Retirement Annuities

1. Tax Rebate

The government supports and encourages retirement savings through tax incentives. When you contribute to a retirement annuity, the contributions are deducted from your annual income, reducing your tax liability. This initiative by the South African Revenue Service (SARS) aims to promote self-reliance during retirement. Since 2016, you can contribute up to 27.5% of your total annual income (with a contribution cap of R350,000) to a retirement fund, making you eligible for a yearly tax refund. Additionally, if your retirement annuity is indicated on your payslip, you can enjoy monthly tax benefits, resulting in improved cash flow.

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2. Tax-Efficient Investment Growth

A retirement annuity offers more than just annual tax refunds. One significant advantage is that your investments within the annuity are tax-efficient. There are no taxes on interest, dividends, or capital gains as long as your funds remain invested. Furthermore, your investments enjoy protection from creditors, and you cannot access the money until you reach the age of 55. Modern retirement annuities also provide flexibility, allowing you to pause contributions and resume them at a later date.

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3. Estate Duty Exemptions

In the unfortunate event of a member's passing before retirement, the total value of the retirement annuity becomes a 'death benefit.' According to the Income Tax Act, this death benefit is not considered part of the deceased member's estate. Instead, it is distributed directly to the member's financial dependents or nominees. Notably, there are no estate duties (typically 20%) applied to the funds within your retirement annuity or the Living/Life Annuity derived from it.

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Retirement funds, including pension, provident, preservation, and retirement annuity funds, hold a unique status with respect to estate duties. They are exempt from estate duty as per the Pension Funds Act's regulations. The allocation of these benefits among financial dependents is governed by Section 37C of the same Act. Although members can designate beneficiaries for their investments, the ultimate decision on benefit allocation lies with the retirement fund trustees. The trustees conduct a thorough process to identify the financial dependents and ensure the capital bypasses the deceased's estate, thus avoiding estate duty.

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