Retirement Annuities in South Africa: Tax Savings Explained

A retirement annuity (RA) is a personal retirement savings product that anyone earning an income in South Africa can open, whether they are employed, self-employed or between jobs. It is especially useful for people without an employer pension fund, and for employees who want to save more than their fund allows. Its main attractions are generous tax benefits and tax-free growth. This guide explains how retirement annuities work in South Africa, how much tax you can save, what you can invest in and when you can access the money.

The retirement annuity tax deduction

Contributions to retirement funds, including RAs, pension funds and provident funds combined, are tax-deductible up to 27.5% of the greater of your remuneration or taxable income, subject to an annual cap. That cap was R350,000 for many years and rose to R430,000 from 1 March 2026. Contributions above the limit are not lost: they carry forward to later years or reduce the tax on your benefits at retirement.

In practice, the deduction means SARS effectively pays part of your contribution. If your marginal tax rate is 31%, a R1,000 contribution costs you about R690 after tax. At a 41% marginal rate, it costs about R590. You can claim the deduction on your tax return using the certificate your provider issues, or ask your employer to take RA contributions made through payroll into account each month. Our South Africa tax calculator shows your marginal rate, and our guide to the 2026/27 tax tables lists the brackets.

Worked example

Suppose you earn R600,000 a year and have no employer pension. You could contribute up to 27.5%, or R165,000, and deduct it. If you contribute R60,000, your taxable income falls to R540,000, and because that income is taxed at 36% at the margin, your tax falls by about R21,600. The R60,000 contribution therefore costs you roughly R38,400 after tax.

Tax-free growth

Inside an RA, you pay no tax on interest, dividends or capital gains. Over decades, that makes a substantial difference compared with investing the same money in a taxable account, because returns that would have gone to tax keep compounding.

What you can invest in

RAs follow Regulation 28 of the Pension Funds Act, which limits how much can be invested in riskier assets such as shares and offshore investments, to protect retirement savings. Within those limits you can usually choose from a range of unit trusts. Choose low-cost, diversified funds that match how far you are from retirement, and keep an eye on total fees, which compound over time.

Access and the two-pot system

Since September 2024, new contributions are split between a savings pot and a retirement pot under the two-pot system. You can make one withdrawal from the savings pot each tax year, taxed at your marginal rate, while the retirement pot stays locked. You can normally retire from an RA from age 55, when at least two-thirds of the retirement pot must be used to buy an income, such as a living annuity or life annuity.

A living annuity keeps your money invested and lets you choose an income within set limits each year, but the money can run out if you draw too much. A life annuity from an insurer pays a guaranteed income for life, but you give up control of the capital. Many retirees take advice before choosing.

RA or tax-free savings account?

Many people use both. The RA gives an upfront tax deduction but locks most of the money until retirement; a tax-free savings account gives no deduction but lets you withdraw any time. For long-term retirement saving, the RA's deduction is hard to beat, while the TFSA adds flexibility.

Frequently asked questions

How much can I deduct for retirement annuity contributions?

Up to 27.5% of the greater of remuneration or taxable income, capped at R430,000 a year from 1 March 2026.

Retirement annuities in South Africa: tax savings and how they work