A Fin24 user asks:
I would like some guidance on my RA, which I have had now
for 17 years with Sanlam.
As I understand it, when the policy matures you can either
take a lump sum and get a monthly reduced pension, or no lump sum and a monthly
full pension.
Is this correct, and which option is best? I am 55 years
old.
Francois Retief, senior manager - legal services at
Sanlam, responds:
After reaching the age of 55, a member of a retirement
annuity fund may commute up to one-third of the retirement interest. (Under
certain circumstances, where the value does not exceed R 75 000, the full value
may be commuted.)
The amount not commuted must be used to purchase a
compulsory annuity.
Income tax considerations play an important part in your
decision as to the amount you wish to take as a lump sum.
You need to take into consideration your marginal rate of
tax after retirement as well as other retirement fund lump sum benefits,
retirement fund withdrawal benefits and severance benefits which you have
received before.
The first R315 000 of retirement lump sums is tax-free, and
any amount over that will be taxed at a progressively higher rate.
As a rule, a financial adviser will recommend that a client
takes the maximum tax-free amount, as this can be used to purchase a voluntary
annuity which is more tax efficient than a compulsory annuity.
To decide whether a lump sum subject to tax should be taken,
your consultant will need to make some calculations to give you a
recommendation.
Your decision on which option to choose should, however, not
be taken in isolation. You need to look at it as part of a detailed retirement
plan in consultation with a financial adviser specialising in this field as
well as investments.
- Fin24
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