Choosing the Right Retirement Annuity in South Africa
Complete guide for South African residents planning their retirement
Last updated: December 2024
Quick Facts
- Retirement annuities are long-term savings plans for your retirement
- New Two-Pot system started on 1 September 2024
- You get tax benefits up to 27.5% of your income
- Fees can make a huge difference to your final amount
- You can start or stop payments when needed
Table of Contents
What Is a Retirement Annuity?
A retirement annuity (RA) is a special savings account for your retirement. Think of it as a piggy bank you cannot break until you turn 55 years old.
The government gives you tax benefits for saving. This helps your money grow faster than regular savings accounts.
You can put money in monthly or once-off. You can stop and start whenever you need to. There is no penalty for stopping.
- Self-employed people with no company pension
- Business owners who want extra retirement savings
- Anyone wanting to top up their pension fund
- Stay-at-home parents saving for the future
- Freelancers and contractors
How It Works
You choose how much money to put in each month. The minimum is usually R500 per month. There is no maximum amount.
Your money gets invested in shares, bonds and property. These investments grow over many years. The compound interest makes a big difference.
When you turn 55, you can take up to one-third as cash. The rest must buy you a pension for life. This pension pays you every month in retirement.
The New Two-Pot System (Started 1 September 2024)
South Africa changed the retirement rules on 1 September 2024. The new system splits your savings into different pots. This gives you more flexibility.
The Three Components
1. Savings Pot (One-Third of New Money)
One-third of your new contributions go here. You can take money out once per year if you really need it.
Minimum withdrawal: R2,000 per year
Warning: You pay tax at your full income rate. Plus an admin fee of around R350.
2. Retirement Pot (Two-Thirds of New Money)
Two-thirds of your new contributions go here. This money is locked until you retire at age 55 or older.
This money must be used to buy an annuity. An annuity pays you a pension every month for life.
3. Vested Pot (Money Saved Before 1 September 2024)
All money you saved before 1 September 2024 stays in this pot. The old rules still apply to this money.
On 1 September 2024, 10% of this pot moved to your Savings Pot. Maximum amount moved was R30,000.
Thandi had R100,000 in her RA on 31 August 2024. Here’s what happened:
- Vested Pot: R90,000 (stays locked until retirement)
- Savings Pot: R10,000 (10% moved here, can access once per year)
- New contributions: If she puts in R1,500 per month now, R500 goes to Savings, R1,000 goes to Retirement
⚠️ Important: Think Before Withdrawing
Taking money from your Savings Pot reduces your retirement income. It should only be for real emergencies.
Every R10,000 you take out now could mean R30,000 less when you retire. That’s because of compound interest over time.
✅ Tax Benefits Explained
The biggest benefit of a retirement annuity is the tax you save. The government gives you money back when you contribute to an RA.
How Much Tax You Save
You can claim back up to 27.5% of your income. The maximum is R350,000 per year. This happens automatically when you file your tax return.
| Your Monthly Income | You Contribute | Tax You Save |
|---|---|---|
| R10,000 | R1,000 | R180 |
| R20,000 | R2,000 | R520 |
| R30,000 | R3,000 | R900 |
| R50,000 | R5,000 | R2,000 |
Tax When You Retire
When you retire and take your lump sum, you don’t pay tax on the first R550,000. This is a lifetime limit across all your retirement funds.
The pension you receive each month is taxed like normal income. But most retired people pay less tax because they earn less than when working.
Choosing the Right Provider
There are many companies offering retirement annuities. The right one depends on your needs. Here’s what to look for.
What to Check
1. Fees (Most Important!)
Fees can cut your retirement savings by half. Even a 1% difference adds up over 30 years.
Look for providers charging less than 1% per year. Avoid providers charging more than 2%.
2. Flexibility
Can you stop and start contributions without penalty? Can you change how much you pay?
Good providers let you skip months when money is tight. No penalty fees for pausing.
3. Investment Options
Do they offer simple index-tracking funds? These usually perform better than actively managed funds.
Avoid complex products you don’t understand. Simple is usually better.
4. Online Access
Can you see your balance online? Can you make changes on your phone?
Modern providers offer apps and websites. This makes managing your RA much easier.
5. Transfer Freedom
Can you move your RA to another company later? Some providers charge exit fees.
Choose providers with no exit penalties. Your needs might change in future.
Popular Providers in South Africa (2024)
| Provider | Typical Fees | Best For |
|---|---|---|
| 10X Investments | 0.86% – 1.04% | Low fees, simple investing |
| Allan Gray | 0.90% – 0.99% | Balanced funds, good track record |
| Sygnia | 0.90% – 0.99% | Index tracking, low cost |
| Old Mutual | 1.5% – 2.5% | Traditional provider, financial advice included |
| Discovery | 1.5% – 2.5% | Rewards programme, medical aid discounts |
| AlexForbes | 0.80% – 1.2% | Best for large balances over R625,000 |
⚠️ Warning About Financial Advisers
Some advisers earn commission from selling certain products. This creates a conflict of interest.
Always ask: “How do you get paid?” Look for fee-based advisers who charge you directly.
You can also open an RA yourself online. This saves on adviser fees.
Understanding Fees – The Silent Wealth Killer
Fees are the most important factor in choosing an RA. They seem small but destroy your retirement savings over time.
Types of Fees
1. Annual Management Fee
This is the main fee. Charged every year as a percentage of your balance. Typical range: 0.5% to 3%.
2. Initial Advice Fee
Some advisers charge upfront. Can be 2% to 5% of your first contribution. Avoid if possible.
3. Fund Manager Fees
The investment fund charges this. Usually 0.2% to 1%. Index trackers charge less than active funds.
4. Administration Fee
For paperwork and statements. Usually R20 to R50 per month.
The Real Impact of Fees
Here’s an example that shows why fees matter so much. This is based on saving R2,000 per month for 30 years.
| Fee Level | Final Amount | Lost to Fees |
|---|---|---|
| 0.5% fees (very low) | R3,200,000 | R200,000 |
| 1% fees (low) | R2,800,000 | R600,000 |
| 2% fees (average) | R2,200,000 | R1,200,000 |
| 3% fees (high) | R1,700,000 | R1,700,000 |
⚠️ This Is Serious
A 2% fee difference can cost you R1 million over 30 years. That’s R1 million less to live on in retirement.
Always ask for the Effective Annual Cost (EAC). This shows all fees combined. Aim for under 1.5% total.
✅ Investment Options and Strategy
Your RA provider invests your money in different things. Understanding this helps you make better choices.
Where Your Money Gets Invested
Shares (Equities)
Pieces of companies like Shoprite, MTN and Standard Bank. Highest returns over long periods. More ups and downs.
Good for: Young people with 20+ years until retirement.
Bonds (Fixed Interest)
Loans to government or big companies. More stable than shares. Lower returns.
Good for: Older people close to retirement.
Property
Shopping centres, office buildings, warehouses. Medium risk and returns.
Good for: Adding variety to your investments.
Cash
Money market accounts and fixed deposits. Very safe but lowest returns.
Good for: Protecting money close to retirement age.
Choosing Your Investment Mix
| Your Age | Suggested Mix | Risk Level |
|---|---|---|
| Under 35 years | 75% shares, 15% bonds, 10% property | Higher risk |
| 35-45 years | 65% shares, 25% bonds, 10% property | Medium-high risk |
| 45-55 years | 50% shares, 40% bonds, 10% property | Medium risk |
| Over 55 years | 30% shares, 60% bonds, 10% cash | Lower risk |
South African law limits how much of your RA can be in shares (75% maximum). This is called Regulation 28. It protects you from taking too much risk.
Active vs Index Tracking Funds
Active Funds: A manager picks shares they think will do well. Higher fees. Research shows 67% underperform the market.
Index Tracking Funds: Automatically buys all shares in the market. Lower fees. Matches market performance which beats most active funds.
For most people, index tracking funds are the better choice. They’re simpler and cheaper.
🚨 Warning: Retirement Scams Are Everywhere
Criminals target retirement savings because the amounts are large. New AI technology makes scams harder to spot. Here’s how to protect yourself.
Common Retirement Scams
1. Fake Investment Schemes
Scammers promise “guaranteed returns” of 20% or more per year. They use fake certificates and FSP numbers.
Reality: Real investments can’t guarantee high returns. Anyone promising this is lying.
2. Unlicensed Advisers
People claim to be financial advisers but have no FSCA license. They take your money and disappear.
Check: Every adviser must have an FSP number. Verify it on www.fsca.co.za
3. Early Withdrawal Scams
Scammers say they can help you get your RA money before age 55. For a fee of course.
Truth: You can’t access your RA before 55 except in very limited cases. Anyone offering this is a criminal.
4. AI Voice Scams (New in 2024)
Criminals use AI to copy your family member’s voice. They call claiming an emergency and need money urgently.
Protection: Always verify by calling the person back on their real number. Create a family code word.
5. Phishing Messages
Fake SMS or emails claiming to be from your RA provider. They ask you to click links or share banking details.
Never: Click links in unexpected messages. Go directly to the company’s website instead.
How to Protect Your Retirement Savings
- Verify Everything: Check FSP numbers on www.fsca.co.za before giving anyone money
- If It Sounds Too Good: It’s a scam. Real returns are 8-12% per year, not 20%+
- Never Share OTPs: Your one-time passwords are for you only. No legitimate company asks for them
- Use Official Channels: Don’t respond to unexpected calls. Call the company back on their official number
- Take Your Time: Scammers create false urgency. Legitimate opportunities can wait
- Get Second Opinions: Ask family or friends before making big financial decisions
- Report Suspicious Activity: Call FSCA on 0800 110 443 or report to SABRIC
🚨 Red Flags – Walk Away Immediately If:
- They pressure you to decide now
- They promise guaranteed high returns
- They ask for cash payments or Bitcoin
- They don’t have an FSP license
- They contact you out of the blue
- They discourage you from getting advice
- The website looks unprofessional
- They use WhatsApp or Telegram as main communication
- FSCA (Financial Sector Conduct Authority): 0800 110 443 or www.fsca.co.za
- SABRIC (Banking fraud): 0860 123 000 or www.sabric.co.za
- South African Police: 10111 (for serious fraud)
When to Start and How Much to Save
The Best Time to Start
The best time to start was yesterday. The second best time is today. Compound interest works magic over long periods.
Example: Starting Early vs Starting Late
Thabo starts at age 25: Saves R1,000 per month for 30 years. Total contributions: R360,000. Grows to approximately R2,000,000.
Sarah starts at age 45: Saves R3,000 per month for 10 years. Total contributions: R360,000. Grows to approximately R600,000.
Same money invested. But Thabo has more than three times as much. Starting early is powerful.
How Much Should You Save?
Financial planners recommend saving 15% of your income for retirement. This includes company pension and your RA combined.
| Monthly Income | Minimum to Save | Ideal Amount |
|---|---|---|
| R10,000 | R500 | R1,500 |
| R20,000 | R1,000 | R3,000 |
| R30,000 | R2,000 | R4,500 |
| R50,000 | R3,000 | R7,500 |
Start with what you can afford. Even R500 per month is better than nothing. Increase the amount when you get salary increases.
Life Stages and Strategy
Your 20s and 30s
Start small if needed. Focus on building the habit. Take more investment risk. Don’t withdraw when changing jobs.
Your 40s
Increase contributions significantly. Peak earning years. Start reducing investment risk slightly. Review and consolidate old RAs.
Your 50s
Maximum contributions now. Shift to safer investments. Plan your retirement date. Consider living annuity vs life annuity options.
✅ What Happens When You Retire?
You can retire from your RA any time from age 55. Here’s what you need to know about the process.
Your Retirement Options
1. Take a Cash Lump Sum
You can take up to one-third of your total as cash. The first R550,000 is tax-free (lifetime limit).
Use this wisely. Pay off debt, do home repairs or keep as emergency fund.
2. Living Annuity
Your money stays invested. You choose how much income to take each year (2.5% to 17.5%).
Pros: Flexibility, potential for growth, money left for heirs. Cons: Can run out if you take too much.
3. Life (Guaranteed) Annuity
You buy a guaranteed pension for life. Amount fixed or increases with inflation.
Pros: Guaranteed for life, no investment risk. Cons: Less flexibility, usually nothing left for heirs.
4. Combination (Best Option for Most People)
Use part for guaranteed annuity to cover basic needs. Keep part in living annuity for flexibility and growth.
This gives you security plus flexibility. Most financial planners recommend this approach.
If your total retirement savings are less than R247,500, you can take everything as cash. You don’t have to buy an annuity.
Retirement Income Tax
Your monthly pension is taxed like salary. But most retirees pay less tax because their income is lower.
In the 2025 tax year, people over 65 don’t pay tax on the first R151,100 per year. That’s R12,591 per month tax-free.
Our Final Recommendations
For Young People (Under 35)
Start now even with R500 per month. Choose low-cost index tracking. Use 10X Investments, Allan Gray or Sygnia. Focus on high equity exposure.
For Mid-Career (35-50)
Maximize contributions to get full tax benefit. Consolidate old RAs to reduce fees. Balance growth with some stability. Review annually.
For Pre-Retirement (50+)
Increase contributions to maximum. Shift to safer investments. Plan your retirement income strategy. Consider hybrid annuity approach.
Universal Rules
- Keep total fees under 1.5% per year
- Don’t withdraw from Savings Pot unless emergency
- Verify all advisers on www.fsca.co.za
- Review your RA at least once per year
- Increase contributions with salary increases
- Never respond to unsolicited investment offers
Important Contact Numbers
Phone: 0800 110 443
Website: www.fsca.co.za
Phone: 0860 123 000
Website: www.sabric.co.za
Phone: 0800 00 7277
Website: www.sars.gov.za
Phone: 012 346 1738
Website: www.pfa.org.za
Disclaimer: This information is provided for educational purposes and was last updated in December 2024. Financial regulations, fees, and requirements may change. Always verify current information with official sources before making financial decisions. The Two-Pot system became effective on 1 September 2024. Fee structures and provider information are based on publicly available data as of December 2024 and may have changed.
For complaints or disputes, contact the Financial Sector Conduct Authority (FSCA) at 0800 110 443 or visit www.fsca.co.za. To verify if a financial adviser is licensed, check the FSP register at www.fsca.co.za