to SA ( that's why they try drum it up as an investment zone ). You would be effectively hedging it against a rand devaluation with a small interest return. I would consult an advisor though but the idea of not locking up your funds is a good one.

Obviously one should follow the normal router -> Short term debt -> Long Term Debt -> Savings -> Long Term investment but that's my 2c, not to be construed as sound advice :p . And if you serious about emigrating, start shoving money into a highish yield liquid option.
Click to expand...

This is a very interesting piece of information that I think about from time to time.

Interest rates here in Australia are at an all time low. The cash rate is 0.25% and inflation is estimated at 1.43%. This means that interest on savings accounts are generally sub 1%.

Looking at SA, investing in something like the Satrix Top 40 was until about a year ago returning about 15% with that pretty much being the trend for a long time. My Aus based investments on a similar risk portfolio return maybe 4%-6% if I'm lucky. It would seem like SA is a far better investment option for returns but when you factor in the volatility of the exchange it starts to become sketchy. The AUD to ZAR exchange rate sat at about R8 to the dollar around 2014. Zuma fired the finance minister end of 2015/beginning 2016 and it shot to R13.50 to the dollar and now usually hovers around the R10 mark. Any time something happens in SA I can usually guarantee the exchange jumping to R12 to the dollar which basically continues to wipe out any gains you could make in SA from a higher interest rate. Couple this with the downward spiral of the SA economy on those ETFs that you would expect to be "safer" to invest in with a decent return are not even valued at what they were this time last year.

Ultimately my money is safer in a 3% investment in Aus than it is in any investment in SA.

EDIT: link to a thread with a video on why I would be worried to get an RA now:
https://mybroadband.co.za/forum/threads/morning-shot-would-you-give-your-pension-to-the-anc.1090409/
 
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Remember if you have money in an RA, it will be locked for 3 years after you emigrate.
 
How many people have you heard off in your life that could say: "My Sanlam/Discovery/Old Mutual etc RA really worked out as expected. Ill be enjoying a lovely retirement"

Thats all you need to know about RA's
 
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