Top up your RAs to trim your tax

As the financial year end looms, some useful advice on how you can possibly still save on your tax payments is through investing any taxable funds you may still have available before submitting your return. In particular, this is an excellent time to top up Retirement Annuities, or other tax deductible pension funds, with this additional income.

Retirement Annuities, more commonly known as R.As, are one of the very best ways to invest in a pension fund, as they are tax deductible up to a certain portion of your income. Generally speaking, they trend to offer excellent returns as an investment and at the same time you are saving on tax.

What are they?

RAs are usually applied for and used by single entities – they are really a ‘one person’ pension fund. People in their own businesses find this the most astute way to create a pension. An individual applies to become a member of a Retirement Annuity fund, which is approved by the Registrar of Pension Funds and tax authorities. One does not need to have an employer to qualify for membership and this is why it is favoured by SMEs.
Your contributions are then tax deductible up to a certain maximum and even if you fall into the 45% maximum tax rate the taxman sponsors almost half of your contributions for your retirement.

What other tax benefits do R.A’s have?

There are actually a number of other benefits and this article hopefully will give you some more detailed insight into these. To assist the uninitiated we express this as much as possible in layman’s terms…

Accumulative benefits – Commonly known as ‘disallowed contributions,’ the contributions that have not been deducted, fortunately still have an accumulative benefit over time. They can be carried over to the next year and if not used during the whole period of the contributions they can either be be offset when it is time to retire to increase your tax-free portion of the retirement lump sum, or claimed as a tax deduction against taxable income. So the retirement annuity contributions really do have a ‘lifespan’ until and upon retirement.

Staggered retirement benefit – With any normal employer pension or provident fund you have to retire from your employer and the fund simultaneously, but with RAs you can stagger your retirement and mature your RA at any time after age 55!

Lump sums on retirement benefits – This staggered retirement has implications for lump sum benefits too. Up to R500 000 in retirement lump sums has no tax at all – over R500 000 and up to R700 000 the tax is 18% – over R700 000 up to R1 050 000 it is 27% – and 36% over that.
Tax fund relief – since the ‘Abolition of retirement fund’ tax duty on 1 March 2007, tax on interest or rental income is no longer deducted from the fund. This means no tax at all is paid on the fund build-up, either as dividend income or capital appreciation. Capital gains tax too is no longer applicable. Good news for all taxpayers!

Seek expert advice

This is really a simple overview and there are more tax benefits of Retirement Annuity funds, so why not speak to a Financial Advisor at the Hereford Group to learn everything you need to know about RAs and many other ways you could have been saving on your tax through simply making the right investments.

We at The Hereford group listen to our client’s specific needs before advising and supply the right products for what they need. With over 25 years of success in growing, managing and preserving wealth, we’re still passionate about creating financial freedom for each and every one of our clients.


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