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What is the difference between Retirement Annuities, Pension funds and Provident Funds?

27 Jun 2022

All three products are subject to Regulation 28 limits and the tax benefits are the same. A maximum tax reduction on your contributions of 27.5% (with an annual ceiling of R350 000) of your taxable income is allowed. Pension/Provident funds are also called workplace funds. If you join a company that offers these funds, you must join the fund and contributions will form part of your condition of employment.

Since the 1st of March 2021, the options for the members of all three funds have also been aligned. A maximum of one third of the investment value is withdrawable as cash (subject to withdrawal tax). The rest of the investment value must be transferred into an annuity to provide them with retirement income. Vested rights were given to investors of provident funds that were invested before the legislation was changed and are still allowed to withdraw 100% of their pre-legislation investment value at retirement.

The biggest difference between pension/provident funds and retirement annuities is that in the case of a retirement annuity, the investor owns the investment independently and investment in an RA is not tied to an investor’s employment statement. In the case of the former, members can’t usually continue contributing to their employer’s pension/provident fund when they leave that employer.