How do we benefit from having a Retirement Annuity?

“What’s the point of having a Retirement Annuity when I’m still relatively young?” When we think of retirement annuities, we seem to forget that old age creeps up much quicker than anticipated, and the worst part is, once we realise we need to start saving, we are suddenly overwhelmed with a huge capital shortage.  Thousands of people are confronted with this problem on an annual basis. “How am I supposed to benefit from something if I can’t even withdraw the full amount before a certain age?” Well, there are many benefits attached to investing in a Retirement Annuity. When you pass away, the retirement annuity is not included in your estate for estate duty purposes.  Upon your death your loved ones, or chosen beneficiaries can withdraw the full fund value as a cash lump sum.  The lump sum will be tax deductible. Your retirement annuity is protected against insolvency.  The same applies, should you be insolvent at the time of your death.  This means that your beneficiaries will be protected. On retirement preferential tax tables apply to your lump sum benefit received Should you own a retirement annuity you will be tax exempt from all returns achieved in the underlying fund.  This includes capital gains tax, income tax and dividends withholding tax. You are even entitled to a tax deduction for any contributions made- up to 15% of taxable non-retirement funding income.  This is currently in addition to any tax deduction for pension fund contributions. A retirement annuity can also be used as an estate planning tool for a suitable client Estate planning is the process of anticipating and arranging...

2012 BUDGET OVERVIEW IRO EMPLOYEE BENEFITS

ATTENTION ALL EMPLOYERS!!!!!!!!   In the 2012 budget the Minister of Finance made a number of proposals that are relevant to the employee benefit industry. Changes to tax treatment of retirement fund contributions: The following will take effect from 1 March 2014 and are designed to encourage South Africans to save for retirement. “Contributions by Employees and Employers to pension, provident and retirement funds will be tax deductible by individual employees. Individual taxpayer deductions will be set at 22.5%, for those below 45 years and 27.5% for 45 year and above, of the higher of employment or taxable income. Annual deductions will be limited to R250000 and R300000 for taxpayers below 45 years and above 45 years respectively (up from the proposed R200000 proposed last year) This will effectively mean that maximum contributions on income in excess of R1 111 000 and R1 090 000, respectively, will not be deductible. A minimum monetary threshold of R200000 will apply to allow low-income earners to contribute in excess of the prescribed percentages.” Some assistance will be offered to those who contribute in excess of the threshold. Non-deductible contributions (in excess of the thresholds) will be exempt from income tax if, on retirement, they are taken as either part of the lump sum or as annuity income. Contributions towards risk benefits and administration costs within retirement savings will be included in the maximum percentage allowable deduction.   FALSE JOB TERMINATIONS Employees cannot withdraw funds from employer-provided retirement schemes before retirement unless an employee terminates employment with that employer. In some instances, employees terminate their employment solely to gain access to employer-provided retirement...

EXPLANATION OF THE MEDICAL TAX CREDITS

The medical TAX CREDIT is a fixed amount that will be offset against tax payable. It will replace the TAX DEDUCTION that was granted for medical scheme contributions. According to SARS the system of tax credits seeks to bring about greater fairness. All taxpayers, no matter what their income, will derive an equal tax benefit for their medical scheme contributions as the tax credit is a fixed amount. The current system of deductions for medical scheme contributions had the effect that the higher your income the higher the value of your deductions. The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while high income earners will experience a decrease in net pay to bring about equality in the tax system for medical scheme contributions. Here are some examples to show how the new system will work. How these amounts will be influenced by the new tax rates announced by the Minister in his Budget Speech is also shown below   The effect of the medical tax credit will depend on your individual circumstances. But generally low income earners will experience an increase in net pay, while hig income earners will experience a decrease in net pay to bring equality in the tax system for medical scheme contributions. I have some examples for those of you interested EXAMPLE 1Taxpayer A earns a monthly salary of R16040. He makes a monthly contribution of R1 203 to a pension fund and R2 263 to a medical scheme for himself and three dependants.   Tax deduction system...