If you want financial freedom in your retirement years, you have to start saving as early as possible. Although there are many possible investment vehicles available for this purpose, but there are strong arguments in favour of including retirement annuities in an investment portfolio.

RA’s offer an excellent and disciplined savings method as the client enters into a long term savings contract

· Contributions are flexible. They can be made on a recurring premium basis or as a lump sum and on an ad hoc  basis

· There are different investment fund options to suit the risk profiles of clients and switches can be done

· RA’s are paid out at the age of 55 or later by choice of the client, or at an earlier stage in case of disability

· It is an ideal way to ensure that the owner does not use savings intended for retirement prematurely for other purposes. It effectively safeguards the owner against him/her self

· RA’s are protected against creditors, which means that in the event of insolvency, the value of the RA is safeguarded for the benefit of the client

· RA’s cannot be used as security for any finance, which also protects the value for the client

· Should a client encounter financial difficulties that make it difficult to keep up recurring premiums, the RA can be made paid up. The investment keeps on growing until maturity.

· At maturity up to one third of the value of the RA can be taken in cash, while it is compulsory to buy a life annuity with the balance, to provide a lifelong pension. Today there are various options of annuities

· There are attractive tax advantages for RA’s:

o Contributions are deductible from taxable income up to 15% of non-pension providing income, which could be a significant amount, especially for self-employed persons who do not belong to other retirement funds

o Returns generated by RA funds are exempt of tax, which means that they grow faster than endowment investments invested in the same assets

o The tax dispensation on lump sums was recently reviewed and is now an attractive incentive to provide for retirement investments in registered retirement funds. The first R300 000 of the one third lump sum is tax free. The next R300 000 is taxable at 18%, the next R300 000 at 27% and the next at 36%

o Contributions disallowed for tax deductions during the lifetime of the RA, can be added to the statutory tax free amount at retirement, provided that proof of such payments is provided

o When a person changes from one employer to another, retirement fund credits can be transferred to a RA free of tax

o Another application for a RA is that it can be a tax efficient way of prefunding medical aid contributions after retirement

o RA’s can be taken out at any time from birth