Living and Retirement Annuities

RA vs Pension fund: Here are the pros and cons of your retirement plan

No one wants to think about retirement –unless it’s guaranteed to mean lounging on a beach on some island, with a cocktail in your hand, far away from your cold, hard desk.

Whatever retirement means to you, it’s something we all have to think about. However, it’s not always clear how to plan for it in the most effective way.

February is the end of the tax year – did you know you can get tax incentives by choosing to contribute more money towards your retirement?

Head of retail distribution at Sanlam Investments Gielie de Swardt gave us these points to explain the advantages and disadvantages of retirement annuities and employee funds.

Retirement annuity

Retirement annuities are private retirement funds that anyone can purchase in order to save for their retirement.


  • You can choose how much you want to contribute with a retirement annuity, raising and lowering the amount you contribute according to what you can afford.
  • By contributing to an RA, you will be able to reduce your tax bill annually when you submit your tax returns.
  • You can still contribute to your retirement annuity before the end of February to get some tax relief and, hopefully, get a hefty refund.


    • The tax incentive will only show once you have submitted a tax return, so the relief won’t be immediate, and you will eventually be taxed in your monthly retirement income.
    • No withdrawals are allowed, except in the case of an early retirement due to ill-health or if you officially emigrate.
    • At retirement, you can only access one-third of the value of your savings in cash (R500 000 across all your retirement products can be taken tax free) and with the remaining two-thirds you need to buy an annuity income, which is taxable.

      Employee fund

      You contribute to an employee fund through your employer deducting the amount from your salary. An employee retirement fund can either be a pension fund or a provident fund.


      • The retirement contribution is deducted before you get your salary, so you save without feeling like you are depriving yourself. An employee fund will help you invest in your future, even if you lack the discipline to save on your own.
      • Your employer might even match your retirement savings. This means if you save 10% of your salary and your employer matches it, you will invest an extra 10% of your salary for your retirement – and it’s not even your own money. Take advantage of this opportunity, because it’s basically free money, and maximise it if you can.
    • Contributing more into your retirement fund immediately reduces your tax bill by, for example, putting you in a lower tax bracket – you don’t need to wait for a tax refund later in the year. Your payroll administrator will recalculate your taxable income and you’ll see a lower tax amount on your payslip.


    • Your options for a pension fund or provident fund are offered by your employer, so investment options might be limited.
    • You normally need to commit to an increased contribution for a year and many companies will only allow you to change the amount on a fixed date every year. You don’t have the flexibility to simply top up or reduce your contribution to your employer’s fund.
    • A pension fund works the same way as an RA at retirement but with a provident fund, for now, you will be able to get all your money at retirement. However, the Treasury wants to change this about provident funds to put them in line with pension funds and retirement annuities.