Updated 28 October 2026 • South African financial education

A retirement annuity (RA) is a personal retirement savings arrangement. You contribute money to build capital that can later provide retirement income. It can supplement an employer’s pension or provident fund, or support someone who is self-employed and needs to arrange their own retirement saving.

An RA and an annuity are different things

The RA is the arrangement you save into. When you retire from it, you normally use the required portion of its value to purchase an annuity—a product that pays retirement income. A living annuity or guaranteed life annuity is therefore a retirement-income option, not another name for the RA you contributed to.

Contributions and investments

Depending on the provider and contract, you can make monthly contributions, lump sums, or both. Check whether you may pause contributions, change their amount, and transfer the investment, and whether charges or benefit adjustments apply. Older policies can differ significantly from modern investment-platform arrangements.

Your money is invested in portfolios containing assets such as shares, bonds, property and cash. The RA does not automatically guarantee growth or protect capital from investment losses. The investment selection, market performance and total costs influence the outcome.

RA investments must comply with Regulation 28, which sets exposure limits to encourage diversification. These rules do not eliminate risk or mean every RA has the same underlying investment mix.

Tax deductions: the current 2026/27 position

Qualifying retirement-fund contributions can reduce taxable income. The calculation generally uses 27.5% of the greater of remuneration or taxable income, subject to further statutory limitations and an annual ceiling of R430,000. This is the deduction ceiling for 2026/27, replacing the older R350,000 figure.

Pension, provident and RA contributions share the limit. It is not a separate allowance for every account. Contributions not deducted may generally be carried forward under the applicable rules. The deduction limit is not the same thing as an overall prohibition on making larger contributions.

A deduction is not a rand-for-rand refund. For example, if the full deduction for a R1,000 contribution falls within a 31% tax bracket, the simplified tax saving is R310. Your circumstances and unused deduction capacity determine the actual benefit. A benefit already reflected through payroll may not produce a later cash refund.

Returns inside the RA are exempt from income tax, dividends tax and capital gains tax. Benefits paid out can still attract tax.

The two-pot system: what is in each component?

For RAs covered by the system, contributions from 1 September 2024 are generally divided: one-third to a savings component and two-thirds to a retirement component. Older savings, after the initial savings-component transfer, generally sit in a vested component, with subsequent growth. Legacy arrangements and protected transferred rights can require different treatment, so confirm your own account’s components.

Can you withdraw before age 55?

You can generally make one withdrawal per tax year from the savings component, subject to the fund and policy rules. The minimum is R2,000 and the maximum is the available savings-component balance. Income tax applies at your marginal rate, and administration fees may apply.

This is not general permission to cash in the entire RA or take a once-off withdrawal from its vested component. Preservation-fund withdrawal rights are different. Ordinary access to the other RA components remains restricted, although specific legal exceptions exist.

The savings component is still part of your retirement provision. A withdrawal reduces both the capital available later and the growth that withdrawn money could have earned. You do not lose the balance by choosing not to withdraw.

Retirement from age 55: cash and income options

You can generally retire from an RA from age 55, but do not have to retire from it immediately at 55. At retirement, apply the rules to each component rather than assuming one-third of the entire account is available as cash.

Vested component: For ordinary RA benefits, up to one-third may be taken in cash; at least two-thirds normally purchases retirement income. Special protected transferred rights can differ.

Savings component: The entire remaining balance may be taken in cash, or some or all can purchase retirement income.

Retirement component: The full value normally purchases retirement income. You cannot take another one-third of this component in cash. You may choose less cash than the permitted maximum and allocate more to income.

For illustration, a vested component of R900,000, savings of R60,000 and retirement component of R240,000 would ordinarily allow maximum cash of R360,000 before tax: R300,000 plus R60,000. The remaining R840,000 would purchase retirement income.

Small-benefit exception: From 1 March 2026, where two-thirds of the relevant vested component plus the full retirement component totals R240,000 or less, those components may generally be taken entirely in cash. The savings component may also be taken in cash. Your administrator must apply the relevant aggregation rules.

Guaranteed life annuity or living annuity?

A guaranteed life annuity provides an insurer-promised income for life under the options selected. Starting income, increases, spouse’s benefits and guarantee periods depend on the contract.

A living annuity keeps capital invested while you draw income within prescribed limits. You carry investment risk and the risk of the money not lasting for life. A combination of the two types may also be possible.

Tax when benefits are paid

Retirement cash is assessed under the retirement lump-sum rules. The current table has a R550,000 tax-free band, but relevant earlier retirement, withdrawal and severance lump sums affect the calculation. It is not a fresh allowance for each RA.

Regular annuity income is generally taxable as income. A lower retirement tax rate is possible but not guaranteed; it depends on total taxable income and circumstances.

Before opening or changing an RA

Compare total fees, underlying investments, contribution flexibility, transfer conditions and access rules. Consider accessible savings for short-term needs alongside retirement saving. Tax benefits matter, but so do suitability, affordability and the retirement income you ultimately need.

Related GFS resources

Explore Retirement Planning in South Africa: Saving, Tax and Income Choices — R69.99, the free Retirement Income: Three Capital Examples, and the GFS Retirement Capital Lifetime Explorer — R49.99. Illustrations and projections depend on assumptions and do not guarantee returns or income. Browse the GFS Product Library for more resources.

Your financial adviser should consider your personal circumstances, needs and financial goals, and discuss the benefits, risks, costs, tax implications and access restrictions with you before recommending whether either or both products belong in your portfolio.

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General South African financial education—not personalised financial or tax advice. Rules and individual product terms can change.

Sources

SARS: 2026/27 tax and deductions • SARS: two-pot withdrawals • SARS: retirement cash and annuitisation • Allan Gray: investment and annuity rules