Retirement Annuity South Africa — How It Works (2026)
A retirement annuity (RA) gives you a 27.500000000000004% tax deduction on contributions (up to R350 000/year), tax-free growth, and access from age 55. Here is everything you need to know for the 2026/27 tax year — including the two-pot system and how RAs compare to TFSAs.
✓ Fact-checkedUpdated May 2026Sources: SARS — retirement fund tax rules·Pension Funds Act·National Treasury — two-pot system (Sept 2024)
Key takeaways
- ✓RA contributions are tax-deductible up to 27.500000000000004% of your taxable income, capped at R350 000/year.
- ✓Growth inside an RA is completely tax-free — no income tax, dividends tax, or CGT on investment growth.
- ✓Two-pot (Sept 2024): savings pot (one-third) accessible from age 18, once/year. Retirement pot (two-thirds) locked to age 55.
- ✓At retirement: first R550,000 lump sum tax-free (2026/27). Balance must buy an annuity.
- ✓Best for: earners paying 31%+ marginal tax. The immediate deduction makes RAs more powerful at higher incomes.
How a retirement annuity works
A retirement annuity (RA) is a long-term savings policy or unit trust investment structured specifically for retirement. You contribute money now, claim a tax deduction, watch it grow tax-free, and convert it to a pension income at retirement (from age 55).
Contribute
Up to 27.500000000000004% of income or R350 000/year. Claim the tax deduction on your ITR12.
Grow tax-free
Invested in unit trusts, ETFs, or balanced funds. No tax on growth inside the fund.
Retire (age 55+)
Take up to ⅓ as lump sum (first R550,000 tax-free). Convert balance to annuity income.
RAs are available from long-term insurers (like Old Mutual, Sanlam, Discovery), linked investment service providers (LISPs like Allan Gray, Coronation, 10X), and unit trust companies. Choose based on fees — total investment charges (TIC) of below 1% per year is a good benchmark for a passive ETF-based RA.
The RA tax deduction — how much will you actually save?
Your tax saving equals your RA contribution multiplied by your marginal tax rate. At higher incomes, the deduction is more valuable.
| Taxable income | Marginal rate | RA contribution | Tax saved | Net cost to you |
|---|---|---|---|---|
| R 360 000 | 26% | R 36 000 | −R 9 360 | R 26 640 |
| R 500 000 | 31% | R 50 000 | −R 15 500 | R 34 500 |
| R 750 000 | 36% | R 75 000 | −R 27 000 | R 48 000 |
| R 1 000 000 | 39% | R 100 000 | −R 39 000 | R 61 000 |
Contribution = 27.500000000000004% of taxable income. Tax saved calculated at the stated marginal rate. Actual saving depends on your full tax calculation.
Calculate your exact RA tax benefit
Enter your income and RA contribution to see your PAYE reduction and effective annual saving.
Open RA calculator →Two-pot retirement system — how it affects your RA
From 1 September 2024, all new RA (and pension/provident fund) contributions are split:
Savings Pot — ⅓ of contributions
- ✓ One withdrawal per tax year
- ✓ Minimum withdrawal: R2,000
- ✓ No maximum
- ⚠ Taxed at marginal rate on withdrawal
- Seeded with 10% of pre-Sept 2024 balance (max R30,000)
Retirement Pot — ⅔ of contributions
- ✗ Locked until age 55
- ✗ Cannot withdraw early
- ✓ Grows fully tax-deferred
- ✓ First R550,000 tax-free at retirement
- Pre-Sept 2024 contributions fully in retirement pot
The two-pot system makes RAs more flexible than before — but savings pot withdrawals are taxable and reduce your long-term retirement capital. Use sparingly.
What happens at retirement
At age 55+, you can retire from your RA:
- Lump sum (up to ⅓ of the retirement pot): The first R550,000 is tax-free (2026/27 — applies to cumulative lifetime retirement lump sums). The excess is taxed on a sliding scale.
- Annuity (remainder): Must be used to buy either a living annuity (market-linked, you choose drawdown rate 2.5–17.5%/year) or a guaranteed annuity (fixed monthly income for life). Annuity income is taxed as ordinary income.
- Fully retire or phase: If the full retirement pot value is below R247,500 (2026/27), you can take it all as a lump sum.
Death before retirement
Your RA balance is paid to your nominated beneficiaries (or your estate if none are nominated). The Pension Funds Act gives the fund trustees discretion to distribute equitably to financial dependants — nominate beneficiaries carefully.
RA vs TFSA — a quick comparison
| Feature | RA | TFSA |
|---|---|---|
| Tax deduction on contribution | Yes — 27.500000000000004% of income, max R350 000 | No |
| Growth tax | Tax-deferred (none until retirement) | Tax-free (forever) |
| Tax on withdrawal | Yes — lump sum tables + annuity as income | None |
| Access | Age 55+ (savings pot: limited early access) | Anytime |
| Annual cap | 27.500000000000004% of income or R350 000 | R36 000 |
| Best marginal tax rate | 31%+ (deduction most valuable) | Any rate |
Recommended strategy: Use RA contributions to maximise your tax deduction first (especially if 31%+ marginal rate). Then fill your TFSA (R36 000/year). Invest any surplus in taxable accounts. Both grow tax-efficiently — the combination is stronger than either alone.
Frequently asked questions
What is a retirement annuity (RA) in South Africa?
A retirement annuity (RA) is a long-term savings vehicle regulated by the Pension Funds Act that allows you to save for retirement with significant tax advantages. Contributions are tax-deductible up to 27.500000000000004% of your taxable income (maximum R350 000 per year). Investment growth inside an RA is tax-free (no income tax, dividends tax, or CGT). The RA is only accessible from age 55, at which point you can take up to one-third as a lump sum (partially tax-free) and must use the rest to buy an annuity (living or guaranteed).
What is the RA tax deduction limit for 2026?
The RA deduction limit for 2026/27 is 27.500000000000004% of your taxable income, subject to a maximum of R350 000 per year. Contributions above this limit are not deductible but are tracked by SARS and qualify for tax relief on withdrawal at retirement (to avoid double taxation). Unused deduction capacity from previous years can be carried forward — if you under-contributed in prior years, SARS allows you to claim those unclaimed deductions in the current year.
When can I access my RA?
You can access your RA from age 55 (earlier only in cases of disability or emigration). The two-pot system (effective September 2024) changed the rules: your RA is now split into a 'retirement component' (two-thirds of contributions) and a 'savings component' (one-third). From the savings component, you can make one withdrawal per year (minimum R2,000) before retirement — taxed at your marginal rate. The retirement component remains locked until age 55.
How does the RA deduction work in practice?
When you file your tax return, you declare your RA contributions. SARS reduces your taxable income by the contribution amount (up to the limit). If you pay PAYE through an employer who deducts RA contributions via payroll, the deduction may already be applied monthly. For individual RA policyholders, you claim the deduction on your ITR12 tax return. The tax saving equals your marginal tax rate multiplied by your qualifying contribution — at a 36% marginal rate on a R75,000 contribution, you save R27,000 in tax.
What is the two-pot retirement system and how does it affect RAs?
The two-pot system (effective 1 September 2024) divided retirement fund accumulation into two 'pots': a Savings Pot (one-third of new contributions — accessible once per year, minimum R2,000, taxed at marginal rate) and a Retirement Pot (two-thirds of contributions — locked until retirement). Contributions made before 1 September 2024 were 'seeded' into the savings pot (10% or R30,000 maximum). The system applies to RAs, pension funds, and provident funds. It does NOT affect TFSAs.
RA vs TFSA — which should I choose?
They serve different purposes. An RA gives you an immediate tax deduction — at a 36% marginal rate, a R75,000 contribution saves you R27,000 in tax now. But the money is locked until 55, and withdrawal is taxed. A TFSA (R36 000/year) gives no deduction, but withdrawal is completely tax-free and accessible anytime. Strategy: if you pay tax at 31%+, maximise your RA first for the deduction, then use a TFSA for the remaining R36 000/year. If you are in a lower bracket, or need access before 55, weight more towards the TFSA.
What happens to my RA at retirement?
At retirement (from age 55), you can take up to one-third of the retirement pot as a lump sum. The first R550,000 of retirement lump sums received in your lifetime is tax-free (2026/27 rate — checked against cumulative prior retirement withdrawals). The remainder must be used to purchase a living annuity or guaranteed annuity, from which you draw a pension for life. Living annuities allow you to draw between 2.5% and 17.5% of the fund value per year.
Can I claim RA contributions for a previous tax year?
You can only claim RA contributions in the tax year you make them. However, SARS allows you to carry forward unclaimed deduction capacity if you could not deduct everything in a prior year (because you hit the R350,000 rand cap but the percentage cap would have allowed more, for example). Contact your RA provider for a tax certificate (IT3a) each year for your ITR12 submission.
Data: Effective 1 March 2026 · SARS — retirement fund tax rules · Pension Funds Act 24 of 1956 · National Treasury — two-pot retirement system · SARS IT3a tax certificate · See methodology
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