Everything You Need to Know About Retirement Products in Retirement

Everything You Need to Know About Retirement Products in Retirement (South Africa, 2025)

South Africans face a rapidly changing retirement landscape, shaped by new regulations, dynamic investment options, and evolving tax rules. Understanding how to maximise your retirement savings, leverage tax benefits, and choose the right products is critical for securing a comfortable future. This in-depth guide unpacks current retirement products, the Two-Pot System, SARS rules, and the practical choices you need to make for effective retirement planning in 2025.

What is the Two-Pot System? (2024–2025 Changes and Practical Impact)

The Two-Pot System is the biggest regulatory change in South African retirement planning in decades. Introduced on 1 September 2024, it fundamentally changes how contributions and withdrawals work across all retirement funds, including pension, provident, and retirement annuities.

How the Two-Pot System Works

– **Every new retirement contribution** (from 1 September 2024) is split:
– **One-third** goes into a Savings Pot
– **Two-thirds** go into a Retirement Pot
– **Vested Pot**: All savings accumulated before 1 September 2024 remain in a separate “vested” account, governed by the old rules (i.e., mostly locked until retirement)[2].

Access Rules

• Savings Pot: You may withdraw once per tax year, minimum R2,000. Withdrawals are taxed at your marginal rate, and an admin fee may apply. Early withdrawals reduce your retirement capital, so only use for genuine emergencies[2].
• Retirement Pot: Locked until retirement (earliest age 55). At retirement, at least two-thirds must be used to buy a monthly pension (annuity), while up to one-third can be taken as a lump sum (subject to tax)[2].
• Vested Pot: Governed by pre-2024 rules. Full withdrawal possible at retirement, or partial withdrawal on retrenchment or fund resignation (with tax implications).

Withdrawal Example (2025)

Suppose you contribute R10,000 per month to your retirement fund:
– R3,333 will go into your Savings Pot
– R6,667 will go into your Retirement Pot

In July 2025, you face a medical emergency and need R10,000. If your Savings Pot has R25,000, you may withdraw R10,000 (once that tax year). If you earn R600,000 per annum, your marginal tax rate is 36%. You’ll pay R3,600 tax on this withdrawal, receiving R6,400 net.

Why Was the Two-Pot System Introduced?

The aim is to strike a balance between accessibility and long-term preservation:
– Provides limited emergency access (via Savings Pot)
– Forces preservation of the majority (Retirement Pot) to reduce old-age poverty

How Retirement Annuities Work in South Africa (2025 SARS Regulations)

Retirement Annuities (RAs) are personal retirement savings products, distinct from employer pension or provident funds. They are governed by the Pension Funds Act (1956) and the Income Tax Act (1962), and regulated by the Financial Sector Conduct Authority (FSCA) and SARS[2].

Key Features of RAs

• Anyone can open an RA, regardless of employment status
• Contributions are tax-deductible (up to SARS limits)
• Funds are protected from creditors (except for SARS and divorce orders)
• Investments are subject to Regulation 28, which limits exposure to shares, property, offshore assets, etc., to manage risk[2]
• At retirement (from age 55), you must use at least two-thirds to buy a pension (life or living annuity)
• Withdrawals before retirement are only allowed in rare cases (permanent emigration, small balance, or death)

SARS and RA Compliance (2025)

– SARS closely monitors RA contributions, withdrawals, and tax benefits
– Tax deduction: Up to 27.5% of the greater of remuneration or taxable income, capped at R350,000 per year
– Withdrawal tax: Lump sums at retirement are taxed according to a special table, with the first R550,000 tax-free (if no previous lump sums taken)
– Tax Directive: Required for all withdrawals; SARS now uses a single-step, manual process with greater scrutiny (especially for expats)[3]
– Deadlines: Contributions must be made before the end of the tax year (28/29 February) to qualify for that year’s deduction

Provider Examples: Allan Gray, Coronation, Satrix, EasyEquities

• Allan Gray: Offers flexible, low-cost RAs with active management. Fees typically start at 1% per annum (excluding underlying fund charges). Offers access to top-performing unit trusts and strong customer service.
• Coronation: Well-known for competitive long-term performance. RA fees are around 0.5–1.5% per year, depending on fund choice.
• Satrix: Focuses on passively managed index funds. Satrix RAs can be among the lowest-cost, with total expense ratios from 0.4% per annum. Excellent for cost-conscious investors who prefer index tracking.
• EasyEquities: Offers a digital platform for RAs, allowing you to choose from branded portfolios or build your own. Fees are transparent, with platform fees from 0.2% plus fund costs. Great for DIY investors and those starting small.

Step-by-Step Retirement Planning Guide (with Real Examples)

Step 1: Define Your Retirement Goal

Aim to replace at least 70–80% of your final salary per year in retirement. For example, if you want R30,000/month (R360,000/year) in today’s money, and expect to retire at age 65, you will need a retirement capital of at least R4.5 million (using the 4% rule: R360,000 ÷ 0.04).

Step 2: Review Your Current Savings

List all your retirement products:
– Employer pension/provident fund balances
– Retirement annuity balances
– Preservation fund balances
– Tax-Free Savings Account (TFSA) balances
– Other investments

Suppose you have:
– Pension fund: R1,200,000
– RA: R400,000
– TFSA: R180,000

Total: R1,780,000

Step 3: Calculate Your Retirement Gap

Required: R4,500,000
Current: R1,780,000
Shortfall: R2,720,000

Step 4: Maximise Tax-Advantaged Contributions

If your taxable income is R600,000 per year:
– 27.5% x R600,000 = R165,000 (allowed as a tax-deductible contribution to pension, provident, and RA combined)
– If you contribute R8,000/month to your RA (R96,000/year), you can deduct the full amount from your taxable income

Step 5: Invest in a Diversified Portfolio

Use your RA or employer fund to access a mix of local and offshore equities, property, and bonds, within Regulation 28 limits. For TFSA, consider low-cost ETFs via Satrix or EasyEquities.

Step 6: Review Annually

Update your plan every year, increase contributions as your salary grows, and adjust your portfolio as you approach retirement.

Tax Benefits and Deductions (Exact Amounts and Calculations)

Retirement Fund Contribution Deduction (2025)

– 27.5% of greater of remuneration or taxable income
– Capped at R350,000 per tax year
– Applies to total of employer and personal contributions to pension, provident, and RA accounts[2]

Example Calculation

If your taxable income is R900,000:
– 27.5% x R900,000 = R247,500 (below R350,000 limit; full amount is deductible)

If your taxable income is R1,500,000:
– 27.5% x R1,500,000 = R412,500, but the deduction is capped at R350,000

Tax Saving Example

Suppose you earn R600,000/year (marginal tax rate 36%)
– You contribute R120,000 to your RA
– SARS allows a deduction of R120,000 (well below R350,000 cap)
– Tax saving: 36% x R120,000 = R43,200. Your out-of-pocket cost is R76,800, but R120,000 is invested

Tax-Free Savings Account (TFSA) Limits (2025)

– Annual limit: R36,000
– Lifetime limit: R500,000
– All growth and withdrawals are tax-free

Lump Sum Tax at Retirement (2025)

Lump Sum	Tax Rate
First R550,000	0%
Next R200,000	18%
Next R350,000	27%
Balance	36%

Withdrawals from the Savings Pot (Two-Pot System) are taxed at your marginal rate, not the lump sum table.

RA vs TFSA Comparison (Detailed Analysis)

Feature	Retirement Annuity (RA)	Tax-Free Savings Account (TFSA)
Annual Contribution Limit	27.5% of taxable income (max R350,000)	R36,000
Lifetime Contribution Limit	None	R500,000
Tax Deductibility	Yes, on contributions	No
Tax on Withdrawals	Yes, on lump sum and income (special tables)	No
Access	From age 55 (except for Savings Pot withdrawals and rare exceptions)	Anytime (but early withdrawals count toward lifetime limit)
Investment Choice	Regulation 28 restricted	Unrestricted
Creditor Protection	Yes (with rare exceptions)	No

• Use RAs if you want maximum tax relief and are comfortable with funds being locked until retirement
• Use TFSAs for supplementary, flexible tax-free investing — especially for lower-income earners and those who may need access before age 55

How to Choose the Right Retirement Product

Key Factors to Consider

• Tax bracket: Higher earners benefit most from RA deductions
• Investment flexibility: TFSAs offer more freedom, RAs are more restrictive but enforced preservation can be beneficial
• Time horizon: If you’re far from retirement, both RAs and TFSAs can be used in tandem
• Provider reputation and fees: Compare investment choices, annual fees, performance, and customer service
• Regulatory compliance: Ensure your provider is FSCA-licensed and your products are SARS-compliant

Provider Comparison (2025)

Provider	RA Platform Fee (p.a.)	TFSA Fee (p.a.)	Investment Choice	Strengths
Allan Gray	1% (plus fund fees)	0.5% (plus fund fees)	Unit trusts, ETFs	Active management, service
Coronation	0.5–1.5% (plus fund fees)	0.5–1% (plus fund fees)	Unit trusts	Performance, brand
Satrix	0.4–0.7% (plus underlying)	0.2–0.4% (plus ETFs)	ETFs, index funds	Low-cost, passive
EasyEquities	0.2% platform + fund fees	0.25% platform + ETF cost	DIY, wide ETF range	Digital, low minimums

Common Retirement Planning Mistakes to Avoid

• Not starting early: The power of compounding is lost if you delay
• Not maximising tax relief: Failing to use your 27.5% or TFSA limits each year leaves money on the table
• High fees: Overpaying for active management without clear outperformance erodes returns
• Withdrawing from the Savings Pot unnecessarily: Early access to funds for non-emergencies can leave you with a shortfall at retirement
• Poor diversification: Overexposure to a single asset class or geography increases risk
• Not reviewing or consolidating products: Multiple small pots with high fees reduce efficiency
• Ignoring regulatory changes: Not staying up to date with SARS, FSCA, and fund rules can cost you in taxes and penalties

How to Get Started (Specific Steps and Providers)

• Calculate your retirement goal using a calculator from providers like Allan Gray, Coronation, or Satrix
• Open an RA with a reputable provider:
  • Allan Gray: For comprehensive advice and active management
  • Coronation: For strong performance and brand trust
  • Satrix: For low-cost, passive investing
  • EasyEquities: For DIY investors and those starting with small amounts
• Open a TFSA (if you have not already) and contribute up to the R36,000 annual limit
• Set up automatic monthly contributions, aiming for 15–20% of your gross income, and increase annually
• Review your portfolio annually and consolidate old funds where possible
• Consult an FSCA-registered financial adviser if you need personalised advice

Conclusion: Action Steps for South African Retirement Success

• Understand and use the Two-Pot System to your advantage: only withdraw from the Savings Pot in emergencies
• Maximise your SARS-allowed tax deductions (27.5% up to R350,000) every year — don’t leave tax savings unclaimed
• Use both RAs and TFSAs: combine for maximum tax efficiency and flexibility
• Choose providers based on fees, investment choice, and service — compare Allan Gray, Coronation, Satrix, and EasyEquities
• Review your plan and products every year, and don’t hesitate to switch if you find lower fees or better performance elsewhere
• Stay up to date with SARS and FSCA regulations, especially around contributions, withdrawals, and deadlines
• Act now: the best time to improve your retirement plan is today. Open, contribute, and review — your futur