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A Fin24 reader writes:
I am a 30-year-old man and recently qualified as a medical
doctor. I like my job at the private hospital I am working for, and don't plan
to leave anytime soon. I want to start saving for retirement. A friend of mine
recommended looking at retirement annuities (RAs). Please give me details only
of the advantages of RAs.
Heather Robertson, a certified financial planner at Blink
Consulting, responds:
RAs offer protection from creditors. Only a limited number
of institutions or people may claim money invested in your RAs. Those that can
do so include the South African Revenue Service (in the case of unpaid taxes)
and a previous spouse (in terms of a court-approved divorce settlement).
The only time a creditor may lay claim to the money in an RA
- or any other retirement savings vehicle - is when you retire, and then only
from any lump sum amount you are paid. A creditor may also not claim money that
is paid to you as an annuity bought with the benefits of an RA.
For this reason, you cannot borrow against an RA or use it
as security for a loan. A retirement annuity is therefore an important asset
for business persons, who are often required to sign personal surety with banks
and other creditors.
In addition, the growth in RAs is not taxed. This means that
your investment can grow much faster than another investment in the same fund.
The government incentivises you to save for your retirement
by allowing contributions to be deducted from taxable income. If you are not on
a pension or provident fund, you could be allowed to deduct as much as 15% of
your taxable earnings.
Other advantages of using RAs include the fact that they
offer a cost efficient and transparent pricing structure and can now be accessed
prior to retirement if you decide to emigrate. Lastly, they are an investment
choice.
Within the most modern retirement funds you will have a
large selection of specialised,
professionally managed and risk profiled funds, including property funds, local
and offshore shares, government and corporate bonds, money market instruments
and unlisted preference shares.
-Fin24