Question:
I have an Old Mutual retirement annuity (RA) into which I pay approximately R480 per month. My contribution increases by 10 percent per annum.

I also contribute about R480 per month towards an Old Mutual Four Plus Growth Fund of Funds and increase this contribution by 10 percent per year as well.

Which investment is going to give me a higher return? I am very skeptical about RAs. Should I rather put all of it into the unit trust which seems to be performing well?

Answer:
In terms of the specific performance of your investments you should go to your broker and ask him or her to give you an update. Ask what annualised returns you have achieved since the policies have been in place.

Depending on the type of RA you have you can fine tune the investments within the fund, but you can’t move them out.

You should be saving 15 percent of your income before tax into your retirement annuities in order to receive the full benefit of the tax deferment.

Retirement annuities can be a good way to invest for your retirement for a various reasons. Firstly, you can defer tax and you cannot touch the money until you are 55. Also, if you go insolvent your retirement funds are protected.

You can, of course, also buy unit trusts in addition to your RAs. As RAs often fall short of retirement needs this is, in fact, not a bad idea. Be reminded, however, that the reason for RAs falling short often has nothing to do with their inherent performance, but rather because the investor may not have been investing in them long enough.

Even if you wanted to you could not take the money out of the RAs to invest in unit trusts. All you can do is make them ‘paid up’. In other words you could stop contributing, but the money would sit in the fund, growing at its normal rate until you reached 55. You could then withdraw one third and the rest would be paid out as an annuity.