One day soon some elderly investor is going to take the Receiver of Revenue to the Constitutional Court on the grounds of discrimination based on age.
As the Income Tax Act currently stands, pensioners and people earning rental and interest income can make contributions into retirement annuities (RAs) to win tax relief up to the age of 69 years and 11 months.
At this stage RAs have to be matured and no further contributions can be made in order to reduce one's taxable income.
The way I read the Constitution, this is a form of discrimination as it puts people older than 70, for instance, earning the same amount of money as younger people, at a disadvantage, because they can no longer reduce their taxable income.
I often come across people older than 70 who are still working or who derive their income from a pension or property - yet they are not allowed the small luxury of reducing their taxable income by putting some money into RAs for their "old age".
With life expectancy increasing all the time and now close to 80 for certain population groups, a person who has turned 70 should be allowed to make some tax-deductible investments.
The issue comes down to opting for the purchase of a compulsory annuity, of which there are about 12 variations, or a living annuity, about which there is a great deal of ignorance.
Until a couple of years ago the purchase of a compulsory annuity from an assurance company was the only option open to someone maturing an RA.
It was, and still is in many instances, an inflexible option, particularly as once the annuity is purchased there is nothing more to be done.
End of story. Kaput.
Also, on the death of the last annuitant, the capital dies. Understandably, some people feel "cheated" as they feel that the capital is lost forever and they only ever get interest on their money.
Obviously the issue is far more complex than that, but nevertheless that is the perception many people have.
The living annuity, on the other hand, while it has some risks attached to it, is a more flexible arrangement.
It also allows for the return of capital plus interest to a beneficiary, either a spouse or children, over a five-year period in the form of an accelerated annuity.
As far as the risks are concerned, I have come across cases where people are drawing an income from the living annuity portfolio far in excess of the growth rate achieved.
Provided the annuitant understands the risks and does not distort the critical ratio of income to capital, the living annuity is a far better option in most instances.