What is a retirement annuity?
Your retirement savings will need to support you, and perhaps your spouse, once you stop earning a salary. A retirement annuity (RA) is a retirement fund you join on your own, not through an employer. You choose how much to put in, monthly or as lump sums, and which funds it invests in. You can have an RA as well as a pension or provident fund at work.
How does the tax deduction work?
For the 2026/27 tax year, you can deduct what you pay into all your retirement funds, up to 27.5% of the greater of your remuneration or taxable income, capped at R430,000 a year. Anything above the limit carries forward.
The deduction lowers your income tax now. How much you save depends on your marginal tax rate (the rate on your next rand of income). Your savings then grow tax-free inside the fund.
When can you get the money?
Since 1 September 2024, most RAs follow the two-pot system (some older “legacy” policies are excluded):
- Savings pot: one-third of new contributions. You can withdraw from it once a tax year for each RA policy, at least R2,000 at a time. The withdrawal is taxed at your marginal rate.
- Retirement pot: two-thirds of new contributions, invested until you retire.
- Vested pot: your savings from before September 2024, also invested until you retire.
You can retire from an RA from age 55. You can then take your savings pot and, usually, up to a third of your vested pot in cash. The rest must buy an income (an annuity), such as a living or life annuity. For the 2026/27 tax year, if that amount is R240,000 or less, you can take it all in cash.
Cash taken at retirement is taxed on the retirement table, where the first R550,000 over your lifetime is tax-free.
Before 55, the rest is paid out only in a few cases, such as permanent disability, death, or once you have been non-resident for tax for three years in a row.
What should you watch out for?
- Most of it is locked away. Only the savings pot is available before retirement, and each withdrawal costs you tax and future growth.
- Costs add up. Fund, platform and advice fees all reduce your savings. Ask to see every fee in rand and as a percentage.
Who it suits
An RA may suit you if you pay income tax and want to lower it while you save, if you are self-employed or have no fund at work, or if you want to add to what you save through work.
It is less suited to money you may need before you retire.