Question:
I have a paid up retirement annuity (RA) with Old Mutual and a provident fund with the company I'm working for. Can I withdraw the money in the RA, because I want it and it's mine?

Answer:
Let us look at the legal position with regard to your retirement annuity first and thereafter touch on some additional considerations.

A retirement annuity as an investment vehicle has as its purpose the provision of benefits to members at retirement. For this reason a tax incentive exists — a portion of a member’s RA contributions may be deducted for income tax purposes annually, thus potentially reducing that member’s taxable income in a tax-year. Since saving for retirement is incentivised in this way, legislation aims to ensure that the savings stay intact and are invested until retirement. For this reason, the accumulated benefit within a RA fund may not be accessed before age 55, except in the following instances:

• on the death of the member

• on disability of the member

• on formal emigration by the member prior to age 55

• where the accumulated value does not exceed R7000

When RAs are paid up, members are able to withdraw their benefit only if the value is less than R7000. The withdrawal option may only be exercised by members who are not yet 55.

The sad fact about retirement provision in South Africa is that only an estimated six percent of all retirees are sufficiently provided for. This means that the other 94 percent in retirement have to scale down significantly on their lifestyle once their employment income comes to an end. Many more have to resort to more drastic measures like moving in with children or simply living in poverty off an old age pension.

Any provision made in an employer retirement fund will certainly be a good basis for your retirement savings. The truth is that this provision is unlikely to be sufficient to meet your retirement needs. One of the options available to supplement the savings gap is to make additional savings in a retirement annuity.

In ceasing RA contributions prematurely, there are likely to be penalties. In order to assist in making informed decisions regarding existing investments it is advisable to consult a Certified Financial Planner. One cannot emphasise enough the benefit of having a financial plan in place that considers all financial needs and goals both now and in the future. Such a plan greatly assists in providing a framework for financial decisions going forward.

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