Tax can affect contributions, growth and payments in different ways. An RA, TFSA and endowment should therefore be compared across the investment’s whole life, including access and fees.
Retirement annuities: potential deduction now, taxation on benefits later
For 2026/27, SARS lists a deduction limit generally calculated at 27.5% of the greater of qualifying remuneration or taxable income, capped at R430,000 and subject to the detailed statutory limits. Pension, provident and RA contributions share this overall allowance. Contributions not deducted can carry forward, subject to the applicable rules.
Investment growth inside the retirement fund is exempt from normal investment taxes at fund level. This does not mean every payment you later receive is tax-free.
Why the one-third cash rule needs more detail
Under the two-pot system, new contributions generally split one-third to a savings component and two-thirds to a retirement component. Pre-existing benefits may sit in a vested component, subject to their applicable rights.
- Savings component: the balance remaining at retirement may be taken as cash or used toward retirement income.
- Retirement component: normally used to provide a pension or buy an annuity, subject to statutory exceptions.
- Vested component in an ordinary RA: generally up to one-third may be taken as cash, with the balance used for retirement income; preserved rights and small-benefit rules can affect the result.
It is therefore misleading to say that exactly one-third of every current RA balance can always be cashed out. Ask the administrator for a component-by-component calculation before retiring.
Can an RA be accessed before retirement?
Limited two-pot savings withdrawals are possible, normally once per tax year, with a R2,000 minimum and only up to the available savings-component balance. For RAs, the directive rules may apply per policy or contract. A withdrawal is taxed at the applicable marginal income-tax rate, not the retirement lump-sum table, and administration fees may apply. Other narrow legal exceptions require a separate eligibility assessment.
Resigning from a job does not, by itself, unlock an RA. It is a personal retirement fund, rather than an employer account that automatically pays out on resignation.
Tax when retirement benefits are paid
Retirement lump sums use the relevant cumulative tax table. The first R550,000 band is taxed at 0%, but it is not a fresh tax-free allowance for each fund: earlier relevant lump sums and severance benefits can affect the calculation.
Income paid by a life or living annuity is generally taxable as income. A living annuity’s income depends on its investments and withdrawals and is not automatically guaranteed for life.
TFSAs: no deduction, but qualifying returns are tax-exempt
TFSA contributions come from after-tax money. The current limits are R46,000 per tax year from 1 March 2026 and R500,000 over a lifetime, across all your TFSAs. Excess contributions attract a 40% tax charge on the excess.
Qualifying returns are exempt from South African income tax, dividends tax and CGT. Withdrawals are not separately taxed in South Africa, but do not restore contribution space. Reinvesting withdrawn money normally counts as another contribution. Use the formal provider-transfer process when moving a TFSA; do not treat withdrawal and redeposit as an equivalent transfer. Foreign withholding taxes can still affect foreign investment income.
Endowments: internal tax does not disappear after five years
Contributions are not deductible. For an individual-policyholder fund, the familiar rates are 30% income tax, a maximum effective 12% CGT rate on taxable capital gains, and generally 20% dividends tax where applicable, subject to exemptions and the exact structure. These are different tax categories, not three taxes applied to every rand of growth.
The insurer accounts for policy-level taxation. After the restriction period, payments to a South African resident individual generally do not attract an additional personal tax charge, because the policy’s tax has been handled internally. A disposal can still generate internal tax deducted in the policy. The investment has not become a tax-exempt TFSA.
Endowment access during and after the restriction period
During a restriction period, an endowment normally allows one limited withdrawal. Some policies also offer one loan; others do not. The permitted amount, outstanding loan, charges and provider rules matter. The 5% rate used in an access calculation is a statutory calculation factor, not promised investment growth.
After the restriction period, subject to the policy terms, you can usually take lump sums or regular monthly or annual withdrawals. They draw on the investment and may exhaust it. Additional contributions can start or extend a restriction period under the 120% rule.
Several separate policies may provide separate access opportunities, but they do not increase the overall money invested or remove each policy’s legal limits. Discuss minimum amounts, costs, administration and permitted loans before using this approach.
Compare outcomes, not just tax labels
A higher personal marginal tax rate can make an endowment worth examining, but fees, personal exemptions, capital-gains treatment, underlying investments and access needs can change the comparison. Ask for an explanation of the after-tax, after-fee outcome for your circumstances.
Explore the related GFS resources
- Retirement Planning Guide — R69.99.
- Retirement Income: Three Capital Examples — Free.
- Retirement Capital Lifetime Explorer — Excel Workbook & Practical Guide — R49.99.
- Capital Gains Tax Made Simple — 2026/27 — Free.
Browse the GFS Product Library for free and paid digital downloads. Prices checked on 28 October 2026; confirm the current price before purchasing.
Your financial adviser should consider your personal circumstances, needs, goals and financial information, explain the benefits, costs, risks and access rules, and discuss the relevant facts carefully with you before recommending whether these products belong in your portfolio.
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General South African financial education only, not personalised financial, investment, insurance, legal or tax advice. Facts checked on 28 October 2026 for the 2026/27 tax year. Provider terms and individual circumstances matter.