Retirement Funding


Many high net worth and ultra-high net worth individuals tend to look down on traditional retirement vehicles such as pension funds, retirement annuities, living annuities and preservation funds, seeing these vehicles as the domain of less sophisticated investors.

Other wealthy investors with compulsory (retirement funds) seem determined to put retirement funding in a very different bucket, effectively removing these assets from the rest of their financial assets and managing them quite independently.

We however, see traditional/formal retirement funding vehicles such as RA’s, pension funds and living annuities as very useful vehicles, even for very wealthy investors as they:

  • Are highly tax efficient. High marginal tax earners are often encouraged to get “SARS to contribute to your RA contribution” as these contributions are (within limits) tax deductible.
  • Returns (inside the portfolio) are free of CGT and income tax, effectively boosting return potential, relative to free capital investments.
  • Allow significant tax planning opportunities (in managing future tax rates). There is considerable flexibility in when one draws from a living annuity, and how much one may draw.
  • Offer protection against creditors.
  • Retirement funds are specifically excluded from your estate for estate duty purposes, and
  • Have become very transparent, very flexible w.r.t. investment options and (when focussed on) very cost effective.

We also see great merit in not only including retirement assets in your overall financial asset portfolio but actually actively using the tax advantages offered by these vehicles to help with your larger asset allocation and tax efficiency thereon. One should therefore consider for example holding more interest bearing assets in retirement structures or possibly even being somewhat more dynamic in your asset allocation in the retirement space than the free capital area.

We would however, urge investors to:

  • Incorporate their retirement funding into their overall asset planning.
  • Be as focussed on the efficiency of the investments in retirement funds as other vehicles, possibly even to the point of where direct assets (e.g. a share portfolio) are used, and
  • Be aggressive on managing the costs down.