Retirement annuity and career breaks: What happens to your savings?

Your career may not always follow a predictable path, and you may wonder how a break from work could affect your retirement annuity. People take time away from work for many reasons, including starting a family, taking a sabbatical, caregiving, further study, retrenchment or illness.   

During this time, continuing to contribute to a RA may be difficult if your finances are constrained. But taking a break from employment doesn’t mean you have to stop saving for retirement. In this article, we’ll take a closer look at your existing RA savings, fees, asset allocation, contributions, investment returns and tax benefits. 

What happens to your retirement annuity during a career break? 

A retirement annuity (RA) is a long-term retirement savings investment that allows you to save for your retirement years. Your RA will be invested in underlying funds within your RA structure with the aim of potentially growing your capital for your retirement years. You are able to contribute to your RA via regular or lump sum contributions, depending on your preferences. At age 55, you may retire from your RA, and the savings will then be used to purchase an annuity. Your annuity will then provide you with income for your retirement years. You may also take a portion as a lump sum, in accordance with retirement lump sum withdrawal rules.   

A retirement annuity (RA) offers tax advantages you may want to make use of while contributing. For the 2026/27 tax year, retirement fund contributions are tax-deductible within the applicable limits: 27.5% of income, up to a maximum of R430,000 per year. All growth within your RA is tax-exempt. It’s important to review your tax situation, especially after deciding to resume contributing to your RA. During a career break with little or no taxable income, the immediate tax benefit of contributing to an RA may also be reduced.  

If you are taking a break from employment and would like to stop your RA contributions, you can do so. Pausing contributions doesn’t mean your existing savings are withdrawn. They will remain invested in the market and may continue to grow and compound over time. The only difference is that you are no longer actively contributing to your RA, which may impact long-term retirement outcomes.   

You will need to check with your specific service provider when it comes to minimum contributions allowed and pausing contributions. 10X allows investors to pause RA contributions, as required.  H2: Different types of career breaks and their effect on retirement savings

Different types of career breaks and their effect on retirement savings 

There are a few different reasons for taking a career break, each of which may have different financial implications. Let’s have a look at some of the different breaks from employment that you may come across:  

• Maternity leave: This may include a reduced salary or unpaid leave. You may be able to draw UIF during this time. 
• Unemployment: Living expenses could be a priority here while you look for other work or ways to earn an income. 
• Studying: Studying further may have an impact on your income as you may not be working or only working part-time. 
• Sabbatical: You may need to use savings to cover expenses during this time, depending on your kind of sabbatical. 
• Caregiving: This may also reduce the income you are earning.  

You will need to assess your particular employment break, available savings and financial situation and how this will impact your retirement plan and long-term saving goals. 

Retirement annuity fees during a career break 

Even if you take a break from contributing to your RA, fees are likely to still be charged. Higher fees may result in fewer returns to reinvest in your RA, while lower fees may mean more returns to reinvest, potentially growing and compounding over time. If you are interested in finding out more about fees, check out our article covering the math.  Some of the fees that you may see charged on your RA are the following:  

• Administration fees: These are the fees charged for the admin tasks. These would include tasks such as compliance, reporting, tax, and more. 
• Management fees: The fees charged for the management of the fund. 
• Advisor fees: Your advisor will charge for the advice that they give you. They may charge both an initial and an ongoing fee. 

 We will now have a look at an example to help explain the effect that fees may have on your RA. Let’s assume the following for our example:  

• Starting capital: R0 
• Monthly contributions: R4,000 at the end of each month 
• Contribution increase: 5% annual contribution increase 
• Investment period: 30 years 
• Gross annual return: 10% p.a. 
• Inflation rate: 5% p.a. 
• No withdrawals are made during the investment period, and contributions remain fixed 

Scenario 1 - 1% fees: After 30 years, your RA will grow to an estimated inflation-adjusted value of R2.7 million.  

Scenario 2 - 3% fees: After 30 years, your RA will grow to an estimated inflation-adjusted value of R1.9 million.  We can see how small differences in fees may lead to major differences in retirement outcomes. This example is for illustrative purposes only and real results may vary.  Here are some terms related to costs that you may come across on your investment statement:  

• TER (Total Expense Ratio): These are the ongoing expenses within an investment fund. 
• TIC (Total Investment Charge): This combines the TER and the transaction costs within the fund. 
• EAC (Effective Annual Cost): This is an annualised estimate of the impact of product, investment management advice, administration fees, and all other applicable charges. 

Effective Annual Cost (EAC) was introduced by ASISA in 2015. This standardised metric allows you to compare the costs of different products and providers more easily. It will depend on the product you are invested in, but this may include management fees, administration costs, advice fees, penalties, guarantees and the effect of loyalty bonuses.  

Assuming all other factors are equal, a lower EAC may leave more of your savings invested and available to potentially earn returns and grow over time. A higher EAC may put more pressure on net returns as fees compound. Costs shouldn’t be considered in isolation, since service and product features also matter.  It’s important to review fees, even if you are not currently contributing to your RA.  At 10X, we strive to keep our fees low, transparent and clear for all investors to understand. Please visit our RA information page to see more on RA fees. 

Career breaks and the Two-Pot Retirement System 

The Two-Pot Retirement System was introduced in South Africa in September 2024. This has affected the way that contributions and withdrawals from retirement products are now handled. There are now 3 components, namely: the savings component, retirement component and the vested component. Each of these components has different rules applied to it. 

Let’s have a look at the three components in more detail: 

Savings Component: The savings component allows for some access to money prior to retirement. A withdrawal is allowed once per tax year, for a minimum amount of R2,000. There will be an admin fee charged, as well as a tax at your marginal income tax rate. 

Retirement Component: The retirement component will remain preserved until retirement and should be used to provide an income for retirement. 

Vested Component: The vested component is for your savings prior to 1st September 2024, and the rules prior to September 2024 apply here. 

Example 1: If you contribute R6,000 to a retirement fund after implementation of the Two-Pot retirement system, R2,000 is allocated to the savings component, and R4,000 is allocated to the retirement component. Of course, any withdrawals from the savings component mean that there is less to potentially compound for retirement. 

Example 2 (Including vested component): Let’s assume that you have R600,000 saved in a retirement fund before 1 September 2024. Upon the introduction of the Two-Pot Retirement System, 10% of this amount, capped at R30,000, is transferred to the savings component as seed capital. The remaining R570,000 would have stayed in the vested component and continued to be governed by the old rules. If you then contribute R6,000 after implementation of the Two-Pot Retirement System, R2,000 will be allocated to the savings component and R4,000 to the retirement pot. 

It can be tempting to withdraw money from your savings, especially during a break from work, but it’s important to consider the impact. Ideally, your money should remain invested so they have the potential to grow and support you in retirement. Keeping some savings in an easily accessible account can also help cover emergencies. 

Should you change your retirement annuity fund selection during a career break?

If you’re taking a career break, this doesn’t mean that you will necessarily need to change your underlying funds or asset allocation. You would still want to base your fund selection on the usual factors, such as your risk profile, investment timelines and your long-term financial goals and retirement plan. You generally want to avoid going too conservative with your fund selection, while also avoiding an overly aggressive, high-risk one to make up for not contributing. The key is to find the right balance that aligns with your needs and goals. 

The typical asset classes that you would find included in the various funds on offer are: equities, real estate, bonds and cash. You can also invest offshore. At 10X, our funds have been carefully selected so you don’t need to choose individual assets; instead, you can choose a fund that suits your investor profile, long-term financial goals, and retirement plan. Asset allocation is an important factor when it comes to the performance of your RA, as shown by the research from Brinson, Singer and Beebower.  

Equities are included in your portfolio to provide long-term capital growth and the potential to earn returns above inflation. They add exposure to companies and economic growth. However, they may also experience market declines, with values fluctuating substantially over shorter periods. As a result, they may be more appropriate for investors with longer time horizons and the ability to tolerate volatility.  

Bonds may add income, diversification, and some stability in your portfolio. They are likely to be less volatile than equities but may still carry some risk. You may find that values are affected by changes in interest rates, inflation expectations and the ability of the issuer to repay its debt. They may still outperform expectations despite generally being more conservative.  

Real estate can generate income through rentals and distributions while also giving exposure to real assets and economic activity. It may also provide long-term growth in your portfolio. Listed property can be volatile and may be affected by factors such as interest rates, occupancy levels, economic activity, and changes in the property market. Real estate can also be a good hedge against inflation.  

Cash is the most stable and liquid of the asset classes, being less volatile than equities or real estate. It may not keep up with inflation over the long term, which could affect purchasing power.  Retirement annuities are subject to Regulation 28 of the Pension Funds Act. This limits the extent of exposure to equities and offshore assets permitted in your portfolio. This is to help investors avoid poorly diversified portfolios. Current regulations allow a maximum of 45% exposure to offshore assets and 75% exposure to equities.  Our funds at 10X are well-diversified across various asset classes and Regulation 28-compliant. Please visit our funds page to find out more about the funds you may invest in through your RA. 

How to restart your RA contributions after a career break 

Once you return to work or start earning an income again, you may want to consider restarting your RA contributions. The first step is to review your current financial situation, including your income, expenses, outstanding debt and emergency savings. You want to ensure that the amount you contribute is affordable and sustainable over the long term.   

You don’t necessarily need to restart your contributions at the same amount as before your career break. You may prefer to begin with a smaller monthly debit order and gradually increase your contributions as your financial situation improves. You could also consider making additional lump-sum contributions when you have extra money available.   

It’s also important to think about how your career break may have affected your retirement savings and long-term goals. You can use our 10X Retirement Annuity Calculator to explore different contribution amounts and assess whether you’re still on track to meet your retirement objectives. This can help you make informed decisions about rebuilding your retirement savings after a period away from work.  

Retirement annuity review checklist after a career break 

After a break from contributing to your RA, you may like to do a review of your RA to see where you are at. Let’s have a look at a checklist that you may like to make use of. Ask yourself the following questions:  

• What are my investment timelines? 
• Do I now have sufficient income to restart my RA contributions? 
• Are the fees that I am paying reasonable? 
• Is my fund selection in line with my risk profile, investment timelines and long-term financial goals? 
• Have there been any changes in my tax? 
• Did I make any withdrawals from my savings pot? 
• Have my retirement plans or goals changed at all? 
• Am I still on track with my retirement objectives? 

It is always a good idea to review your RA annually and especially after any significant changes in your situation.  

How 10X can support RA investors 

10X is a service provider that is focused on offering RA investors low fees, transparency and long-term investment growth. Our investment strategy is index-based, whilst also including a more active approach to asset allocation. Our funds are well-diversified and Regulation 28 compliant, allowing you to select a fund that suits your needs best.  

There is flexibility in your RA contributions: you may prefer to contribute monthly or as a lump sum. You can also pause contributions if needed and resume them once you have the means. We offer a range of free online tools on our website to assist with planning. You may like to try the EAC Calculator, Two-Pot Calculator or Retirement Annuity Calculator when doing your reviews.   

Our 10X Investment Consultants are also here to help you should you need to talk through your available options, at no additional cost.  

Final thoughts on retirement annuities and career breaks

Taking a career break doesn’t mean your retirement savings have to stop growing. Your RA will remain invested in the market, even if you pause contributions. You’ll still need to manage fees and your asset allocation, and consider how a break in contributions may affect your long-term financial plan and goals. Aim to restart contributions as soon as you can, and check that you’re still on track with your retirement plans.  If you have any questions, our 10X investment consultants are ready to answer any and all queries you have surrounding retirement annuities and retirement planning.