Common retirement annuity myths South Africans still believe (and what they actually mean for your money)

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Many South Africans may have reservations about investing in a retirement annuity. This could be for reasons such as a lack of understanding or fears about their savings being inaccessible in times of emergency. As such, some miss out on the benefits that come with a retirement annuity, which can be incredibly beneficial in terms of planning for retirement.

In this article, we will help to clear up any ambiguity that surrounds retirement annuities by looking at common myths and areas of misunderstanding. We will look at fees, asset allocation, the Two-Pot retirement system, the benefits of making use of a retirement annuity, and more.

What is a retirement annuity?

A retirement annuity (RA) is a retirement savings investment vehicle which offers tax incentives, making it an attractive investment product for anyone planning for retirement. Contributions that you make to your retirement annuity are tax-deductible, according to stipulated limits. These limits are up to 27.5% of your income, capped at R350,000 per annum.

Investment returns within the retirement annuity are also exempt from income tax, dividends tax and capital gains tax while invested, which allows for more returns to be reinvested and potentially compound and grow over the long term. Contributions to retirement annuities can be made via a debit order or an ad hoc lump sum investment, depending on your preferences. Minimums, as stipulated by your service provider, will need to be adhered to, however.

You gain access to your retirement annuity upon retirement, which is from age 55 in South Africa, although many South Africans will find themselves working many years longer. You will then be able to convert your retirement annuity to either a life or a living annuity. This annuity will provide you with income during your retirement years. As such, the importance of retirement annuities should never be understated.

Now, let’s take a look at some of the common myths confusing South Africans when it comes to RAs.

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Myth #1: A retirement annuity is only for older people

Starting your retirement annuity early in life is an excellent way to take advantage of compound growth, aiming to maximise the potential growth of your retirement annuity over the long term. Small contributions will add up over time. It doesn’t matter if you can only contribute small amounts; the key is to get started. Disciplined and consistent contributions over time will help you to maximise your retirement outcomes.

The earlier that you begin, the more time your money has to potentially grow and compound. Even a few extra years can make a major difference to your final retirement savings amount. Starting young means you can take on an appropriate level of growth assets, as you’ll have a longer time horizon and more time to recover from market volatility.

This example will show the powerful effect of compound growth:

Scenario 1: You decide to invest a R100k lump sum and generate 6% real return over 30 years.

Scenario 2: You decide to invest a R100k lump sum, and also include a debit order of R1000 per month for 30 years, which also generates a 6% real return.

In Scenario 1, you end up with approximately R482,000.

In Scenario 2, you end up with approximately R1.5 million.

We can see how small contributions over time lead to major retirement outcomes.

Beyond this, starting early helps to build strong savings habits. Contributing regularly to your retirement annuity helps create financial discipline and reduces the pressure of having to make large catch-up contributions later in life.

Myth #2: A retirement annuity locks away my money forever

Your retirement annuity is accessible from age 55; it will then be used to fund either a life or living annuity, which will provide you with an income for your retirement years. A maximum of one-third of your RA may be drawn as cash, and two-thirds must go to an annuity.

Under the Two-Pot Retirement System, all contributions are split between the ‘savings pot’ and ‘retirement pot’: one-third to the savings pot and two-thirds to the retirement pot. The retirement pot funds will remain invested until retirement age, which is from age 55 in South Africa. All savings and contributions made prior to September 2024 will be part of the ‘vested pot’, and is governed by the old rules. Please consult the latest FSCA guidance on the Two-Pot Retirement System.

There have been some changes with the implementation of the Two-Pot Retirement System in September 2024. These changes allow you to access your savings pot in times of emergency. Ideally, however, you would want to keep your retirement funds invested so they can potentially compound and grow over time. Withdrawals are allowed from the savings pot once per year for a minimum amount of R2,000. All withdrawals will be taxed at your marginal tax rate and will also be subject to an administration fee.

Myth #3: Fees don’t make a big difference

Often, investors fail to understand the massive impact that fees can have on retirement outcomes. Fees can have a big impact on the growth of your RA, especially when these fees are compounded over the long-term.

Higher fees may mean that there are fewer returns to compound and grow over time, but when fees are lower, this may mean that there are more returns to compound and grow. A difference in fees, which may seem insignificant, may actually have a substantial impact on the growth of your RA over time. Let’s look at an example to illustrate the effect that fees can have on your investment over the long term. We will assume the following information:

• Investment period of 30 years
• Initial lump sum investment of R50,000
• Monthly contributions of R2,000
• Return of 12% per annum
• An inflation rate of 6%

Example 1 (1% Fees): Real investment value is approximately R1.8 million

Example 2 (3% Fees): Real investment value is approximately R1.3 million

Please note that this example is for illustrative purposes only, and real results may vary. You can learn more about how fees impact retirement outcomes here.

As an investor, you should also make sure to review your Effective Annual Cost (EAC) annually. This is a standardised metric that shows the total costs and fees charged for owning your RA over one year. All factors being equal, a higher EAC would mean that less of your investment returns can be reinvested and potentially grow and compound over time, while a lower EAC means that more of your investment returns may be reinvested and potentially grow over the long term. The EAC of an investment is just one factor to consider when comparing service providers.

The typical fees which you can expect to see charged on your RA are as follows:

Management fees: These are the fees that are charged for the management and running of the fund.

Advisor fees: An advisor may provide both services and advice. They will usually charge fees for this, so you might see both an initial and an ongoing fee charged.

Administrator fees: These are the fees that you may see charged for the administration of the fund. There may be administration tasks such as reporting, compliance and tax.

At 10X, our fees are transparent, simple and cost-effective, and you can be sure that there will be no hidden costs. Our fees charged for retirement products are usually less than 1%. Please visit our product section for the most up-to-date fee information.

Myth #4: Someone else decides where my money goes

The idea that someone else decides where your money goes isn’t exactly true. With providers like 10X, you have the freedom to adjust your underlying portfolio by choosing from a selection of funds, each with a different mix of assets and geared towards different investor profiles.

Asset allocation plays the biggest role in the performance of your retirement annuity, accounting for over 90% of returns, as seminal research from Brinson, Singer and Beebower illustrates.

The asset allocation within your RA should align with your individual needs and circumstances.

This asset allocation would be selected according to factors such as your risk tolerance levels, investment timelines and long-term financial plan. In other words, how comfortable are you with risk and any potential short-term market volatility? How long do you have until retirement age? How long will you keep your RA invested?

You also want to ensure that you always keep your long-term financial goals and objectives in mind when structuring your asset allocation. The typical assets that you would include in your asset allocation would be a mix of equities, real estate, bonds and cash. Diversifying across the asset classes allows for potentially balancing both risk and return whilst taking advantage of the different economic cycles.

Equities may produce the best returns in the long term, whilst also being the most volatile of the asset classes. As data suggests, equities have historically produced returns above inflation by around 7% annually - over the long term (based on JSE All Share Index performance versus CPI from 1960-2020) - but past performance does not guarantee future results. Real estate may be a good hedge against inflation. Bonds add some stability to a portfolio, but they may generate some lower returns. This doesn’t mean that bonds will never perform, merely that they’re seen as a more conservative option. Cash is the most stable of the asset classes, but it is also likely to generate the lowest returns of all.

Diversifying offshore may provide some good opportunities that could be available in the international market, which is larger than the local South African market, meaning more access to a wider variety of different industries and more. Of course, when diversifying offshore, you would need to be aware of Regulation 28 of the Pension Funds Act. Regulation 28 places a limit on how much offshore exposure and also exposure to equities you may include in your portfolio. Current regulations state that you may include 45% offshore and 75% exposure to equities. These regulations have been put in place to help you avoid a poorly diversified RA.

At 10X, we offer a wide range of well-diversified funds, meaning that you don’t need to structure your funds on your own. These funds include a mix of different asset classes and are suited to a wide variety of investors. Please explore our funds page the most up-to-date fund information. Fund information is correct as of 16 February 2026.

Myth #5: It doesn’t matter where I open my RA

Your choice of service provider can have an impact on your RA. Service providers can differ when it comes to their offering in terms of transparency, reporting, fees, investment strategy, fund choice, online platforms and more.

Using a service provider who is transparent when it comes to the fees they charge and when reporting their performance is important. As an investor, you want to easily be able to see the fees that you are being charged and also reports or statements on how your RA has performed over various time intervals. This information should all be simple, clear and easy to understand for all investors.

Fees can also differ widely between service providers. For this reason, you would want to use a tool such as this free EAC calculator, offered by 10X, which can help you to compare and evaluate fees charged by different service providers.

Service providers can also differ in the investment strategy that they use. 10X makes use of an index-tracking investment strategy with a more active approach when it comes to asset allocation. An index-tracking investment strategy is when a benchmark index, such as the S&P 500, is mimicked in order to try to get the same returns as this benchmark index. This approach focuses on consistency over the long term. It may also be more cost-effective due to the fact that there are fewer activities involved, which results in fewer fees being passed onto the investor.

An active investment approach will make use of the skills of a fund manager. This manager will try to select the winning stocks. This may involve market timing and also more related activities such as research, analysis and buying and selling costs. These higher costs may then be passed on to the investor in the form of higher fees.

The S&P Indices Versus Active (SPIVA) Scorecards track the performance of actively managed funds against their benchmarks globally. According to the latest SPIVA South Africa Scorecard (as of June 2025), 67.61% of South African actively managed equity funds underperformed the S&P South Africa DSW Capped Index over the ten-year period ending June 30, 2025.

You may also look at the online platform offered by your service provider. Selecting a provider who offers an intuitive and easy-to-use platform is important and can reduce frustration levels when you are transacting or navigating to reports and other statements.

Customer service is also an important consideration. You generally want to use a service provider who offers a high level of service and who is responsive when it comes to responding to your queries. At 10X, our expert investment consultants are always ready to answer your queries.

How to compare retirement annuities: Simple checklist

Let’s have a look at a quick checklist that you can use to quickly compare retirement annuities.

1. Request fee information and compare and evaluate this.
2. Review fund options to ensure there are appropriate options to meet your investor profile and financial goals.
3. Check investment strategy and ensure alignment with your preferences.
4. Review the provider’s online platform.
5. Consider the provider’s reporting and transparency when it comes to fees and reporting.

This checklist can be useful when considering a brand-new RA or when considering changing providers. If you do find a need to change providers, this process will be done via a Section 14 transfer.

Final thoughts on retirement annuity myths

A retirement annuity is a powerful retirement investment savings vehicle that offers some excellent tax incentives. It’s important to start early, allowing you to potentially maximise the benefits of compound growth over the long term, while always ensuring a consistent and disciplined approach to your savings, even if this means starting small. If you need help or guidance with getting started, please do get in touch with our helpful and skilled investment consultants at 10X, who always offer an excellent level of customer service. Secure your future with 10X today.