BUSINESS NEWS - In managing our financial affairs, just as in sports, there are rules to keep all the players in line.

As we have witnessed all too often during the recent Rugby World Cup in Japan, those who play to the limits of the law, but do not overstep them, are generally the players who thrive and excel.

It is important to make maximum use of every legal loophole or benefit on offer.

The South African government provides a number of incentives to individuals to urge us to save for retirement. Failing to make use of these benefits on offer, can lead to diminished retirement rewards and insufficient funding. Ecsponent Financial Services General Manager Marietta du Preez advises savers to do the equivalent of “playing to the whistle”.

“The government recognises that it is up to individuals to fund their own retirement, since social security is already under tremendous strain. To guide us in this process, SARS provides tax benefits to people who contribute to a retirement annuity, which the government has recognised as a retirement savings vehicle,” says Du Preez.

Designated retirement annuities allow investors to boost their personal income every tax year by taking advantage of the tax benefits on offer. This includes being able to contribute up to 27.5% of an individual’s taxable income, up to a maximum of R350 000 each year, towards a retirement annuity. The contributions will be deducted from an individual’s taxable income.

“The voiding of tax on these contributions is hugely important because it allows you to boost your savings, which will allow you to take advantage of the effect of compounding. The more you have in your retirement annuity, the greater the compounding benefits,” she says.

Using an example, an investor who is 40 years old and has 20 more working years ahead, could invest a Christmas bonus of R30 000 into a retirement annuity, and just that R30 000 capital would eventually compound to R80 000 in 20 years at a growth rate of 10% per annum (with all costs and fees taken into account). Now imagine the compounding effect of a full R350 000 allowance per year.

Another alternative is to use a tax-free savings account. There are a wide variety of TFSAs on offer from financial services institutions, but these are not the same as tax-free savings accounts at a bank.

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