Retail Bond information can be obtained at www.gov.za.
The web page states that, “To encourage households to start saving alongside business and government, the National Treasury developed a retail bond which offers guaranteed returns, can be bought for as little as R1 000 and carries no commission, agency or service fees.
The Retail Bond also allows investors to take control of their own savings portfolio instead of investing through a third party. The RSA Retail Bonds offer competitive rates, with similar benefits as the government is paying in the capital markets. Individuals now have access to those benefits in the same way as businesses and corporations.
The products are either a fixed yield over terms such as two years, three years or five years and the investment amount can be between R1 000 to R5 million. The other option is to invest in an inflation linked bond over a period of three-, five- or 10 years. An investor must consider his tax position as the interest earned (yield) on retail bonds is fully taxed, obviously the effectiveness of beating inflation diminishes the more tax you pay.
The average man in the street seldom has spare cash, however this changes once a person reaches retirement age. On retirement a person can take as much as one third of his/her pension in cash and the rest is to be used to buy a life annuity pension.
Retirement fund lump sum withdrawal benefits consist of lump sums from a pension, pension preservation, provident, provident preservation, or retirement annuity fund on withdrawal (including assignment in terms of a divorce order).
In respect of pension withdrawals the SA Revenue Service (SARS) will tax a person as follows: for 2024 tax year (1 March 2023 – 29 February 2024):
27 501 – 726 000
18% of taxable income above 27 500
726 001 – 1 089 000
125 730 + 27% of taxable income above 726 000
1 089 001 and above
223 740 + 36% of taxable income above 1 089 000
A pensioner has only one moment to choose the lump sum to be withdrawn. Even if a person can withdraw R1m it may well be that he only needs the cash over the next couple of years. It is in these cases that Retail Bonds can play an important role in the decision-making.
The person can split the paid-out amount into four different time horizons. Electing to use a portion immediately for certain purchases or debt pay-offs, invest a portion in a Retail bond for two years, some for three years and some for five years and a further portion for 10 years. Such a spread will bring flexibility and discipline to the pensioner.
The options available will help people to visualise their financial position in the coming years and place them in a position to plan better. It is a good exercise to go through the permutations on one’s own before consulting a professional as an independent person may not prioritise stages of a client’s life as good as the person.
The most important aspect to keep in mind is that the stage of your life post retirement is that accumulation of wealth is over, and preservation of wealth becomes very important as the cost of living will test one’s resolve to preserve.
Kruger is an independent analyst.
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