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Retirement Annuity Brochure 2015

Source: Allan Gray Investment

Why the end of the tax year is important to you

Government encourages us to save for our retirement by offering us tax incentives if we invest in a registered retirement fund. As a member of the Allan Gray Retirement Annuity Fund, it is important to keep track of your contributions so that you can maximise this benefit by making additional contributions when your cashflow allows. February is an important month as it is the last opportunity to make use of these incentives before the tax year ends. Here is a summary of some of the key features and benefits of contributing to a retirement annuity (RA).

The benefits of contributing to the Allan Gray Retirement Annuity fund

1. A tax-efficient way to save for retirement

Contributions to an RA are tax deductible (subject to certain limits). This means that you may be taxed on a lower taxable income amount and could receive money back from SARS at the end of the tax year. The income and capital growth earned on your investment until you retire is also tax free.

How does it work?

You can currently contribute the greater of the following amounts to an RA tax free:

  • 15% of your ‘non-retirement funding’ income, or
  • R3 500 less your allowable pension fund contributions, or
  • R1 750

If you are self-employed, or your employer does not offer a pension or provident fund, your income is considered ‘non-retirement funding’. If you are a member of your employer’s pension or provident fund, your income is known as “retirement funding income”.

2. Flexibility and investment freedom

Most RAs are offered with low product fees, no penalties for surrender or discontinuation and have fully transparent and negotiable financial adviser fees. They also offer choice and flexibility – you can choose which underlying unit trusts to invest in that best suit your needs, across different sectors from different providers available on our investment platform (provided your account complies with the asset allocation limits outlined in the retirement fund regulations). You can switch between unit trusts at no extra cost as your needs change.

Your investment is held in an individual account, however you cannot access your money until you reach the age of 55 (unless you are permanently disabled, the value of your savings is under R7 000 across all your Allan Gray RA accounts, you are emigrating or getting divorced).

3. Transparent fee structure and value for money

We charge a maximum annual administration fee of 0.50% to invest on our investment platform, less any manager fee discount passed on from the manager(s) of your selected unit trusts (this ranges from 0% – 0.50%). The manager fee discount is the amount that the management company chooses to pay Allan Gray to account for the benefit of having its funds distributed via the Allan Gray platform, as well as the money it saves by having Allan Gray do its administration. The annual administration fee is reduced by the manager fee discount that Allan Gray passes on to you.

4. What happens at retirement?

When you retire, a maximum of one-third of your investment can be taken as a cash lump sum and a minimum of two-thirds of the capital in your RA must be invested in a pension-providing vehicle such as a living annuity or guaranteed life annuity. This ‘transfer’ is tax free. Your annuity income is taxed at your marginal tax rate, which may be lower than your tax rate prior to retirement.

Alternatively, you can take the full investment as a cash lump sum if the pre-tax value (across all your Allan Gray RA investment accounts) on the date of retirement is equal to or less than R75 000, or any other amount determined by legislation or regulatory authorities.

Source: Allan Gray Investment

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