In this month of romance we may be reminded of the title of the Bonny Tyler song ‘I need a hero,’ an impassioned plea from a woman to find a lover who will fight for her and make her feel safe. It is also a plea that many investors may echo when deciding on what investments to make in 2023.

We need solid investments, with good returns and the big cherry on top that makes an investment a really good proposition, a significant tax saving! The principle is simple. The more we can save on tax the more extra cash we have to save and make investments, and this is the essence of financial growth.

When an investment pays for itself by being a great tax saver, generally delivers a good ROI and gives us a decent retirement package all in one, this could be said to be a ‘superhero’ of investment opportunities. Retirement Annuities offer all these things – and then some.

So, as promised in our last article on capitalising on tax-saving investments in 2023, let’s look at exactly how R.As save on taxes and a few of their additional benefits…

RAs are super tax savers!

You can contribute as much as you like to an RA, but since 2017 the retirement annuity tax relief has been set at a maximum rate of 27.5% of taxable income or earnings per annum and this is subject to a capping of R350 000. Remember, this cap and 27.5% limit include pension or provident fund contributions in the workplace if applicable to you.
To calculate the RA tax relief, one simply multiplies your contribution amount by your marginal tax or the highest tax rate applied to any part of your income. As an example, R15 000 a year contributed to a Retirement Annuity if you have a marginal tax rate of 20%, would entitle you to a refund of R3 000.

More super benefits

Let’s take a look at how a Retirement Annuity if used as a long-term investment vehicle, apart from benefiting from higher SARS tax rebates, can benefit an investor …

• Upon retirement, you can withdraw R500 000 tax-free from your RA, which benefits you by creating future liquidity;
• Your interest in retirement funds is exempt from estate duty, making them highly effective as estate planning vehicles;
• Investors don’t pay capital gains tax, dividends withholding tax or income tax on the investment growth in any retirement fund, and this includes pension, provident and Retirement Annuity funds.

Beneficial limitations

Even the limitations are in fact beneficial. You can only access an RA before you turn 55 if you become permanently disabled or emigrate from South Africa. You are obliged to use a minimum of 2/3rds of the funds to purchase either a life or living annuity policy to give you retirement income, and while some may say these restrictions are limiting from an investment perspective, RAs should be seen as pension savings and the benefits certainly outweigh the negatives.

When in doubt…

There is always more to know about any investment than we can include in these advice pieces, and they should be seen only as a guide to assist you to gain more knowledge about financial matters so that you can play a more active role in your wealth creation with your Financial Advisor.

Hereford Group has for more than 25 years been recruiting and training our Financial Advisors to be the best you can find, so talk to us if you still have any doubts that RAs are the superheroes of tax-saving investments – or if you would like to begin your wealth creation journey for 2023 with us today!