Updated 01.10.2021

Retirement Annuity – Everything You Need to Know!

A retirement annuity is an investment you need to make your retirement life more enjoyable without worrying too much about money. But what is a retirement annuity? How does it differ from the usual provident fun? Does investing in annuities give you tax advantages? The answers to these questions will be revealed as you read through the article.

What is a Retirement Annuity?

A retirement annuity (RA) is a tax-effective investment instrument designed to maximise your retirement money. An annuity is different from the pension fund you contribute to in your workplace in that it is an option choice made by the individual to invest (not the company). You can make regular monthly contributions and / or add lump sum amounts to build up the capital in your investment.

There are several types of annuities, including, variable, fixed, immediate, fixed indexed, and registered index-linked. But all these can be grouped into two main types of RAs in South Africa:

  • Traditional Policy Retirement Annuities

Policy-based retirement annuities are inflexible because you’re forced into a long-term contract that you must stick with no matter what. The amount and the period you need to invest are decided the moment the RA begins and breaking the terms will result in larger upfront costs. 

Traditional RAs can often be bought through a broker or what they call a financial adviser. The commission of these brokers depends on the RA term you’ll be signing up with, so they’ll most likely sell you the policy with the highest contribution requirement. This is also the reason why many brokers sell annuities for their benefit instead of yours.

  • Unit Trust Retirement Annuities

Unit-trust RAs are way more flexible compared to traditional ones since you can lower or even cancel your contribution any time you need to. Alternatively, you can take an indefinite contribution holiday and just resume contributing to the scheme once you have the budget to do so.

Unit-trust RAs are sold by an asset manager, financial advisor and financial planners who charge fees on an as-and-when basis. They will get the same commission regardless of how large you contribute to your RA, so they won’t gain anything from selling upselling you expensive and unfriendly terms.

A retirement annuity is ideal for self-employed individuals who don’t have access to a pension or provident fund offered by traditional employers. If you want to significantly supplement your pension fund by investing in non-pensionable income, it’s highly recommended that you apply for an RA.

How Does a Retirement Annuity Work?

RA works like provident funds, but with improved benefits and more flexible terms. It’s not a compulsory financial option, so it’s up to you whether to get one or not.

It’s possible to receive income from an annuity even though you’re still working. This scenario happens when you retire early and receive income from your RA. 

Upon reaching retirement age, you can withdraw up to a third of your total RA as a lump sum payment. The remaining two-thirds must go to a compulsory annuity. 

No income or capital gains tax is charged on the investment return earned in an RA. Funds invested under an RA are not considered part of your estate.

Upon death, your benefit will be handled by the Trustees of the fund according to the rules stated under the Pension Funds Act. To make transfers easier, it’s vital to list all your dependents in the beneficiary nomination form. 

In case you didn’t nominate any dependent, your RA will fall into the estate and will be distributed based on your will. 

Pros and Cons of a Retirement Annuity

Here are the advantages and disadvantages of maintaining an RA. 

  • Tax benefits

RAs qualify for the same tax incentives that pension and provident funds enjoy. Contributions to RAs amounting up to 27.5% (or up to R350 000 per annum, whichever is hit first) of your annual taxable income can be accounted for tax deductions. This limit is computed using the aggregated contributions from pension, provident, and RAs. 

  • Penalty fees

Unless you have a serious health condition, you can only access your RA without penalties when you’re 55 years old onwards. 

  • Emigration

Special cases for withdrawing RAs before you reach 55 is also possible if you’re going through a financial emigration process.

In case you emigrate from South Africa, you may still be legible to receive your RA, so long as the transfer has been recognised by SARS. You’ll be allowed to withdraw your funds, but you must pay the tax associated with early withdrawal.

  • Minimum contribution

Most RA providers require a minimum contribution of R500 only to entice more South Africans to invest in their retirement money.

  • Contribution break

With RAs, you can stop investing any time and take a break from doing contributions without any penalties. But if you do this within the 60-month recoupment period, you’ll be charged penalty fees.

Retirement Annuity VS Provident Fund – Which is better?

Anyone who wants to have enough pension money to live a comfortable retirement must start investing in a retirement annuity. If you’re employed but your employer doesn’t provide a provident fund, a retirement annuity is the best tax-free alternative to grow your pension money.

Retirement annuities are also suitable for those who run a business, have freelancing work with irregular pay, and commission-based earners.

Here are some of the major areas of concern that will help you decide whether an RA or a provident fund is better suited to your investment style:

  • Fees

Traditional RAs can cost as much as 3% per annum when you compute the management, platform, administration, and broker fees. On the other hand, the investment fee for unit trust-based RAs amount to around 1% of your capital per annum only.

  • Penalties

A policy-based annuity has upfront commissions and a recoupment period lasting 60 months. A penalty may be applied when amendments or cancellation is made during the term of the contract. Instances like this include lowering the monthly premium contribution or transferring the annuity to another service provider.

  • Maximising Benefits

Provident funds are recommended to be started early on to maximise their benefits. So, if you start late or are having difficulties continuously contributing to the fund, you won’t be able to take full advantage of the pension fund.

On the other hand, RAs give you the chance to catch up on your retirement savings even if you have less time to pool your money before you reach retirement age.

Where to Apply for Retirement Annuity

Here are the best performing retirement annuities in South Africa:

1.  Allan Gray Retirement Annuity

The unit trust-based RA lets you maximize tax benefits on your retirement money. Through the Allan Gray Balanced Fund, you can invest in a scheme aiming for long-term capital growth that has years of history of constantly beating market benchmarks. Your investment only grows when the performance is better than inflation. 


  High-performance investment strategy
  Steady capital growth through the years

Contact Details:

 Email: info@allangray.co.za
 Telephone: 0860 000 654
–  Head office: Silo in the V&A Waterfront in Cape Town

2.  Discovery Retirement Annuity

Discovery offers two types of RAs: lump-sum and recurring. Lump-Sum RA rewards you for investing longer in the account, while the Recurring Plan gives you a boost after reaching certain contribution requirements.


  Minimum investment of R500 per month.
  Investment fees depending on the size of your account.
  Extra contributions to the investment account is enabled without additional charges.

Contact Details:

  Telephone: 0860 67 57 77 

3.  FNB Retirement Annuity

FNB offers two types of RAs to their clients: living annuity (LA) and the fixed deposit.

LA is designed to provide an income ranging from 2.5% up to 17.5% per annum. This type of annuity lets you invest in the market even after retirement. 

Fixed deposits, on the other hand, is popular among retirees because it provides the definite amount of interest that the fund can earn in advance. 


  Earn eBucks that can be used for discounted purchases.
  Waived transactional fees
  Professional assistance in drafting your last Will and Testament


  You must be below 60 years old upon application. 

Contact Details:

  Telephone: 0860 327 827

You can try the chat function to get in touch with the FNB team. You can also try the “Call Me Back” function where you can leave your contact information.

4.  Investec Retirement Annuity

Investec offers one of the largest range of retirement options to its clients. Aside from RAs, the company also offers Self-Invested Personal Pension (SIPP), hybrid annuities, and executive pension plans. 


  Numerous investment options to grow your retirement money.
  Additional advice and guidance in looking for the right investment option for your financial goals.

Contact Details:

  Telephone: +27 11 286 7000

You can also leave them your contact details to schedule when they’ll get in touch with you.

5.  Liberty Retirement Annuity

Liberty offers a range of retirement products including the Agile Pension and Provident Fund Preserver, Agile Retirement Annuity, Evolve Pension and Provident Fund Preserver, Evolve Retirement Annuity Plan, and Retirement Annuity Builder. 


  Invest as little as R400 per month.
  Minimal to no set-up fees and initial advice costs.
  Has plans that have guaranteed income at retirement. 

Contact Details:

  Telephone: 0860 456 789 / +27 11 558 4871
  Email: Info@liberty.co.za

6.  Metropolitan Retirement Annuity

Metropolitan offers different RAs for individuals and unions, as well as retirement investment options for those who want to further grow their pension money.


  The minimum monthly premium starts at R250.
  Smooth Bonus Fund for improving the stability of the investment regardless of the volatility of the current market.
  Premium Bridging for skipping monthly premium payments in case of emergencies.

Contact Details:

  Telephone: 0860 724 724

7.  Momentum Retirement Annuity

Momentum offers a wide range of RA options that can be aligned with your current financial and retirement status. Whether you’re investing for retirement, changing jobs but still want to keep up with RA payments, or planning to grow your money while receiving income during retirement, Momentum has the RA plan for you. 


  Several options for an investment period.
  Minimum contribution of R350 per month.
  Loyalty bonus if you stay invested for a certain period. 

Contact Details:

  Telephone: 0860 266 848
  Email: annuities@momentum.co.za

8.  Old Mutual Retirement Annuity

Old Mutual Wealth Retirement Annuity is a flexible unit trust-linked RA that can be structured according to your investment preference.


  You can change your investment between unit trusts anytime, aligning it with your life stage before retirement.
  Insolvency protection benefit.
  24/7 investment portfolio access. 

Contact Details:

  Telephone: 0860 60 70 00
  Email: retire@oldmutual.com

9.  PPS Retirement Annuity

PPS offers a wide range of bespoke financial products and services for wealth management, insurance, and fiduciary purposes. 


  You can convert existing policy-based funds from PPS into a unit trust-based without any charges.
  You can adjust debit orders and change unit trust selection without any charges.

Contact Details:

  Telephone: 0860 468 777 (0860 INV PPS) or (021) 672 2783

10. Sanlam Retirement Annuity

Sanlam offers a special retirement annuity under the Cumulus Echo Retirement Plan – the only plan in SA that gives a cash bonus for every payment made into the account. This means that the longer timeframe you take for growing your RA, the larger the bonus you get, compounding your money to the maximum rate that no other bank can give.


  Unique “Echo Bonus” added to your fund value upon retirement or at the end of the plan. It will depend on the length of the term in which contributions have been made. The lowest echo bonus is 4.5% of the fund value after 5 years of payment, while the highest is 112.5% for funds with 40-years’ worth of contributions.

Contact Details:

  Telephone: 0860 726 526

11.  Satrix Retirement Annuity

The Satrix Personal Portfolio Retirement Annuity Fund provides a flexible and affordable solution for those who want to take advantage of tax benefits available for RAs. 


  Switch between the different investment options offered by Satrix at a minimal fee.

Contact Details:

  Telephone: +27 12 346 1738/+27 12 748 4000
  Email: enquiries@pfa.org.za

12.  Sygnia Retirement Annuity

Sygnia helps clients save and invest in the simplest, most affordable, and most accessible way possible. They offer a range of retail funds, including ETFs and unit trusts. Their most popular product is the retirement annuity due to its.


  Contributions can be adjusted without penalties.
  You can switch into other investment funds handled by Sygnia at no cost.


  Initial lump sum payment of R20 000.

Contact Details:

  Telephone: 0860 SYGNIA or 0860 794 642
  Email: info@sygnia.co.za

Most of these RA providers have an online retirement annuity calculator you can use to estimate how much you’ll earn upon retirement. You’ll also see the anticipated monthly cost you’ll have to commit to in order to achieve your financial retirement goals.

Starting Your Retirement Annuity

To open an account, most banks and financial institutions will ask for the following documents:

  • Copy of South African ID or a valid passport
  • Proof of residence (i.e. billing statement) not older than three months
  • Bank transactions from the last three months
  • Proof of income
  • Signed application form

It’s best to contact your chosen solutions provider for their RA application requirements. They may request additional documentation to prove your financial capability and health risk to assess whether it’s still viable to give you access to RAs. 


Retirement annuities provide another way to benefit from tax-free incentives and maximise the growth of the money you can spend when you retire. Aside from employer provident funds, investing in RAs will help ensure you have a relaxing and worry-free retirement.

If you’re financially capable to handle retirement annuities and the usual provident funds, then do so to fully take advantage of the tax benefits presented by each option. But don’t be so sure to put all your eggs in one basket because even the most conservative investment options don’t have guaranteed annual returns and the risk of losing money is ever-present.