RAs still good way to neutralise Budget 2018 tax burden – expert

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Cape Town – Despite no significant increases in personal income taxes in Budget 2018, South Africans should still consider retirement annuities (RAs) as a mechanism to neutralise the impact of taxes on their post-retirement financial goals, according to Errol Meyer, head of advisory services at Standard Bank Financial Consultants.

He referred to Finance Minister Malusi Gigaba having left the marginal tax rate at 45% for individuals earning more than R1.5m a year. Instead, National Treasury plans to raise R6.8bn from the personal tax system by limiting inflation relief for personal tax rebates.

The lowest three personal income tax brackets and the primary, secondary and tertiary rebates will be partially adjusted for inflation via a 3.1% increase, while the top four brackets remain unchanged for the fiscal year commencing on March 1 2018.

“RAs are an extremely tax efficient savings vehicle to ensure that you stay on track with your long-term financial planning goals, which are in all likelihood going to extend beyond daily living expenses and medical needs,” said Meyer.

“Most people don’t realise that RAs are not only for retirement purposes – they are a tax efficient way of building up funds to finance your long-term future.”

Tax deductions

Meyer pointed out that most South Africans don’t even save at all, let alone use the full 27.5% tax free retirement allocation.

“By using your full 27.5% allocation you are able to neutralise the impact of taxes on your savings and at the same time make a meaningful contribution to your post-retirement financial future,” he said.

Current estimates indicate that only between 3% and 6% of South Africans can afford to retire, thanks to the country’s pitifully-low savings rate.

Meyer says consumers should focus on improving their financial planning in order to meet their post-retirement goals. Apart from RAs, consumers can also utilise tax-free savings accounts as a means of gaining relief from taxes.

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