Question:
I had an annuity that paid out about R30 000 in cash in September 2008. It also provides approximately R1000 per month. The next small annuity is due in March 2009 and the total amount is about R30 000.

I want to withdraw this whole amount, it being less than R75 000.

My insurer says this is not possible because the first pay out is taken into consideration when determining the R75 000. I can only take R10 000 and 2/3 as a pension.

I thought the R75 000 was set due to the high admin costs associated with small annuities?

Answer:
It seems that more readers are becoming aware of the rules relating to retirement vehicles ? it is certainly encouraging to see investors taking control of their investments and their options.

As mentioned in previous articles the rule relating to retirement benefits from retirement annuities (and pensions funds) is that only 1/3 of the benefit may be taken as a lump sum with the balance having to be applied to the purchase of a compulsory annuity. If, however, the total value in the fund does not exceed R75 000 the full benefit may be taken as a lump sum. The R75 000 applies per fund, though. Let me explain what that means:

If an investor takes out a retirement annuity (RA) policy with Insurer A, the investor becomes a member of Insurer A?s retirement annuity fund. The same investor may, however, take out as many retirement annuity policies with the same Insurer A as he wishes. All the investment amounts are, however, made to the same retirement annuity fund though different RA policies. An investor may thus have three RA policies with, say, Old Mutual each with an investment value of R40 000 ? the total in Old Mutual?s fund, the SA Retirement Annuity Fund being R120 000. Whilst the value of each individual policy does not exceed R75 000, the investor in fact has R120 000 in the RA fund itself. Should he retire from any one of the RA policies he will not be able to fully commute any one of the policies? retirement benefits since the total value in the fund is more than R75 000.

Assume the same investor had one RA policy with Old Mutual with a value of R40 000 and one with Sanlam with a value of R40 000. Should he retire from the Old Mutual RA he will be able to commute the full retirement benefit since the total value in the fund (South African Retirement Annuity Fund) does not exceed R40 000. Similarly the R40 000 which is invested in Sanlam?s RA fund the Central Retirement Annuity Fund does not exceed R75 000 and that benefit would also be capable of commutation in full at retirement.

In addition to the above, bear in mind also that the R75 000 will be aggregated per fund over the lifetime of the investor. Where an investor owns more than one RA with the same insurer/product provider (invested in the same RA fund) which matures in separate years the total benefit will be considered. Where one RA provides a retirement benefit of R90 000 and in a subsequent year another RA with a retirement benefit of only R30 000 becomes available the fund will consider the total retirement benefit provided by that fund to be R120 000 in respect of that investor ? over R75 000 and thus not capable of full commutation.

If your two RA policies were with the same insurer, the response by the fund would thus be understandable and in line with current legislation. Unfortunately this does put you in the position of having to purchase an annuity with a fairly small retirement benefit. Remember, though, that taking 1/3 as a lump sum is not compulsory ? you may utilize the full benefit for purchasing the annuity which will obviously provide a slightly larger income depending on the type of annuity purchased. Alternatively, an investor may consider, subject to the rules of the fund and product rules applicable to an existing living annuity, to add a later RA benefit to an existing living annuity. An investor would have to take cognisance of the in-payment living annuity?s anniversary date.

As always if you don?t have a financial plan in place I would strongly urge you to consult with a Certified Financial Planner and have a holistic financial plan in place which will provide a framework within which to make financial decisions. Good luck!

Click here to read to the first article by Riette referring to the 'R75 000 rule'.