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Over and above the tax benefits which can be enjoyed by taking advantage of the tax deductions associated with retirement fund savings there are other considerations which should be taken into account when saving for your golden years courtesy of a retirement fund:


Another benefit of saving in a retirement fund is that the savings in pre-retirement products (namely pension funds, provident funds and retirement annuities), as well as post-retirement products (living annuities), do not form part of your estate, provided the beneficiary nominations are in place. The capital in these products is, therefore, exempt from estate duty and executors’ fees – a welcomed relief.

A living annuity offers the best of both worlds. Not only does it provide all the estate planning benefits above, but also upon death, the beneficiaries step seamlessly into the shoes of the annuitant and the living annuity should continue to pay an income without any delays.


This said, there are a few potential drawbacks that must be considered when deciding how best to save and invest.

Firstly, and perhaps most importantly, there are strict limitations preventing any withdrawals from retirement funds. For instance, withdrawals from pension and provident funds, usually only allowed upon retrenchment or severance, carry significant tax implications. Withdrawals from a retirement annuity are not allowed at all until the age of 55, unless you are formally emigrating.

Retirement funds are regulated by Regulation 28, which stipulates that no more than 30% offshore exposure is permitted and also allows for a maximum of 75% equity holdings. These limitations often seem conservative for younger and more aggressive investors.

Unfortunately the introduction of the R350 000 annual limit on contributions to retirement funds has placed a ceiling on the potential wealth creation opportunity for high-income earners. Previous generations are now reaping the rewards of years of unlimited higher allowable contributions, which were only capped by a percentage.


Taking your individual financial goals and circumstances into account, the best solution is to find a balance between retirement and discretionary savings, attempting to take full advantage of all the tax savings retirement funds have to offer. Optimising your tax efficiency, combined with the full force of compound interest over time, can yield significant results on your journey of creating wealth, and leaving a meaningful legacy.

Written by Riëtte Coetzee, Citadel Advisory Partner