Retirement Annuities For “Dummies”

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Retirement Annuities For “Dummies”

By Joanne Baynham CA(SA), CFA Associate Director and Wealth Manager

As the tax year end looms large, several individuals are going to be persuaded to invest in a retirement annuity, but before you do so, please remember the pros and cons:


  • A tax saving, based on your marginal tax rate. Great, if your marginal tax rate is north of 40% and you want to reduce your provisional tax payment (Government finances your savings).
  • Your own “unit trust” in that capital gains and income tax gains are tax-free inside the vehicle.
  • It is a forced saving that you cannot access until you are 55 (and even then, it is not 100% liquid).
  • You can invest in an RA up to 27.5% of net income, subject to a cap of R350k (in terms of current tax year deduction). Excess contributions can be carried over to future years.
  • It falls outside your estate on death, provided you have nominated a beneficiary.
  • Creditors cannot access it.


  • It is subject to Reg 28, which means you can only have a maximum of 45% in offshore assets.
  • You are also limited to 75% in equities.
  • When you retire, you can take a maximum of 1/3 in cash, the remainder must go into a Living Annuity or Life Annuity
  • The maximum you can withdraw on a yearly basis from your living annuity is 17.5% of your capital.
  • Living annuities used to have no limits, but several platforms are now at their maximum offshore allowance, so you might end up being capped at 45% again.
  • If you emigrate, you can only withdraw the funds, provided you have proved to SARS that you are a tax resident of another country for a period of 3 years.
  • If you withdraw, as opposed to retire from an RA, the tax paid on your investments is far more onerous.
  • When you retire, you will pay PAYE on your monthly living annuity payments, which will be taxed again. Make sure you work out if the tax saving today is greater than the tax you will pay sometime in the future. There is no free lunch.
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