South Africa
Saving for retirement

Saving for retirement

Saving for your retirement is essential and a retirement annuity can help you invest for your future. A retirement annuity also offers additional benefits you may not be aware of.

Whether you’re considering a retirement annuity (RA) as your only option for saving for retirement or as a supplement to your company pension or provident fund, one thing is certain: it maximises your investment and makes the most of your retirement.

Benefits of Saving for Retirement with a Retirement Annuity

When saving for retirement, an RA provides the following benefits:

1. No tax (almost)

Paying tax on your proceeds is deferred until your retirement, which means there’s a larger balance that’ll compound, tax-free, for as long as you keep your money invested.

2. Regular retirement income

At retirement (or when you turn 55), you can withdraw up to one-third of your savings out as a cash lump sum (tax-free, if the amount is below R500 000). As per the regulations on retirement annuities, the remaining amount must be transferred to a living annuity account and will be used as your monthly pension.

Before the age of 54 a person can’t access their retirement annuity unless they are:

  • Permanently disabled
  • Emigrated
  • The investment value across all their investments is less than R7 000

After 55, you qualify for early retirement and are entitled to a tax-free lump sum of R500 000.

The taxable income from lump sum benefits are as follow:

  • R1 - R500 000 - 0% of taxable income
  • R500 001 to R700 000 - 18% of taxable income above R500 000
  • R700 001 to R1 050 000 - 27% of taxable income above R700 000
  • R1 050 000 and above - 130 500 + 36% of taxable income above R1 050 000

3. Safe and sound

Your creditors can never touch your retirement annuity if you become insolvent. No-one, other than you and your chosen dependents, can have access to your funds. Even if you have no discipline, your retirement annuity will ‘save you from yourself’, as you cannot access it until you are 55. That means your savings will only be available when they are most needed and for what they are intended: your retirement income.

Should you pass away, your beneficiaries can choose to receive a share of your RA as a cash lump sum or as an annuity, or a combination of the two. The annuity income will be taxed according to the current income tax table. Cash lump sums will be taxed according to the retirement lump sum tax table.

4. Flexible payments

You can make monthly contributions, add a lump-contribution (salary bonus or tax return) or if needed, pause or even stop your RA deposits at any time without significant impact on your investment value. But try to keep your contributions regular, no matter how big or small.

5. Diversified portfolio

Having an RA gives your investments access to different asset classes and geographical regions. But before making any final decisions, it’s always worth speaking to a professional financial planner about your options.

Next step

Go to our Financial Planning page to explore your retirement options, or head to the retirement section of the Community to speak to other customers or bank consultants.