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RA or ETF: Which is best for someone who does not get an RA’s tax benefit?

If there is no tax benefit to an investor, then I do believe there are more suitable structures to invest in.

Could you please advise if you would recommend a retirement annuity (RA) or an investment via ETFs [exchange-traded funds] for a long-term investment for someone who does not get the tax benefit of an RA due to working outside of South Africa?

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The key benefit to a RA is the tax benefit. If there is no tax benefit to an investor, then I do believe there are more suitable structures to invest in. Having said that, if you are planning to return to South Africa and retire here, then it may be a good idea to consider a RA.

If you will not be retiring here in South Africa, there are some reasons why investing outside of a RA would be more suitable.

An RA also comes with Regulation 28 constraints which restrict how you invest your funds both from an asset allocation and offshore exposure point of view. Regulation 28 forces the investor to take less risk in their portfolio. This could be seen as a negative to many investors. When investing outside of the RA you won’t find these constraints.

An ETF is an excellent option to invest in, with its low cost and lots of choices around. You can gain excellent diversity from investing in different ETFs. A long-term investment – investing for retirement would be regarded as long-term investing – should invest in growth assets, for example shares and property. A well-structured share portfolio historically has given the best return over the long term.

There will be short term volatility but if you can accept that and let the markets run through the ups and downs, you will be better off in a share portfolio.

Property is also regarded as a growth asset, perhaps a slightly shorter-term investment than a share, but the same principles apply in buying and holding for as long as you can.

Some ETFs to consider in this example would be the Satrix Top40, MSCI World, S&P 500, Satrix Property, Sygnia 4th Industrial Global Equity and Sygnia Global Property.

I would also consider other jurisdictions to invest in. Depending on the tax system you are in now, you may have the option of investing in the likes of the US, UK, Australia and so on.

An important component of investing is diversifying into other economies and currencies.

The world is a smaller place now with technology and we should be using that technology to our advantage. In these markets, you will have access to the same structures, like shares, property, bonds, cash and so on. Consider your investment strategy when deciding on which of these to invest in.

I would have a look at the tax system in the country where you are paying tax and consider their investment structures. You may be allowed to invest in some tax-free structures there. As always, consider how it fits into your full investment portfolio in terms of liquidity, fees, asset classes, term and risk.

Good luck on your investment journey!

Do you have any questions you would like answered by registered financial planners?



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Considering the future under a ANC government : I would avoid an RA.
What has happened to the RA’s in Zim ?

Not safe enough to keep your money in. Safe enough to stay in.


It is a perfectly sane argument. Many white Zimbabweans decided to stay in Zim but emigrated all their portfolios because they did not trust Zanu-PF. They were ultimately proven correct.

While SA is not at that level of risk yet, our medium to long term risks are continuously increasing and the ANC is showing no real sign of actually trying to turn the situation around.

When I turned 40 in 1999, I invested a R34k lumpsum in an RA, today it is worth R417.2k. A 1127% change in 22 years
I saw it as a longterm investment. It went through a few crashes and at one point it dipped below my initial investment.
It is part of my retirement portfolio, and since I am in retirement, I have the option to withdraw R500k tax free, when I retire financially.
Would I have had a better return elsewhere, or I being too simplistic?
I switched to 10x two years ago, and with their lower fees, growth was actually not bad during this time. In the 2 years with them, the average growth was 21%.

Probaby worth mentioning that question should not be framed as a choice between an RA or ETF.

An ETF is a ‘type of security’ (like a unit trust) which you can actually hold in an RA or outside of an RA.

The RA on the other hand is a ‘type of account’ or a box into which you could put your ETF’s and in return receive a different tax treatment to another box/account.

The different types of account (RA, Tax Free SAvings Account, Discretionary (outside of retirement)) can hold the same underlying investments (ETF’s) but get treated differently in terms of taxation at the contribution, during the life of and at the withdrawal stage.

“The key benefit to a RA is the tax benefit.”
Example over 20 years —
RA — R100 000 @ 5% =R252 695
and not in a RA — R100 000 % 7% = R361 653
I would rather retire with R361 653 than with R252 695.

This tells me that a RA key benefit is to protect your money, for instance you have a business and go bancrupt, or if you are a spendthrift.

The catch is that your choice in private investing can be wrong.
That danger also apply to a RA

Your example is simply a function of return. Why are you assigning a lower return to the RA?

If anything, due to the fact that an RA has tax free growth, you should assign a higher return to the RA. Also, if you invest R1000 in an RA, and your tax rate is 40%, you essentially get R400 back from SARS – money coming to you instead of going to the taxman.

With a 5% return, you then have R1050 at the end of the year, but you essentially only invested R600 (R1000 – R400 back from tax), which gives you a return of 75% on your R600 invested.

Years ago our work changes pension funds. a Colleauge put his funds from the old fund in a provident fund in 75% equities unit trust and the other 25% in cash products as described by the law. He also had private money in shares with no cash in the portfolio. After 18 years we compared the statements. His Private portfolio outperformed his provident fund by more than 4% on a y/y basis. Both his porfolios were buy and hold.
Regulation 28’s restrictions in effect wipes out the tax benefit. You see the private growth outperfoms the tax savings.
Incidently we looked at other colleauges stements as well. The smaller amount with a larger growth outperforms the larger amount which has a smaller growth. Excell is a very nice tool 🙂
Remove the restrictions of reg. 28 and it will be a different story.
The above is true for long term investment.

RA does not have tax free growth, the tax only gets deferred until you retire at which point pay either lump sum rates 36% (if high enough) on Contribution + growth + Dividends or Income tax rates if annuitised. On Non-RA you do not get the tax deduction so you can have up to 45% less at the start, however your dividends and growth are taxed at lower rates than income, you can also deferred the capital gains by not selling, or spreading it over multiple years to take advantage of the capital gain exclusion. So RA starts ahead due to not paying tax on it at start, but you pay tax on it later, although hopefully your tax rates are lower at that point.

As for the difference in return between the options you are more limited by reg 28 in how you invest your RA limiting the risk you can take. Just take the past few years where local returns where disappointing whereas foreign shares were giving 20%+ pa in ZAR terms,

The lower returns from Reg 28 has been covered a few times by MoneyWeb, for example That said past returns are not guarantee of future returns, so while there may have been outperformance over reg28 in the past that may not be the case in the future.

Also to keep in mind if you have an RA it does not fall within your estate so you avoid estate taxes on death and it is also protected against your creditors, it is also more locked, which makes it harder for you to dip into it before retirement. But on the other hand you also have less choice in how you invest those funds, reg28 being one, another could be prescribed assets which is just basically a goal to achieve lower returns/interest for similar risk by forcing investments into certain investments.

Personally I do a combination of both, some funds into Provident/RA and the rest into other investments not limited by reg 28. Especially considering that there is a non-zero risk that government may turn to printing money rather than cutting social spending when our borrowing gets too high.

anyone who advocates investing in an RA should NEVER be trusted.
Who in their right mind would get locked into a never ending payment cycle until you are 55 years old?

Just invest in an S&P500 ETF

It is not a never ending payment cycle. You can stop paying whenever you want, or restart, or add lump sums. But yes, it is restricted until age 55. Therefore an RA should ONLY be considered as retirement vehicle. Otherwise it is not a suitable investment at all.

Just watch for penalties if you stop paying and you purchased it through a broker. If you are going to invest the best is to do it through an online platform like that for Alan Gray or Coronation where you don’t have to worry about commissions agents will earn to eat into your returns. You can make ad-hoc payments rather than committing to a fixed monthly amount – provided that you are disciplined and don’t spend the money before investing and can make the minimum required payment.

Rainbird, Stopping payment when you invest via an insurance house (ex. Old mutual, Sanlam etc.) will cost you dearly. Ditto when you start paying again. Your “starting” growth is affected a lot. a Broker one day opened his mouth to much ….
Remember the saga years ago when investigative journalist Deon Basson open this can of worms?

If you invest either buy stocks yourself or else go to an investment house (allan Gray, Coronation, Foord etc.)

After all when you are sick you go to a doctor, with toothache a dentist and with your dog to a vet!

Indeed, and if you want to leave the country you have to wait 3 years before you can take your RA out.

If you are 55 years or older and have a high tax rate then investing in a RA makes sense for the tax benefit. You can always convert the RA to an annuity which enables you to invest in any asset if things start looking more dodgy in SA due to the racist, criminal ANC regime’s policies. Below that age, because of the regulation 28 and the ANC regime’s policy direction it may not be such a good idea.

End of comments.





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