Question:
I have retirement annuities that I’d like to stop even though they’re only available in 18 years from now.

What are the tax implications? SARS didn’t allow me to deduct all of the contributions I made in previous years.

Answer:
You cannot surrender a retirement annuity. You are pretty much locked in until they mature, usually at age 55.

You can, however, make them ‘paid up’, meaning that you can stop contributing to them. The money already accumulated will sit there and grow at market rates until they mature.

You can cash in a pension plan if you leave your place of employment, but then that money would be taxed at your full marginal rate. The smart thing to do with pension payouts is to put them straight into a preservation plan so you avoid tax and allow them to grow.

If you have endowment type investments and you cancel those, you will be subject to hefty cancellation penalties. In other words, pension and retirement plans are not easy to liquidate and for good reason.

We should not tap into retirement funds until we retire. If you are going through financial difficulty rather look at where you can cut expenses. If SARS did not allow all of the deductions it means that you claimed deductions that exceeded 15 percent of your salary. SARS will only allow you to defer tax on 15 percent of your pre-tax income.