Mark is an expert on all aspects of Retirement Planning.
Mark does a detailed PowerPoint Presentation presented to clients via Zoom or Teams comparing a Traditional Retirement Annuity to a Retirement Optimiser Retirement Annuity.
If you would like advice or a comparison done comparing the two Retirement Annuities please contact Mark Fuhr CFP® 082 882 1602 or email him on mark@whytrust.co,za.
Set out below is an explanation on different types of Retirement Annuities.To read the explanations just click on the Link
- Traditional Retirement Annuity
- A Retirement Optimiser Retirement Annuity (New Generation)
Traditional Retirement Annuity.
A traditional Retirement Annuity works as follows:
You will invest a monthly contribution until your selected retirement age. The minimum age you may retire at is age 55.
The Two Pot Solution allows you access to 1/3 of your Retirement Annuity at any time before age 55. You will pay Tax at your Marginal Rate of Tax on any withdrawal. This makes it very expensive to take money out.
Your contributions are Tax deductible within certain limits. A maximum of 27.5% of your Pensionable Income to a maximum of R350 000 pa whichever is the lower. If you contribute more than this on an annual basis you can claim the excess payments back Tax-Free at retirement. You do need to inform SARS by way of submitting a Tax Certificate to SARS so they can record the “disallowed contribution”
At Retirement you can take out one(Delete) 1/3 with you paying Tax on a sliding scale.
The remaining 2/3 will purchase you an income or life.
We have a number of options of the kind of pension you can choose.
Life Annuity
20 year Guarantee
You will receive an income for as long as you live based on your selected annual increase of i.e. 0%, 5% or CPI. Any annual increase you choose will reduce your initial income but will then increase at the percentage you choose.
The Guaranteed Term is only applicable to your death. If you die within 20 years your family will be paid in income for the remainder of the 20 years and then the income stops and the Capital Will be lost. I.e. You die after 5 years the Income will be paid to your Beneficiaries for another 15 years and then the Income will stop and the Capital will be lost.
Back To Back or Capital Guaranteed Annuity
This Annuity is backed up with a Life Assurance Policy which will pay out the capital amount on your death equal to the amount you invested. You will receive an initially lower income as there is a Life Assurance premium to pay however irrespective of whether you dial after 1 month or after 30 years the pension will stop immediately the initial 2/3 capital that you invested will be paid out to your beneficiaries.
Living Annuity
This is today the Annuity that most people purchase at retirement and works as follows:
A Living Annuity is divided into two components:
- Income Drawdown
- Investment performance
Income Drawdown
You can draw an income of between 2.5% and 17.5% per annum. I however highly recommend that you only draw a Market Related Interest-Rate i.e. 7% as a maximum
Investment Performance
The reason is that on your policy anniversary i.e. every 12 months your portfolio is rebalanced.
Your Investment Return is compared to your Income Drawdown so that your income for the next 12 month can be calculated.
Example
If you drew out 7% and your investment Return for the year was 7% your Capital will remain unchanged, and you would receive the same income for the following year provided you elected to still take 7% income.
7% Income Drawdown, Investment Return 7% = No Change in Capital
If you drew out an income of 7% and you had an Investment return of 10% your Capital would grow and so would your Income the following year.
7% Income Drawdown, Investment Return 10% = 3% Capital Growth
Conversely, if you drew out 7% and the portfolio only achieved a 4% return that year your Capital would drop by 3 % and so would your Income for the nest 12 months.
7% Income Drawdown, Investment Return 4% = -3% Capital Depreciation
Having said that Investment Returns have substantially outperformed inflation over time thus if one took out a Market Related income i.e. 7% your Capital and Income would have grown over the years.
Death
On Death the family has 2 options:
Option 1. The Beneficiaries can request that the Capital to be paid out to them with them paying Tax on the Capital taken out. Very punitive.
Or
Option 2. The Beneficiaries can elect to have the Income paid out to them for as long as they live on the same terms as the Original Life Assured. They however, can vary the income between 2.5% and 17.5% depending on their circumstances
When they die the process continues for the next generation
Most people choose a Living Annuity because of its Flexibility and historic performance.
Life Annuity / Living Annuity Combination
You can also choose a combination between a Life Annuity and a Living Annuity if that is what you require.
Retirement Optimiser Retirement Annuity
This is a new Generation Retirement Annuity in that it has two parts to it which work in combination to generate a substantial higher income at Retirement than a Traditional Retirement Annuity, whilst at the same time providing an unsurpassed level of Risk Protection.
Part 1: Works on the same basis as a Traditional Retirement Annuity where at age 65 you can take out 1/3 in Cash with the remaining 2/3 purchasing you an income for life. Contributions are Tax Deductible. You have access to your funds on the same basis as the Two Pot Solution and you can buy an Annuity on the same basis as a Traditional Retirement Annuity
Part 2: Is a Life Assurance Policy linked or attached to your Retirement Optimiser Retirement Annuity which has the following Benefits:
- Firstly, if you Died or became Disabled before Retirement not only will you or your Family receive the Benefits of the Retirement Optimiser Retirement Annuity but you or your family will in addition be paid out the Life Cover or Capital Disability Benefit. This substantially increases the payment to either you or your family.
- At Retirement you will receive over and above your Retirement Annuity Income what is called the “Life Plan Optimiser Income”. In essence you will have part of you Life Cover paid out to you Tax Free while alive, This, substantially increasing your Retirement Income. This is the big difference between a Traditional Retirement Annuity and the Retirement Optimiser Retirement Annuity
Set out below is an Example of the difference between a a Traditional RA and the Retirement Optimiser Retirement Annuity.
Assumptions: Male aged 40 next Birthday retiring at age 65. Contribution R7 500 pm. He is on Discovery Medical Aid and has Vitality. Blue Vitality Status. His contributions Increase at 10% pa and there is an Effective Annual Cost of 1.25% with a Gross return of 10% pa. Terms and conditions apply.
| Normal RA | Discovery DRO | |
| R7500 pm | Contribution | R7500 pm |
| R Nil | Life Cover | R 1 000 000,00 |
| R20 294 958 | Illustrated Maturity Value 65 | R22 998 773 |
| R6 764 986 | 1/3 Taken in Cash | R7 666 258 |
| R Nil | Life Plan Optimiser | R4 333 010 |
| R13 529 972 | Total to Purchase a Pension | R19 665 525 |
| R78 924 pm | Income at 7% pa before Tax | R114 715 pm |
| R23 306 pm | In today’s Terms – 5% Inflation | R33 875 |
| R7500 pm | Contribution | R7500 pm |
| R7500 pm | Contribution | R7500 pm |
The Retirement Optimiser will pay 45% Income(Delete) more Income than a Traditional RA
For Expert advice on Retirement Annuities or for a detailed comparison please contact Mark Fuhr CFP® 082 882 1602 or email him on mark@whytrust.co,za.
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