Sometime ago I penned a series of articles on retirement annuity fund policies. Amongst others I elaborated on the conundrum surrounding so-called South African policies.This problem is not only encountered with such policies taken out with insurers that are no longer represented in Namibia, but also with local insurers where such funds were located in South Africa prior to certain cut off dates.

Retirement annuity policies are a breed of their own since they are extensively addressed by amongst others income tax legislation and pension fund legislation.
These policies receive their own peculiar treatment when it comes to income tax provision on contributions as well as payment of benefits on death or retirement.
The tax treatment in South Africa is very different to that in Namibia. A South African retirement annuity policy is generally accepted to fall within the ambit of the South African income tax legislation. Double taxation agreements between Namibia and the RSA may offer some relief, but that is limited. This is especially the case when it comes to the taxation of lump sum benefits that may be payable by such a fund.
This is often the so-called one-third of the proceeds on retirement or a formula based amount in the event of death prior to retirement. In South Africa however, this is not the case. There only a portion of such a lump sum is tax free and any excess above the tax free portion was taxable according to an intricate averaging formula.
The tax free portion was limited to the greater of R120,000 or R4500 multiplied by the years of membership of the fund. This tax free portion can be increased by any contributions that were paid and were disallowed as a tax deduction by the South African revenue authorities.
From 1 October 2007 onwards, these intricate taxation formulae have been replaced with a more simplified and possibly beneficial tax calculation. From now on, the first R300,000 of such lump sum plus disallowed contributions are tax free. For lump sums falling between R301,000 and R600,000 a flat 18% tax rate will be applicable while from R601 000 to R900,000 a flat 27% income tax rate will be payable. For lump sum amounts in excess of R900 000 a flat rate of 36% for income tax will be deducted.
These are substantial increases on the existing tax free portions and should spell good news for most South African currency retirement annuity policies.
Another aspect that needs mentioning is the option that one has on retirement annuity policies of having the full proceeds paid out in a lump sum instead of only one-third in cash and the remainder to be used for a monthly pension.
This option is available when the total proceeds payable is below certain prescribed limits. This is primarily dome to cut out the problems of paying out small uneconomical payments.
In Namibia this option is available if the total proceeds is less than N$20 000. South Africa has this limit at R25200. They have also realized that to work with such small amounts is uneconomical.
From now on if the maturity proceeds of a South African retirement annuity policy is below R75000, such proceeds can be taken in one lump sum and need not be used to purchase a pension income.
If you therefore sit with small retirement annuity policies in South Africa and you can legally retire, then you may have a look at this option to avoid only receiving one-third of the proceeds in cash and a small pension in the future.