Benefits of saving with a retirement annuity


Saving for retirement is a critical part of personal financial planning, whether you are in your first job or an established professional. To be able to support yourself comfortably after you retire, you need to set money aside for your retirement throughout your working life. This will give it time to grow sufficiently to provide you with an income during retirement. 

There are different investment options to save for retirement. One of these is investing in a retirement annuity (RA), a long-term investment vehicle specifically aimed at helping you save for retirement. Most reputable financial services providers offer RAs. So, how does an RA work and why should you consider one? 


Your retirement savings will impact your life in your golden years

Statistics show that only 6% of South Africans can afford to retire comfortably. That means a massive 94% of our citizens won’t have enough money to provide them with a satisfactory income in retirement – they will either have to downgrade their lifestyle, work for longer, or be dependent on family and friends and state grants. Prioritising your retirement is therefore an important life decision to avoid unnecessary anxiety and hardship at a time when you should be enjoying life.


What is an RA?

An RA is basically a personal pension plan. You can take out an RA yourself, which is why an RA is a great option:

  • for people who don’t have access to retirement benefits via their employer,
  • for people who are self-employed, or
  • for anyone who wants to boost their retirement savings.

With an RA you can choose the underlying investments yourself, subject to the regulatory limits for retirement funds. At retirement, you must use at least two-thirds of your lump sum to invest in an income-producing annuity. 


Benefits of investing in an RA

A retirement annuity is one of the best ways to save for your retirement, for the following reasons:

  • It is tax-efficient
    An RA offers several attractive tax benefits:
    • Your contributions towards the fund are tax-deductible, up to certain limits, ie you may contribute a maximum of 27.5% of your total taxable income or gross remuneration (whichever is higher) during a tax year, capped at R350,000. This means you reduce your taxable income and pay less income tax when you contribute to an RA.
    • The returns on your retirement fund investments are not subject to any income, dividends nor capital gains taxes. You get tax-free compound growth! 
  • It helps you stay disciplined about saving
    With an RA, you are generally not allowed to access your savings before age 55, with the following exceptions:
    • The total balance of your RA is less than R15,000.
    • You must retire early due to ill health or permanent disability.
    • You have been a non-resident for tax purposes for an uninterrupted period of 3 years, according to the relevant South African Revenue Service (SARS) process and criteria.

This means you will not be tempted to pull your money out and spend it before retirement, sabotaging your long-term outcomes.  

  • The contributions are flexible
    You can invest a lump sum, make a monthly contribution, or both. You also have the flexibility to increase, decrease, or pause your contributions, depending on your financial situation.


A financial adviser can help you invest in an RA

While there is no doubt about the benefits of using an RA to save for your retirement, knowing how to incorporate it in your financial plan can be hard. When should you start investing? How much should you invest? Which RA should you choose and how do you choose the underlying investments? That is where an expert financial adviser can help you make informed decisions that are appropriate for your specific circumstances and needs.


Want to know more?

  • Contact your wealth manager.
  • If you’re interested in what we can offer you, we would love to hear from you. You can contact us on 0800 111 263, or complete our online contact form and one of our consultants will call you back.
  • Find out more about our retirment planning offering.