RAs are more flexible, thanks to legislative changes

A number of changes to the legislation affecting retirement annuity funds (RAs) brought a new level of flexibility to these products, says Rodver Simmons, legal and compliance officer at Allan Gray.

To begin with, investors now have more flexibility about when they retire from their fund. Previously, retirement at age 70 was mandatory, but this is no longer the case for all RAs. Some have changed their rules to allow for an open-ended retirement date.

Then, when you die, your dependants or beneficiaries have more flexibility and time to decide whether to take the entire death benefit as an annuity or as a lump sum. Your dependants/beneficiaries can choose to receive the death benefit allocated to them by the trustees as an annuity or a cash lump sum. There is no six-month time pressure for your dependants/beneficiaries to choose a lump sum payment.

If there is no beneficiary or no dependants have been found, your estate will be paid.

“Beneficiaries and dependants are often thrust into a situation of sorting out a host of personal issues when a bread-winner dies, and being pushed to choose between receiving an annuity or getting a lump sum too soon could be to their detriment,” says Simmons.

Most significantly, recent changes remove the requirement for Estate Duty to be paid on any lump sum benefit when members of an RA die. “Many people rely on a pension benefit to address any potential financial problems of the surviving spouse and dependent children upon the death of the family’s bread-winner. This aims to avoid reducing the value of the benefit, especially if the family’s overall financial situation has declined” he says.

If you emigrate, you also now have more flexibility in terms of accessing your money before you retire. Members who emigrate can now withdraw their full benefit in the fund, and don’t have to wait until their retirement date. If you have already emigrated and have South African Reserve Bank approval, you can access your benefit in the fund. The benefit is still subject to SARS approval and may be taxable, notes Simmons.

Another development is that if you have less than R7000 in your RA, you can withdraw this before you retire, providing you are no longer contributing to the fund.

Finally, if you’ve accumulated retirement savings in a foreign retirement fund, you can now transfer these into your South African fund. Transfers are, however, subject to the approval and rules of the transferring fund and foreign country requirements.