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Retirement annuities compared – pick the one for you

By Athenkosi Sawutana

Everyone wants to retire comfortably. But sometimes finding the right retirement annuity (RA) can be a challenge.

Justmoney looks at different RA providers to help you choose one that suits your needs.

Tip: The sooner you start saving for your retirement, the higher your returns will be.

When selecting an RA you must know the type of annuity you are investing in. Retirement annuities are divided into two categories: traditional and new generation annuities.

Traditional RAs are usually offered by life insurance companies while new generation RAs are offered by asset management companies.

When investing in an RA, it’s vital to look out for competitive administration fees and for a provider that offers suitable investment funds such as unit trusts, hedge funds, shares and other securities, says Jan van der Merwe, head of actuarial and product at PSG Wealth.

According to Van der Merwe, there are standard disclosures that make it easier to compare costs across different providers.

When purchasing an RA, you need to ensure that it's worth the costs you will incur, says Andre Wentzel, solutions manager at Sanlam Personal Finance. 

However, he warns that the option with the lowest costs may not always be the best one.

He adds that your RA provider must provide comfort and flexibility in making adjustments along the way, and access to help where you need it. This may include the need for financial advice.

“Over your working lifetime, your circumstances may change many times, so you would want easy access to information to review your investment and make changes where necessary,” says Wentzel.

Benefits like bonuses are also important when selecting the best RA, according to Wentzel.

 

PSG Wealth

Sanlam

10x Investments

Old Mutual

Minimum Monthly contribution

R500

R300

R1000

R300

Fees

You pay 0.115% to 0.575 %, depending on the chosen unit trust. Fees decrease as the investment increases and are payable per annum.

It changes as the value of your RA fund increases.

For the first R500 000, you pay up to 4.2 % per annum. This depends on whether you will be selecting your own funds or not.

You will pay up to 0.4 per annum of your investment on management fees.

You pay up to 1.4% of your investment per annum. Additionally, you can negotiate a maximum adviser fee up to 1,14% per annum, if you use a financial adviser.

No administration fee if your investment is R500 or more. However, you will pay an initial administration fee of 2.3% of your investment if you invest below R500.

 

You’ll pay 3.4% of your investment for adviser fees if you use a financial adviser.

Accessibility

You can only have access to your RA after the age of 55, when you emigrate, or when your investment is less than R7,000.  

You can access your fund at the age of 55 and when you fall ill.

You can also make changes to your fund when you want but at a fee.

You can withdraw your fund at the age of 55 or when you retire early due to ill-health, if you become a non-resident, or if your RA investment is less than R7,000.

 

You can only withdraw when you retire, ill, and when you emigrate.

Bonus

None

You will receive a bonus for every payment you make

None

None

 

What is the minimum payment that you can make towards your retirement savings? 

 The product provider that you invest with will determine the minimum payment. Generally, you can do a monthly debit order, or a once-off lump sum, as well as extra ad hoc payments, says Van Der Merwe

While minimums will differ between product providers, R300 is often a monthly minimum amount for a debit order, with R20 000 as a minimum lump sum contribution.

Your ability to accumulate retirement savings depends on three things:

  • how long you have available to save
  • the amounts you contribute,
  • and the return you earn on your investment.

If you fall behind in terms of one of these factors, you need to compensate by using one of the others to your advantage, says Van Der Merwe.

If you start to save at the start of your working life, the rule of thumb is 15% of your income. If you start later this percentage must be higher, adds Wentzel.

Can you ever invest too much in a retirement annuity?

While it’s never a bad idea to contribute more to your long-term savings, RAs come with certain tax benefits that make it more efficient to save in them.

The tax benefit on contributions is limited to 27.5% of your taxable income per month to an RA, up to a limit of R350 000 in a tax year. But you can contribute more than these limits, says Van Der Merwe.

Also, remember that you can ordinarily only access your RA on retirement from age 55 onwards. Your holistic financial plan should therefore also make provision for emergency and other short-term savings in a more flexible and easily accessible investment product, he advises.

To see how much you need to retire comfortably, check out our retirement calculator.

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