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What is a Retirement Annuity? Understanding Retirement Annuities in South Africa

3 Nov 2022

Retirement annuities, commonly known as RAs, are an integral part of financial planning for individuals in South Africa, providing a robust platform for long-term, tax-efficient saving towards retirement. They are based on the Pension Funds Act and constitute a crucial investment vehicle for individual investors, differing significantly from traditional workplace retirement funds.

Who Is a Retirement Annuity For?

The Retirement Annuity system serves a wide range of people, with its relevance extending to those:

  • who are self-employed and consequently don’t have the benefit of employer-provided pension funds,
  • who do not have access to a provident fund or a company pension through their employer,
  • who desire to bolster their existing provident fund or pension savings, ensuring a more financially secure retirement,
  • who generate substantial non-pensionable income. This includes income derived from sources like interest earnings and rental income, which are not considered for pension purposes by employers.

How Retirement Annuities Work

In South Africa, employers calculate pension contributions based on pensionable income. This income typically comprises your fundamental salary, leaving out discretionary payments like bonuses or incentives and any non-employment-related income, like interest or rental income.

There’s the flexibility to be part of multiple Retirement Annuities. While tax relief is decided collectively and not on an individual fund basis, employers can contribute to a Retirement Annuity fund on an employee’s behalf. Although these contributions can be unlimited, they are taxed as a fringe benefit.

Accessing Your Retirement Annuity

Access to funds from a Retirement Annuity typically begins from age 55, barring special circumstances such as early retirement due to ill health. Before reaching 55, withdrawals can be made on formal financial emigration with approval from the South African Reserve Bank (SARB) and the South African Revenue Service (SARS) or if the value of the paid-up Retirement Annuity is below R7,000. However, keep in mind that such withdrawals attract a withdrawal lump sum tax.

Making Your Retirement Annuity ‘Paid-up’

A ‘paid-up’ Retirement Annuity implies that you have satisfied all necessary contributions and no longer have to make monthly instalments. The funds you have contributed will remain invested until your retirement, which will begin at age 55.

Unlimited Contribution Time

Unlike some other retirement plans, there is no designated age at which you must cease contributing to a Retirement Annuity or start accessing your Retirement Annuity. This feature provides added flexibility for individuals with diverse financial situations and retirement planning needs.

Frequently Asked Questions about Retirement Annuities

What is a Retirement Annuity (RA)?

A Retirement Annuity is a private retirement savings vehicle, operating under the Pension Funds Act, which provides a tax-efficient investment for individuals planning for their retirement.

Who can benefit from a Retirement Annuity?

Self-employed individuals, those without access to a company pension or provident fund, individuals wanting to supplement their current pension savings, and those with large non-pensionable income (such as interest and rental income) can benefit from a Retirement Annuity.

When can I access my Retirement Annuity funds?

Generally, you can access your Retirement Annuity from age 55 onwards, barring exceptions for early retirement due to ill-health. In certain conditions, you can withdraw before the age of 55 if you have completed the formal financial emigration procedure with SARB and SARS, or if the paid-up Retirement Annuity value is below R7,000.

What does it mean to make a Retirement Annuity ‘paid-up’?

When your Retirement Annuity is ‘paid-up’, it means you have met all your contribution requirements and no longer need to pay monthly instalments. However, your funds will remain invested until you retire, starting from age 55 onwards.

Can my employer contribute to my Retirement Annuity?

Yes, your employer can contribute to your Retirement Annuity. However, these contributions are considered fringe benefit and are taxed accordingly.

Can I have more than one Retirement Annuity?

Yes, you can join multiple Retirement Annuities. However, it is important to note that tax relief is determined in aggregate, not according to each individual fund.

Is there a limit to how much I can contribute to a Retirement Annuity?

There’s no legal limit to how much you can contribute, but only a certain amount is tax-deductible. Up to 27.5% of your taxable income (up to a maximum of R350,000 per year) is tax-deductible when contributed to a Retirement Annuity.

What happens to my Retirement Annuity if I pass away before retirement?

If you pass away before retiring, your Retirement Annuity will be paid out to your nominated beneficiaries or into your estate if no beneficiaries have been specified.

Can I withdraw my Retirement Annuity when emigrating?

Yes, you can, but this will only be possible after the financial emigration process has been completed with the South African Reserve Bank (SARB) and the South African Revenue Service (SARS).


In conclusion, Retirement Annuities offer a comprehensive and flexible solution for individuals planning for their retirement in South Africa. These investment vehicles, while appearing complex, are instrumental in ensuring financial security in the post-working phase of life.