What is a Retirement Annuity?
A Retirement Annuity (RA) is a savings structure / product aimed at individuals who wish to save for their retirement. It is governed by legislation that enables the investor (you) the benefit of tax deductions for making provision for your retirement. Beanstalk provides access to "new generation, Unit Trust-based RA's" in the form of the Allan Gray Retirement Annuity Fund administered by Allan Gray Investment Services Proprietary Limited. This retirement annuity is both flexible and transparent as it is invested into Collective Investments (previously called Unit Trusts), and allows the investor a great deal of flexibility to increase, decrease, stop and restart their premiums without penalty.
Understanding the tax benefits of a Retirement Annuity
The Income Tax Act allows investors to deduct, annually, their contributions to a Retirement Annuity up to 27.5% of their taxable income or R350,000 (whichever is lower).
Additional Benefits of a Retirement Annuity
- In the event of death, an RA falls outside the investor's estate which means the value of the RA will not attract estate duty, capital gains tax, nor executor's fees.
- Retirement Annuities are protected against creditors.
Let's say Jack earns R20,000 per month and assume he is not a member of any Pension Fund. Jack may contribute R5,500 per month into a RA and receive a full tax deduction. In other words, he will only be taxed on R14,500 (R20,000 less R5,500).
In addition to the above tax deduction, Jack will also not pay tax on any interest or dividends earned within the Retirement Annuity Fund. Furthermore, any capital gain realised is excluded from capital gains tax.
Another benefit is that in the event of Jack's death, his RA falls outside of his estate, and the proceeds will be paid to financial dependents based on the decision of the Trustees, which means the value of the RA will not attract estate duty, capital gains tax, nor executor's fees.
How safe is my money?
A Retirement Annuity is strictly governed by the Financial Services Board (FSB) so your money is pretty safe. All funds provided by Beanstalk are approved by the FSB and adhere to the Act. These funds are governed by a Deed, and the underlying assets do not belong to the manager or management company; they are held in safe custody by the Allan Gray Nominees.
The selected manager of a fund is responsible for the management of the funds.
Beanstalk does not handle any of it's investors money. In fact, your money never touches our bank account. Your funds will go directly from your bank account via debit order, electronic collection or deposit, directly to an Allan Gray Bank Account and into the Allan Gray Retirement Annuity which will in turn pass the funds onto the fund you have selected on our website. Allan Gray will be the administrators of your funds.
For security reasons, all withdrawals can only be paid into your bank account; no third party payments can be made.
What access do I have to my money?
You may retire from a Retirement Annuity from the age of 55. When you retire from the fund:
- You may access 1/3 (one third) of your capital in cash, of which the first R500,000 is tax free. Any portion of this amount is taxed using an increasing tax scale. This capital is referred to as a lump sum retirement. See below for information about the current tax rates on withdrawals.
- The remaining 2/3's (two thirds) must be used to purchase an Income Annuity. The choices include a Life Annuity or Living Annuity, both of which are products that pay you a regular income which is taxable as income.
|Taxable income from lump sum||Rate of tax|
|R0 – R500,000
|R 500 001 – R 700 000
||18% of amount exceeding R 500 000
|R 700 001 – R 1 050 000
||R 36 000 plus 27% of amount exceeding R 700 000
|R 1 050 001 and above
||R 130 500 plus 36% of amount exceeding R 1 050 000
NOTE This table is applicable to all your Retirement Funds. Last updated March 2016.
Call us on 021 828 2890 or email us if you require further explanation or would like advice on the structuring of your retirement benefits.
What risks am I taking?
The value of your unit trust is directly linked to the market value of the underlying investments and is not guaranteed (i.e. it may move up and down). Past performance of the underlying investments is not necessarily a guide to the future. You carry the risk of market losses. See our explanations of Aggressive, Moderate and Conservative Risk Profiles to put this into perspective.
Ready to grow your wealth? Click here to invest in a Retirement Annuity Fund.
What does Regulation 28 mean?
Regulation 28 is legislation that prevents investors in Retirement Annuities from selecting and investing in investments that carry too much risk. On Beanstalk, if you are selecting to invest in an RA, you are therefore limited to only the Moderate and Conservative risk profile funds. If you want a higher risk profile you need to invest directly into a unit trust which doesn't carry the same tax benefits that a retirement annuity does.
Some of the guidelines of Regulation 28 include a maximum risk exposure of a fund to:
- 75% in equities
- 25% in property
- 25% in foreign assets
What fees are payable?
There are NO upfront fees!
Annual Fees are payable and these include:
- Annual Investment management fee This fee is charged by the manager of the investment for the research and decision-making they do. The fees are accrued daily and are included in the unit price of the investment. They are therefore not shown as specific deductions on your statement. The best way to compare ongoing underlying fees is to refer to an industry measure called the Total Expense Ratio (TER).
- Beanstalk fee This fee covers all the value you have gained from using the Beanstalk website and includes the fund screening, analysis and recommendations, the back office support, as well as the access to a CFP Qualified Financial Planner; ongoing advice, support, newsletters, fund and industry information. The fee is deducted by means of unit reduction by Allan Gray or Investec and paid across to Beanstalk.