Topping-Up Your Retirement Annuities


Retirement Annuities are an integral investment vehicle when planning for a successful retirement, and they come with a wide range of other benefits, too.

Identify this financial planning opportunity and take advantage of the income tax and other benefits of investing in a Retirement Annuity.


Tax breaks make a retirement annuity attractive, but that’s not the only advantage:

1. Planning for retirement and ensuring sufficient savings – the structure helps you build up capital during your working life, and restricts access until age 55 to help investors avoid the temptation of “dipping” into their retirement savings. Your financial planner will help you craft your personal retirement plan and make use of a Retirement Annuity to help you achieve your retirement goals as the most efficient structure available.

2. Tax deduction benefit - Contributions to a Retirement Funds are deductible from your Taxable Income up to a maximum of 27.5% of the greater of Remuneration or Taxable Income (deductions are capped at R350,000 p.a.). Contributions therefore reduce your Income Tax Liability providing you with an effective ‘discount’ on the investment. See below simple example:

Jackie earns a total Taxable Income of R1,200,000 for the 2016-2017 tax year, which is made up of her salary, rental and interest income. She does not belong to an employer pension fund and does not currently invest in any retirement funds. The opportunity for Jackie is that she can invest as much as R330,000 (R1,200,000 x 27.5%) into a Retirement Annuity this tax year and deduct that full amount from her taxable income, meaning her taxable income is reduced to R870,000. An approximate tax saving of R135,300 (R330,000 x 41%). Note: the above calculation assumes interest exemptions have been utilized.

3. Tax efficient nature of the structure - There is no income tax, dividends withholding tax or capital gains tax levied on the income or growth of your capital in a Retirement Annuity Fund. Daniel Wessells, the editor of, ran a model comparing the amount of additional growth needed per year for a Unit Trust to overcome the tax benefits provided by a Retirement Annuity, refer to below graph:


Assuming the same underlying portfolio and fees, the two lines show the outperformance required per annum for a Unit Trust Investment against a Retirement Annuity, based on various levels of contributions and therefore tax rates. The higher line is for an investor with a larger interest income and therefore greater taxable portion of proceeds, the lower line assumes less interest is taxable. If R75,000 is contributed to the two investments per annum and half the interest proceeds of the Unit Trust are taxable at 30%, the Unit Trust will need to outperform by more than 2% per annum to counteract the tax benefits of a Retirement Annuity Fund.

4. Lump sums on retirement – Up to R 500,000 is available as a tax free lump sum. The cash commutation is limited to a maximum of one-third of the capital value of the Retirement Fund, the balance must be used to purchase an annuity to provide an income in retirement. Excess / un-deducted contributions made to Retirement Annuities increase the tax-free portion of this withdrawal

See below retirement lump-sum tax table:


*Less any retirement lump-sum withdrawals (since 1 October 2007), pre-retirement lump-sum withdrawals (since 1 March 2009) and severance withdrawals (since 1 March 2011).

5. The power of compounding – Due to the long term nature of the savings, your investment benefits from earning growth on growth. In addition, short term market fluctuations are of less concern as your consistent contributions will average out the variability.

6. Disciplined Savings – You cannot access your capital until you are 55 years old. Some see this as a drawback (listed below); however, we view it as an advantage. This removes the temptation to deplete your savings for other purposes during your working years.

7. Providing for dependents – A Retirement Annuity Fund can be bequeathed to your stated beneficiaries upon your demise. The beneficiaries have the option to take the capital as a cash lump sum, purchase an annuity or a combination of both options.

8. Flexibility of contributions – you can set up a monthly debit order that escalates over time or simply add lump sums on an ad hoc basis. The monthly contributions can be started, stopped and changed at any time without fees or penalties.

9. Diversified Portfolio and Freedom of Choice – You have access to a wide range of Mutual Funds and different asset classes in the Retirement Annuities, within the limitations of Regulation 28, which require that the following table is adhered to:


10. Costs: There are no additional costs and the fees are transparent and identical to investing in a Unit Trust.

11. Protection from creditors: A Retirement Annuity cannot be ceded or attached by creditors.


1. You cannot access your capital until you are 55 years old.

2. After 55, if you’re Retirement Annuity is greater than R247,500 you cannot access more than one-third in cash on retirement. The balance must be used to purchase a compulsory annuity.

3. To take your Retirement Annuity savings abroad, you need to emigrate formally and submit emigration papers to the Reserve Bank. The proceeds will be taxed according to the withdrawal lump sum tax table.

4. After Retirement, the portion that is used to purchase a compulsory annuity cannot be transferred offshore. You will therefore be restricted to an annuity that pays out in South Africa.

5. Regulation 28 attempts to limit investment choice and risk by restricting the allocation to risky assets, such as Equities and Offshore. For long term investors that seek global exposure, these restrictions can have an adverse effect if your Retirement Annuities make up the bulk of your portfolio.


Should you wish to take advantage of the income tax savings by contributing to a Retirement Annuity Fund prior to the end of February 2017, please do not hesitate to contact us for further information and recommendations.

Article contributed by Independent Wealth Managers.
Independent Wealth Managers is a FPI Approved Professional Practice™ and authorised financial service provider; FSP No. 3145.

The information in this communication is based on current legislation (2016) and is not to be construed as advice in terms of the Financial Advisory and Intermediary Services Act of 2002 (‘FAIS’).