Question:
I had a Sanlam RA a few years back and had it paid up in full. I want to know now whether I can reinstate that one and continue making payments on it. And how would the tax work on my retirement annuity???
Answer:
Nalsee,
Effectively yes. You would start a new retirement annuity policy, and you could then transfer the balance of your previous Sanlam RA across. You will be allowed to deduct contributions up to 15% of your non-pensionable income.
Non-pensionable income is your taxable income excluding (if any) your pensionable income, retirement fund lump sum benefits, assessed losses and capital gains. If you are not a member of a pension or provident fund, all your remuneration is non-pensionable and you may claim 15% of your remuneration as a tax free deduction to a retirement annuity.
Pensionable income is the income used by your employer to calculate your pension or provident fund contribution. This income will typically include any fixed remuneration (e.g. salary or wages) but may exclude variable amounts such as commissions, bonuses and overtime (which would then be form part of your non-pensionable income). If you are a member of a pension or provident fund and all your remuneration (i.e.. your salary, commission, bonus and overtime) is pensionable, then none of your remuneration is non-pensionable.
All this will change in a couple of years, in terms of proposed retirement reform. You will then be allowed 27.5% of taxable income in respect of all your retirement fund contributions. So if you contribute 10% of your salary to your work place fund, you can then still contribute a further 17.5% to your retirement annuity and claim the full tax deduction on both.
You do not pay tax on the investment return earned within your retirement annuity. At retirement, you must use at least two-thirds of your retirement annuity to buy an annuity, you may take up to one-third as cash. The first R315 000 of the cash lump sum will not be taxed. Your annuity income will be taxed per the income tax tables.
You must be vigilant about the cost of your retirement annuity! Life company retirement annuities tend to very expensive so you should enquire about low cost retirement annuities in the market (such as the 10X RA). This page explains why costs are so important.
