Retirement Annuities – Some Uses

Retirement Annuities – Some Uses

Retirement annuities (“RA”) are the main source of tax efficient retirement funding for self employed people. There is no need for an employee / employer relationship. Salaried persons can also use an RA to top up their retirement savings.  

There are several tax benefits and legislative changes which can be summarized as follows:  

On death, benefits paid out from an RA are free from estate duty (both the lump sum and the annuity).  

You are no longer required to draw a pension before the age of 70 so you can continue contributing to a RA should you need the tax relief.  

In particular, this allows for estate planning benefits that were before not possible, like not retiring from an RA, as the income for your surviving spouse/ beneficiaries can be postponed until after your death (estate duty free).  

Another planning opportunity is making use of a large single premium contribution to an RA and thereby closest reducing your estate for tax purposes.  

Should you emigrate, a retirement annuity fund may now be withdrawn on proof of formal emigration. before, many people did not start contributing to an RA as they expected emigrating later in life. The amounts withdrawn in excess of the R22500 will be taxed at the fixed scales applicable to all retirement benefits.  

Most people experience an increase in medical expenses once they retire. After 65, your medical expenses become fully tax deductible. An RA can be used to build up a tax efficient fund for medical expenses after retirement. After retirement the annuity is taxable, however, your medical expenses (including medical aid contributions) are tax deductible.

leave your comment