What are the tax implications of transferring my RAs right into a residing annuity?


Sure, by way of the Earnings Tax (ITA) chances are you’ll retire out of your retirement annuities any time after reaching the age of 55, and chances are you’ll entry the R500 000 at nil-based tax on the retirement lump sum advantages tax tables. There are a number of components to think about although.

When it comes to the act, any retirement fund lump sum profit will probably be taxed in response to the retirement tax desk, after taking into consideration:

  • Contributions to a retirement fund which didn’t beforehand rank for deductions or weren’t exempted from tax, and
  • Pre-March 1998 public sector advantages.

You have to be conscious that when figuring out the tax on the present retirement fund lump sum, all earlier lump sums acquired (withdrawal advantages acquired after March 2009, retirement fund lump sum advantages acquired after October 2007, and severance advantages acquired after March 2011) may also be taken under consideration.

The stability that’s transferred to a residing annuity is transferred on a tax-neutral foundation – together with any disallowed contributions below Part 10C of the ITA that could be used to cut back tax in your residing annuity revenue. The switch of your retirement annuity because of retirement to a residing annuity is just not topic to Part 14 of the Pension Funds Act, which states that “a Part 14 switch is the switch of retirement fund advantages from one retirement fund to a different”.

The residing annuity is just not topic to Regulation 28 of the Pension Funds Act as it’s regulated by the Lengthy-term Insurance coverage Act.

Typically the explanation for somebody retiring to a residing annuity as quickly as they hit the 55-age landmark is to keep away from the limitation that Regulation 28 in retirement annuities imposes close to accessing numerous funding asset lessons. Evidently after 5 to 6 years of very disappointing returns in most portfolios which have to stick to Regulation 28 limitations, which solely permit restricted entry to offshore asset lessons, persistence has worn skinny. The result’s that some traders in retirement annuities are retiring from them and shifting throughout to residing annuities to have a lot greater entry to offshore funding choices via rand-based offshore funds within the residing annuity. If there may be capability with the life firm that owns the residing annuity, you possibly can even have as much as 100% offshore publicity.

The phrase of warning I might give to traders taking this route is that whereas returns from offshore funds usually have been considerably greater over the past whereas and the entry to some nice international corporations is all the time a profit, one has to attempt to look ahead and never backwards and the potential of investing primarily in offshore markets that appear to be very costly should be taken under consideration in opposition to the added volatility this may increasingly deliver.

If an individual is retiring from a retirement annuity of their mid-50s, they have to additionally take into consideration that, with longevity numbers going up and up, their capital might want to final a considerable size of time, so a effectively thought out revenue and asset allocation technique must be put in place.

Please notice that the knowledge offered above doesn’t represent monetary recommendation. Generic info has been utilized given the context of your query. We’ve restricted particulars about you and your circumstances – such element might affect any recommendation offered and we’d suggest you talk about these points a trusted monetary advisor earlier than making choices.