Article - FIN24 Compiled by Allison Jeftha.
A Fin24 reader nearing retirement wants to know if he can access his retirement annuity now while still employed or only after officially retiring. He asks:
Do I have to wait until the policy matures? Do I have to officially retire before I can draw what I think is 1/3 or can I do so now whilst I am still employed? How would the remaining 2/3 be transferred to the UK?
Marlon Walters, a senior investment consultant at 10X Investments responds:
Do I have to wait until the policy matures?
You can elect to retire from this fund at any stage as you are over the age of 55. With that said, you may incur penalties for retiring before the set maturity date. It would be prudent to contact them to establish if there would be any financial implications should you retire before the maturity date.
Do I have to officially retire before I can draw what I think is 1/3, or can I do so now whilst I am still employed?
Your retirement annuity is not linked to your employer, or employment status. As a result, you can ‘retire’ from your retirement annuity, but still be employed, and continue working. At retirement, you can elect to take up to one third of the market value of your retirement annuity as a lump sum cash payment if the total value is above R247 500. If the total value is below R247 500, you may withdraw the full amount. The lump sum is subjected to tax as per the retirement tax table below:
How would the remaining 2/3 be transferred to the UK?
The current legislation does not allow you to transfer the 2/3 directly offshore to the UK. You will have to purchase an annuity in South Africa and have the income paid into a Blocked Rand bank account (non-resident bank account). A Blocked Rand bank account is a vehicle via which all capital transfers out of South Africa must flow for exchange control purposes. It facilitates and records the movement of funds out of South Africa into your offshore bank account.
What are my investment options to invest the 2/3?
You can elect to invest in a guaranteed annuity or a living annuity, or a combination of the two.
What is the difference between a guaranteed annuity and a living annuity?
A guaranteed annuity will provide you with an income, set at a pre-determined level, for the rest of your life (and your spouse’s, if applicable), but your heirs won’t inherit whatever is left on your death. In other words, your capital dies with you. Typically, also, have no say over your initial income and no flexibility to make changes once you’ve purchased the product. There are various types of guaranteed annuities e.g. those that provide an income that increases with inflation, those with a level income, those that depend partially on market returns. A living annuity, on the other hand, provides you with flexibility to choose your income each year (subject to regulatory limits) and where your money is invested. Any capital remaining after your death passes to your heirs. In exchange for this flexibility, you take on the risk that your investment returns are poor, which could mean that your future income fails to keep up with inflation, or even that you outlive your savings.
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