Question:
I have been contributing to a retirement annuity (RA) for quite a few years, but the growth has been quite poor (nowhere near the 12 percent they promised).

I want to cancel the RA and take out the funds (I?d rather put it towards my bond, etc.).

Can I do that and are there any tax implications?

Answer:
A retirement annuity is designed to lock in funds until retirement, offering certain tax benefits in return. The rules on withdrawal of funds are quite inflexible and currently there are only four instances where you can access the funds before retiring, namely:

1. If you die the proceeds can be paid out to a beneficiary.

2. If you become permanently disabled you can claim it to supplement or become your 'disability pension'.

3. If you are emigrating (subject to certain criteria).

4. If the fund value is under R7000 (as many small and paid up funds have clogged up admin systems in the past), then one can also apply to have it paid out.

So, are you terminally stuck in a fund that does not perform? No, of course not! That would be unfair.

The investment company that operates within your retirement annuity product will have various funds that you can switch to, usually at no cost. Speak to a financial planner about the funds available and how to switch to a better performing one. Some product providers also allow a person to switch from an old to a new generation product with them at no cost and usually less fees going forward.

If, after careful consideration, it is decided that none of those options suit you, a Section 14 transfer to another company (perceived as a better overall investment performer or with a lower fee structure) can be applied for.

Just be very careful when considering this option. The transfer is free of new upfront fees and commissions (a trailer fee is usually negotiated), but there may be penalties charged for the old product, reducing the value being transferred. Find out how much you may lose first!

Also, if you are close to retirement age, will a transfer now add much value? And finally; will you lose any benefit such as life or disability that was entrenched in the old product?

The last thing to remember about retirement annuities is that if they are used correctly they allow a great tax saving on top of the investment return.

On page two: Why even poor performing RAs usually beat other investment types...