Victus Group

How often do you sit down and review your entire financial portfolio? If you’re like most people, probably once every few years…

We have found that how we save and invest is not a daily conversation for many people, so it’s easy to forget what we have in place. At Victus Group, it’s essential to us that you are engaged and connected with your financial plan, and one item that you may well have is a Retirement Annuity.

An RA… is a typical tax-saving investment product that can often confuse many. RAs have been around for a long time and are basically private pension plans that help you save for retirement or build toward financial independence. 

These investment products have evolved into much more flexible and affordable investment vehicles than they once were, and investors can now benefit from “new-generation” RAs on linked investment platforms (LISPs). These offer a vast selection of underlying unit trusts, and they allow contributions to be made at the investor’s discretion, without penalties for missed contributions.

The most significant benefit of having a retirement annuity is the tax-deductibility of contributions. These deductions and allowable contributions depend on legislation, so it’s always best to check in on your portfolio to ensure that you’re maximising the benefits.

An investor can expect to receive an annual tax refund in line with their income, and this RA rebate can considerably boost your retirement benefit.

Capital gains tax is typically paid for any discretionary investment, but this isn’t the case with an RA. Interest and dividends are also not taxed in an RA, which means that the actual growth of your investment is tax-free, which makes a significant difference over the long term. 

After the age of 55, you can take up to one-third of your RA in cash; you will have to pay tax on the proceeds taken. However, a portion of the lump-sum benefit is tax-free, and the rest is taxed on a sliding scale. And, as you have deferred paying tax on the proceeds, a larger investment amount has had the chance to compound tax-free over time. 

An RA presents another advantage in estate planning, as it falls outside of your estate, so the proceeds from your RA will be paid directly to your nominated beneficiaries when you pass away, without the estate duty or executor’s fees. For the most part, your money is also protected from the claims of creditors, which is another excellent RA-minder! 

Despite this list of positives, many investors feel uneasy about retirement annuities and are reluctant to consider them as an investment option. However, it’s important to understand that RAs have evolved significantly, become much more affordable, and new regulations have been implemented to minimise risk and force investors to diversify.

If your objective is to save for retirement (or a work-optional lifestyle), a retirement annuity could be your best vehicle.