These are the reason why you are not allowed to withdraw money from my retirement annuity (RA)

These are the reason why you are not allowed to withdraw money from my retirement annuity (RA)

Because of the tax benefits you get from government in return for saving for your own retirement – but you will have the option of taking up to a third out in cash at age 55.

it is important to understand the reason for this ruling.

Significant tax benefit In order to encourage South Africans to save for their retirement, government provides several tax concessions for retirement fund investors.

In the first instance, investors are permitted to invest up to 27.5% of their taxable income towards a retirement annuity on a tax-deductible basis, up to a maximum of R350 000 per year, which is a significant benefit.

To explain how this works – if your taxable income for the year is R500 000 and you invest R100 000 into your RA, your taxable income drops to R400 000. You will only pay tax on that lower amount. In other words, having an RA means you pay less tax now.

In addition to being able to effectively invest with tax-free money, RAs are exempt from tax on dividends and interest, and no capital gains tax is payable on the growth earned in the investment.

In exchange for these tax concessions, the government has put legislation in place to ensure that the funds are earmarked for retirement in an effort to relieve the burden on the state.

When retiring from your RA, you will have the option of taking up to one-third cash, while the balance must be used to purchase an annuity income. In the absence of such legislation, investors may be tempted to use the funds for other purposes which, in turn, could adversely impact their ability to retire comfortably.

As mentioned above, there are a few exceptions when it comes to accessing RA funds prior to age 55.

Before March 1 2021, investors were not permitted to access their RA funds unless they were age 55 or older, the fund value was less than R7 000, the investor became physically disabled, or the investor financially emigrated through the formal South African Reserve Bank (Sarb) process.

With effect from March 1 2021, legislation in this regard was amended so that, while the minimum age for accessing RA funds remains age 55 or if the investor became physically disabled, the minimum fund value for accessing one’s RA before age 55 was raised to R15 000.

More importantly, the Sarb financial emigration process was done away with and, if an investor wants to access their RA funds, they must have been a non-resident for South African tax purposes for a period of three consecutive years on or after March 1 2021.

While we understand your frustration at not being able to access your own funds, it is important to understand the regulatory framework of the retirement funding environment and be cognisant of the significant tax advantages that you have already benefitted from by investing through a RA. We strongly recommend that you seek advice from an independent financial advisor who can prepare a holistic financial plan for you, and who can guide you through this tough financial time you are experiencing.