Retirement Annuity Fund
Information about retirement annuity funds
What is a retirement annuity fund? | How do I invest in a retirement annuity fund? | What are the advantages of retirement annuity funds? | What are the disadvantages of a retirement annuity fund? | What are the costs of investing in retirement annuities? | Where do I deposit funds? | Risks you need to be aware of? | Which unit trust funds are available for PSG Online investors to select for their RA portfolios? | Other questions | Where can I find more information about retirement annuity funds?
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A retirement annuity is merely a private pension plan. Retirement annuities were first introduced in South Africa in 1960 and were designed to enable self-employed people to qualify for the same tax treatment and deductions as those employees who were provided for by their employers by way of provident or pension funds.
Retirement annuities are recommended for self-employed people, those who earn commissions, performance bonuses or other windfall-type income, as well as employees who wish to top up any investment made on their behalf by their employer.
The Retirement Annuity Fund via PSG Online offers you a personal retirement savings vehicle that is simple, low cost, flexible and with a wide range of investment choices. What's more, you'll have online, anytime, access to your chosen portfolio.
Retirement annuities are personal pension plans which have been designed to allow you to contribute to your own retirement, or top up an existing company provident or pension fund benefits to save for retirement in a tax efficient vehicle.
Retirement annuities allow for flexible investing. You decide on the structure of your underlying choice of unit trusts. However, if you would like to use the services of a financial advisor, click here.
If you are interested in investing in a retirement annuity through PSG Online you should complete the simple online registration process.
- STEP ONE: Register online for retirement annuity account and PSG Online web profile.
- STEP TWO: Provide us with your FICA details if you are new to PSG Online. PSG Online will open your retirement annuity account within 72 hours of receipt of your FICA documents.
- STEP THREE: Login to your collective investment scheme account. You will use the same username and password chosen when you registered for your web profile in Step One.
- STEP FOUR: Choose a unit trust fund (or funds) from our list of funds which are managed according to the pension funds guidelines.
- SETP FIVE: Complete the documents for investing in a retirement annuity. Click here to download these documents.
The generally recognised benefits of investing in a retirement annuity product include the following:
- Subject to certain limits, retirement annuity contributions are tax-deductible. When you retire from the fund, the proceeds are either tax-exempt or favourably taxed in the hands of the taxpayer. This means that you can effectively defer tax liability from when you are working (and are likely to have a high taxable income) to when you are retired, when you are likely to have a lower income.
- Assets within retirement annuity funds are not taxed; they are not subject to either Capital Gains Tax, which taxes the growth of assets, or the Dividend Withholding Tax, which taxes the value of dividends received by tax payers per annum.
- A retirement annuity fund does not form part of one's estate for estate duty purposes. It's therefore not liable for estate duties.
- A retirement annuity fund cannot be attached by creditors and is therefore protected against creditors in the event of insolvency. This makes these funds especially attractive to taxpayers involved in high risk business ventures. There are a few exceptions to the general rule that your retirement fund may not be attached, these include the South African Revenue Service (in the case of unpaid taxes) and a previous spouse (in terms of a court-approved divorce settlement).
Does the PSG Online Retirement Annuity have any further benefits?
The retirement annuity via PSG Online is a unit trust-based retirement annuity (as opposed to a retirement annuity offered by an insurance company). Unit trust retirement annuities are sometimes referred to as 'new generation retirement annuities' because they were launched in response to the traditional insurance-based retirement annuities. Unit trust retirement annuities have the following features.
- No linked insurance, no extra costs. Insurance-based retirement annuities include insurance components with term tie-ins and penalties. We believe in simplicity and clarity. The PSG Online Retirement Annuity is an 'investment only' product. This means that there is no linked insurance, either life insurance or disability insurance. (Note that if you do require such insurance you will then need to source this separately, but at least you will be clear on what you are paying for what!). You can source all of your insurance needs through PSG Online.
- As and when contributions - no penalties. Contributions to the PSG Online Retirement Annuity can be made on an 'as and when' basis. There are no penalties for reducing debit orders, varying the rates of contribution or stopping contributions. Contributions may also be resumed without incurring any penalties.
- No penalties on late retirement. Unlike many other retirement annuity products, there is no penalty for maintaining the investments in the fund after the age of 55, because no commissions are paid up front.
- Investment choice. PSG Online has a wide range of underlying fund choices available. All funds on our list follow the investment rules required by Regulation 28 of the Pension Funds Act.
- Transfer from and to other funds. Transferring your retirement annuity benefits from another retirement annuity fund to the PSG Online Retirement Annuities is a relatively simple procedure. Simply download the transfer form, fill it in and fax it to us. We'll contact your current fund and oversee the process.
- Moving your PSG Online Retirement Annuity Fund. The fund rules of our retirement annuity allow fund members to move their investment to other service providers. The only restrictions imposed by PSG Online are those that are required by law
An implicit contract is undertaken between investors and the South African Receiver of Revenue, the agent of National Government, when investing in a retirement annuity. If you, the investor choose to take advantage of the tax deductibility of these vehicles, you agree to the rules of the retirement annuity fund. The most important of these relate to the manner in which the proceeds are invested, and what happens to the investment when you die.
- Underlying holdings in retirement fund portfolios must comply with Regulation 28 of the Pension Funds Act. Regulation 28 is designed to ensure that assets are invested according to certain guidelines as defined by the Pension Funds Act.
- Two aspects of Regulation 28 which are considered somewhat restrictive. The first is the maximum permitted level of exposure to equities; this is currently 75%, and considered too conservative for younger investors. The second is the permitted level of exposure to offshore assets; this is currently just 30% (5% in Africa and 25% in the rest of the world).
- Pension fund legislation is designed to ensure that payments to pension funds, retirement annuities and pension and provident funds is ultimately for the benefit of the general tax payer and then his or her beneficiaries. In terms of the rules of retirement funds, you, the investor are not therefore at liberty to bequeath the proceeds of any retirement fund to a neighbour, your personal instructor, or even to a charity if you have dependents. It is the responsibility of the trustees of the fund concerned to ensure that family members who depended on you while you were alive receive the benefit of your fund after your death.
- Members of retirement annuity funds may only retire from the fund before the age of 55 in the event of ill health or disability. Medical or other evidence will be requested by the trustees of the fund, confirming that the member is incapable of working in his or her current occupation. Such evidence is required to be supplied at the cost of the member.
- Retirement annuity funds may not be ceded to a third party or offered as security for a loan.
- A monthly flat fee of R9 per retirement annuity fund is levied.
- Platform fees, fund manager fees and other costs are dependent on the choice of underlying holdings.
For retirement annuity accounts please make deposits to the following bank account with your portfolio number as a reference:
|Bank||Standard Bank of S.A. Ltd|
|Account name||PSGAML Compulsory Deposit Account|
|Deposit reference number||Your unit trust portfolio reference number or ID number|
For a full list of PSG Online banking details click here.
All investing products carry stock market risk. However, when investing over the long term for retirement, there is a greater risk of not taking enough risk, at investing at risk levels high enough to outperform inflation.
Of all the financial services and products available, retirement products are amongst the most regulated. Financial service providers and their agents have to comply with numerous rules and regulations. They are also closely monitored by the Financial Services Board.
The role of unit trusts in your overall strategy is dependent on your overall investment strategy. If you are uncertain as to which funds to choose or how much to invest, allow us to help you formalise your wealth strategy through a process of financial planning to create an investor profile which suits your goals. Otherwise contact a PSG Konsult financial advisor if you would like someone to invest in unit trusts on your behalf.
Click here to view a list of available funds and fees
Q: Will there be limits on the number of switches permitted each year?
A: Currently no. However, excessive switching is generally not sensible investing.
Q: What happens to my RA investment when I reach 55?
A: When you resign from the fund, you can take a third of the capital in cash. The remaining sum has to be invested in a living annuity product. You can withdraw your money from a living annuity at a predetermined rate selected by you.
From 2008, the upper age limit of 70 was removed. This means that there is no longer a compulsory retirement age for members of retirement annuities. If the entire benefit at the time of retirement is less than R75 000, the entire amount can be taken as a lump sum, there is no requirement to transfer two thirds into a living annuity vehicle.
Q: What happens if I want to emigrate?
A: If you emigrate, the entire benefit can be taken as a lump sum (subject to exchange control regulations).
You can find more information about retirement annuities on our unit trust FAQ page.