Despite being one of the most powerful tools in local financial planning, retirement annuities (RAs) continue to confuse South Africans.
Questions around who should use them, how the tax system actually works, and whether they are even affordable persist – often to the detriment of long‑term financial outcomes.
Recent public engagement on the topic, including a social media post that reached more than 150 000 views, highlights just how uncertain many investors remain. The same concerns surface repeatedly: Are RAs only for high earners? Does the South African Revenue Service (Sars) really “give money back”? And won’t it all just be taxed again at retirement anyway?
When you strip away the myths, the maths still strongly favours the everyday investor.
The income myth: ‘RAs are only for high earners’
One of the most persistent misconceptions is that RAs only make sense if you earn a very high salary – often quoted as anything above R50 000 a month. This is simply not true.
The tax benefit of an RA starts much earlier than most people realise. For someone earning between R20 000 and R30 000 per month, the marginal tax rate is 26%. In practical terms, this means that for every R100 contributed to an RA, Sars effectively contributes R26 via a tax deduction.
Put differently, even before investment markets enter the picture, your contribution receives an immediate, risk‑free “return” of 26%. Few investments offer anything close to that level of guaranteed uplift. The benefit grows further for higher earners, but it is by no means exclusive to them.
Affordability: More mindset than money
In a high‑inflation environment, many South Africans feel they simply cannot afford to save. Retirement planning is often postponed on the assumption that meaningful investing requires large monthly contributions or sizeable lump sums.
That assumption no longer holds. Most modern investment platforms allow RAs to be started with contributions as low as R100 per month. To put that in perspective, building long‑term financial security can cost less than a single takeaway meal.
The real objective should not be to maximise contributions from day one, but to build the habit of saving. Consistency matters far more than the starting amount. Contributions can always be increased as income grows, but a delayed start is time that can never be recovered.
The fear of being taxed twice
Another common objection is the belief that RAs merely defer tax, leaving investors to face another large tax bill at retirement. While it is true that income drawn from an RA is taxable, this concern ignores how tax works over a lifetime.
Firstly, while your money remains invested inside an RA, it grows completely tax‑free. There is no tax on interest, no dividends tax, and no capital gains tax. Over decades, this can significantly accelerate compounding.
Secondly, at retirement, individuals may currently withdraw up to R550 000 as a cash lump sum completely tax‑free.
Thirdly, and often overlooked, most retirees pay tax at a much lower effective rate than they did during their working years. Higher tax thresholds apply after age 65, and medical aid tax credits often further reduce the tax burden.
In effect, an RA allows you to exchange a high marginal tax rate during your peak earning years for a lower – or in some cases, zero – effective tax rate later in life. That trade‑off is precisely what makes this structure so powerful.
Fees, product choice and advice
Not all RAs are created equal. High fees remain one of the biggest long‑term risks to returns. Even small differences in administration and investment costs can compound into meaningful losses over time.
Investors should prioritise transparent, low‑cost products and be wary of complex structures that are difficult to compare. Cost certainty matters just as much as performance.
Because tax, income and retirement goals differ widely from person to person, professional advice still plays an important role. A certified financial planner (CFP) can help model how an RA fits into a broader financial plan – ensuring that contributions are affordable, tax‑efficient and aligned with real‑world objectives.
RAs are not a silver bullet, but they remain one of the most effective tools available to South Africans. The challenge is not the product itself – it is understanding how to use it properly.