With the financial year having ended on February 28, all South African taxpayers should be asking themselves whether the taxman worked effectively for them during the past year, writes financial planner Pieter Willem Moolman.
The most likely answer would be that taxpayers feel as if they are paying a lot out but not getting very much in return.
The good news is that – with proper planning – it is possible to save before-tax earnings. A retirement annuity is one vehicle that makes this saving possible.
Retirement annuities have been much maligned in the past. Those sold by assurance companies were very expensive and investment reporting was poor – so investors never knew what was happening with their money.
This left a foul taste in many people’s mouths whenever the phrase “retirement annuity” was mentioned.
Fortunately, the whole annuity environment has changed dramatically, with lower associated costs and unit trust-based investments. Fund performance can now be monitored with ease and switches between funds are free of charge.
From March 1 2012, the tax legislation will allow taxpayers to deduct annuity contributions up to 22.5% of non-pensionable income from their annual taxable income.
For example, a self-employed person who earns a taxable income of R600 000 for the year 2012 can contribute R135 000 per annum to a retirement annuity. This whole amount will be tax deductible.
With regard to other tax breaks, retirement annuities offer a variety of other benefits. For instance, there are no tax charges within the fund on interest earned, nor are there any capital gains tax implications.
Furthermore, fund values are protected against creditors at liquidation and there is no estate duty payable on retirement funds. In addition, the first R315 000 can be taken as a tax-free lump sum at retirement or in the event of death or disability.
Taking all of the above into consideration, new generation annuities are back in favour. The retirement annuity is not just a disciplined long-term savings plan, it holds substantial tax rewards for everyone.
Making provision for retirement is an important part of any working person’s financial planning, so why not use this tool with all its amazing advantages?
Start with a monthly contribution today and avoid losing out on this benefit granted by the Minister of Finance.