The power of Retirement Annuities
What is a Retirement Annuity?
Retirement annuities are dedicated investment funds designed to help you save consistently for your future. A retirenment annutuy (RA) allows you to contribute monthly or as a lump sum, with the added benefit of tax-efficient growth. The fund grows tax‑efficiently and can only be accessed once you turn 55. It is designed to ensure your savings are preserved for retirement. The law shields it from creditors and prevents premature spending.
Key benefits of investing in Retirement Annuities
Tax-deductible contributions
Your RA contributions reduce your taxable income. This could be up to 27.5% of your salary or taxable income. The amount is capped at R350 000 per year.
If you over-contribute, the excess can roll over to future tax years. This gives you flexibility in your tax planning.
Tax-free growth
All growth inside the RA (dividends, interest, and capital gains) is tax‑free. This means your money compounds faster, with no interruptions from SARS.
Tax-free Lump Sum at retirement
When you retire, you can withdraw up to one third of your RA capital as a tax free lump sum. This is subject to current SARS thresholds which currently sit at around R550 000 tax free, depending on past claims.
Protected and disciplined savings
Funds in an RA are protected from creditors and legally preserved for retirement. You cannot access them before age 55. The only possible exception is in very specific circumstances (like disability or emigration) which nurture disciplined saving.
Flexibility and portability
You have full control over contributions. You can start, pause, increase, and add lump sums as your affordability allows. RAs remain with you regardless of employment changes. This provides consistency across your saving journey.
Estate Duty advantages
Approved RA funds (i.e. within the deductible contribution limit) do not form part of your estate. This means that there are no estate duty or executor fees on that portion.
Investment options and Regulation 28 compliance
RAs allow you to tailor your investment strategy, within limits, under Regulation 28 of the Pension Funds Act. That means a diversified mix including equities (up to 75%), offshore exposure (allowed up to 45%), bonds, property, and more.
Highly flexible fund choices ensure alignment with your risk, horizon, and goals.
Rolling over returns and compounding
Tax refunds or rebates on RA contributions can be reinvested into your RA in the next year. This allows you to compounding benefits and accelerate growth.
Comparison with other annuitised products
Pension/ Provident Funds
RA complements employer-based retirement vehicles. Unlike employer funds, you direct your RA yourself and maintain full control and flexibility, even if you already have coverage.
Living vs. Life Annuities post‑retirement
When you retire, RA rules require you to use two-thirds of the fund to purchase an annuity:
- Life Annuity: Offers guaranteed income for life.
- Living Annuity: Provides flexible income draws (2.5–17.5% annually) and investment control but carries market risk.
The choice depends on your priorities, security versus flexibility and legacy planning.
If you are considering how an RA fits into your broader retirement journey, explore our in‑depth comparison of retirement annuities vs living annuities.
Getting started with your retirement annuity
- Assess your tax situation: Estimate affordable contributions (up to 27.5% or R350 000 annually).
- Select a provider: Compare fund options, fees, offshore exposure, and performance (balanced funds vary significantly).
- Plan for withdrawal: Prepare for how you will handle the one-third lump sum and the two-thirds income solution.
- Review annually: Rebalance, adjust contributions, or shift funds as life and financial markets evolve.
Start early if you can. The earlier you invest in an RA, the more you harness the power of tax-free compounding, control, and disciplined growth.
Choosing the right retirement annuities
Choosing the right retirement annuity is a crucial step in your long-term financial planning.
It involves evaluating not just the type of annuity, but also the underlying investment strategy and how well it aligns with your personal goals and risk appetite.
Here are the primary options available in South Africa:
Individual Retirement Annuities
These are ideal for individuals looking to save independently for retirement while enjoying tax benefits. Contributions are flexible. This means that you can increase, reduce, pause, or top-up based on your income and lifestyle needs.
Individual RAs are especially suitable for self-employed professionals or those without access to employer-sponsored pension or provident funds.
Living Annuities
Living annuities are a post-retirement product. You will typically invest two-thirds of your RA proceeds into a living annuity when you retire. These give you control over:
- Your income drawdown rate (between 2.5% and 17.5% annually).
- The underlying investments, offering flexibility and potential capital growth.
They are ideal for those who want to maintain investment exposure after retirement while preserving the ability to leave a legacy for beneficiaries.
Secured Capital Annuities
People often refer to these as life annuities or guaranteed annuities.
They offer a fixed income for life or a specified period, providing financial certainty. This product suits those who prioritise stability and predictability over flexibility, especially if you prefer not to manage your investments during retirement.
At Efficient Wealth, we understand that retirement planning is not one-size-fits-all. Our certified financial experts are here to help you:
- Assess your income needs and lifestyle expectations.
- Compare products side-by-side, including fees, flexibility, and tax implications.
- Select the right blend of investment risk and income security.
We are committed to helping you make well-informed decisions that align with your vision of retirement, whether that means travelling the world or enjoying a peaceful, secure lifestyle at home.
Why choose Efficient Wealth for your Retirement Annuities?
At Efficient Wealth, we understand that retirement planning is not one-size-fits-all. That is why we offer more than just retirement annuities. We provide personalised retirement solutions designed around your goals.
Here is what you can expect:
- Tailored advice from expert financial advisors who understand your unique retirement needs.
- Tax-efficient retirement annuity options that help you grow your savings while reducing your tax liability.
- Flexible contribution plans, whether you prefer monthly payments or once-off lump sums.
- Peace of mind knowing your retirement savings are protected from creditors and secured for your future.
- Ongoing support and reviews to keep your retirement strategy aligned with your changing life circumstances.
Start planning today and secure your future with a retirement annuity that works for you. Get in touch today to explore your options.
Retirement Annuities FAQs
What exactly is a retirement annuity (RA)?
It is a self-funded retirement savings plan in South Africa with tax-deductible contributions, tax-free growth, locked in until 55, and structured withdrawal rules.
How much of my contribution is tax-deductible?
Up to 27.5% of taxable income or remuneration, capped at R350 000 per year. Excess contributions roll over to future years.
Is the investment growth taxed?
No. Growth (interest, dividends, cap gains) is entirely tax-free.
Can I access my RA before 55?
Generally, no. Except if the balance is under R15 000, or if you retire early due to ill health or emigrate.
How much can I withdraw when I retire?
You may take up to one-third as a lump sum (tax-free up to SARS threshold, currently 550 000 lifetime limit). You must use the remaining two-thirds to purchase an annuity.
What are the differences between life and living annuities?
A life annuity pays a fixed income for life (no flexibility, limited legacy ability). A living annuity allows flexible drawdowns and investment control but comes with market and longevity risks and leaves remaining capital to beneficiaries.
Are RAs protected from creditors?
Yes. The law protects RA funds, ensuring you keep your savings intact except in specific legal cases, such as claims from SARS.
Does it help with estate planning?
Yes. Deductible RA funds fall outside your estate, reducing estate duty. You can also structure the remaining funds for your beneficiaries, especially through living annuities.
