RETIREMENT

At retirement, proceeds are payable as follows:

Provident Funds
Fully in cash*, or
Partly in cash* and partly as an annuity, or
As a full annuity.

Pension Funds/Retirement Annuities
Up to 1/3 of the proceeds may be payable in cash*.
The balance of the fund value must be payable as an annuity.

*Tax portion on cash payments

In summary:
The tax-free portion of the cash lump sum is calculated as follows:
....The first R300 000 is tax free
....The next R300 000 is taxed at 18%
....The next R300 000 is taxed at 27%
....Thereafter, it’s taxed at 36%
Funds transferred to purchase an annuity are transferred tax-free to the annuity arrangement.
....The ongoing annuity payments are fully taxable at the member's marginal tax rates.

Annuities at Retirement
At retirement members are compelled to invest in an annuity with at least 2/3 of the fund value if in a Pension Fund, a Pension Preservation Fund and/or a Retirement Annuity arrangement.

If in a Provident Fund and/or a Preservation Provident Fund the full amount is payable in cash, subject to a tax-free amount, with the balance of the cash payment being taxed at the member's average tax rate. However, it is often prudent (mainly for tax reasons) to also choose to purchase an annuity with some or all of this fund
value, less the tax-free portion.

It is therefore important to briefly explain the different types of annuities available.
Annuities at Retirement
Factors affecting choice of annuity
There are many different types of annuities available and the choice will depend, inter alia, on the following factors:

Marital status.
Age of annuitant and that of the spouse.
Dependants, their ages and circum-stances.
The need to leave money in the estate on death.
The member's health and that of the spouse, and their perceived life expectancy.
The member's financial position at retirement.

The member would then choose the type of annuity he/she wishes to receive, usually paid monthly in arrears.

Summary of Life Annuity Options

Single Life Annuity
Payable until the death of the annuitant.
Guarantee periods (normally 5 to 15 years) can be included. The longer the guarantee period
....(e.g. the period over which the annuity is guaranteed to be paid regardless of whether or
....not the annuitant dies), the lower the annuity amount.

Joint Life Annuity
Normally spouses are joint annuitants.
Payable until the death of the last surviving spouse.
A guarantee period can be included.

Capital Preservation Plan
This annuity is payable as a single life, annuity to the annuitant. On the death of the annuitant,
.... the annuity ceases, and the original purchase price of the annuity is payable tax-free to the
.... surviving spouse (subject to Estate duty if applicable).
This annuity amount is lower than the annuities described above, since a portion of the annuity
.... is used to pay premiums on a life policy. This policy is structured to refund the original purchase
.... price, tax-free, to the surviving spouse on the death of the annuitant, as described in the
.... paragraph above.

Living Annuity
At retirement the member selects a fixed amount required as an annuity income (between 2,5%
....and 17,5% of the capital sum). The capital is reinvested in an investment portfolio.
On death:
The beneficiary’s may transfer 100% to a living annuity or
.... 1. Where the source of funds is pension or provident fund, the beneficiary can take 100%
.... ....cash lump sum (less tax).
.... 2. Where the source of the funds is an RA, the beneficiary will have the option of taking one
.... .... third cash and transferring the balance to a living annuity.
When the benefit/portion is taken out as cash, tax will be payable at the deceased’s tax rate.

Please note that various insurers have time limits on this and each policy document needs to be used as reference.

Summary of Life Annuity Options
Escalating Annuities
Annuities (other than Living Annuities) may be paid as a level amount throughout, or they may
....escalate to compensate for inflation, usually up to 15% per annum.
The higher the escalation rate selected, the lower the initial annuity payment.
Some asurers offer annuities that do not escalate at a fixed percentage but escalate in
....line with underlying investment performance of the portfolio paying the annuities, sometimes
....known as "with profit" annuities.

LIVING ANNUITY

This investment is suitable for members of pension, provident or retirement annuity funds upon retirement when required to purchase an income stream from the proceeds of their pension, provident or retirement annuity funds, and who seek to retain ownership of their underlying capital. The investor selects the
underlying investments and the income level and the remaining fund value is left to their beneficiaries upon death.

FEATURES

Contractual Term:
An annuity/income stream payable for the life of the investor.

Withdrawals:
The investor elects an income between 2,5% and 17,5% per annum.
The income is calculated on the fund value at the beginning of each anniversary year.
The level of income may be adjusted once a year, on the anniversary date.
May be paid monthly, quarterly, half-yearly or annually.

Governance:
Long-Term Insurance Act.

Cession:
May not be ceded. The Living Annuity is
compulsory, non-commutable, paid for and
based upon the lifetime of the retiring
member. It may not be transferred, assigned, reduced, hypothecated or attached.

Contributions:
Apart from the initial investment, no further contributions are allowed apart from top- ups from other retirement funds.

Beneficiaries:
On death:
The beneficiary’s may transfer 100% to
.... a living annuity or
.... 1. Where the source of funds is pension or provident fund, the beneficiary can take 100% cash
.... ....lump sum (less tax).
.... 2. Where the source of the funds is an RA, the beneficiary will have the option of taking one third
.... ....cash and transferring the balance to a living annuity.
When the benefit/portion is taken out as cash, tax will be payable at the deceased’s tax rate.

Please note that various insurers have time limits on this and each policy document needs to be used as reference.

Liquidity Restrictions Product Specifics:
See withdrawals, above.
By default, the income will be disinvested in proportion to the investment portfolios.
Should an investor wish for a different allocation, this could be facilitated.

TAX

Transfers:
The capital amount transferred from an approved pension, provident or retirement annuity fund to a Living Annuity is not taxable on transfer.

Income Tax:
The investment portfolio is held in the insurer's untaxed policyholder's fund, and returns will not be subject to tax. The annuity payments to the investor are subject to income tax at marginal rate. The insurer will tax the income according to the normal tax tables as if this income is the only income that the annuitant receives. Should the annuitant receive income from other sources that requires a higher tax rate to be applied, it is the annuitants responsibility to request the higher rate to be deducted by the insurer.

Capital Gains Tax:
Any capital gains are exempt from CGT under current legislation.

NOTES

Product is suitable only for investors with a substantial compulsory asset base, in ill health or
....with substantial assets in addition to the funds to be invested.
An income draw in excess of 7% is not recommended as the capital base will not be
....sustained in market environments.
Market fluctuations may impact on future income - up or down and the present market value at
....any particular time is the total value of the investment.
The underlying portfolios will be selected to suit the investor's personal risk profile within the
....limitations of the underwriter.
In terms of current legislation, benefits are protected in the event of insolvency
Should death occur, the living annuity investment does not form part of the deceased estate for
....estate duty purposes.

PRESERVATION FUNDS
Preservation Funds are vehicles into which members of existing retirement funds may transfer their benefits to defer the payment of tax on these benefits when withdrawing from the fund and to ensure that their retirement funding benefits are preserved for the future.

FEATURES

Contractual Term:
Members may only leave the fund on withdrawal, retirement, death or liquidation of the fund.

Withdrawals:
Only one taxable withdrawal is allowed before retirement - may be a partial or full withdrawal.

Governance:
Pension Funds Act and South African Revenue Service.

Cession:
May not be ceded.

Contributions:
A single, lump sum is paid into the fund at inception.

Beneficiaries:
Beneficiaries need to be noted on the fund, however the trustees of the fund decide on the payment of the benefit.

Participating Employer:
The member's employer must be or apply to be a participating employer on the fund prior to the member leaving the fund.

Liquidity Restrictions:
The participating employer may impose conditions on the employee with regard to withdrawing from the fund prior to retirement.

Upon Retirement:
Member may transfer funds to pension-producing vehicle without paying tax.
Employer

TAX

Transfers:
No tax is levied upon transfer from one approved fund to another (pension to pension or provident to provident). A 0% tax directive is obtained prior to transfer.

Income Tax on Withdrawals:
You may access the investment before age 55 by way of a one-off partial or full withdrawal as long as no amount was deducted when the investment was transferred to the fund. The current tax- free amount on a partial withdrawal is R1 800 for the tax year you are withdrawing in. If the investment exceeds the tax-free portion, it is subject to taxation unless you transfer it to another approved fund.

Income Tax on Retirement:
A maximum of one third of the benefit may be taken as a cash lump sum. The balance must be used to purchase an annuity. The tax-free portion of the cash lump sum is calculated as follows:
The first R300 000 is tax free
The next R300 000 is taxed at 18%
The next R300 000 is taxed at 27%
Thereafter, it’s taxed at 36%

Capital Gains Tax:
Not applicable.

NOTES

Pension funds - the retirement benefit within a pension fund is paid as a one third cash lump sum (taxable) and two thirds must be used to purchase an annuity income.