Understanding the real value of your retirement annuity: How growth, fees and inflation combine

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The real investment value of your retirement annuity is how much you have left after taking into account all of the relevant cost factors. A common mistake made by investors is to focus on the gross returns while overlooking important elements such as inflation, fees and compounding costs.  

These factors can all potentially erode a seemingly strong return into something much less significant in terms of purchasing power at retirement. Hence, the importance of looking at the real value of your retirement annuity, as it shows what you’re really getting after all the noise has been removed. 

In this article, we will be taking an in-depth look at how to evaluate your retirement annuity (RA) beyond the surface numbers, and discuss how to find the real value of your retirement savings.  

Measuring retirement annuity growth  

As you review your retirement annuity statement, the first thing you’ll notice is the gross growth, which is the total return your investment has earned before taking into account external factors and costs. Gross growth is a reflection of how well your money has performed in the market, and while it is an important measure, it fails to paint the full picture.  

The real value of your retirement annuity is what you’re left with after factoring in external factors such as fees and inflation. This is what really matters when it comes to retirement savings, as this is the amount that actually contributes to building your retirement.  

When it comes to retirement savings, this is a critical distinction. For example, a fund might report gross growth of 10%, but after fees and inflation, that number may be significantly reduced. After years of compounding, that difference can equal hundreds of thousands of rands less (or more) in your retirement pot.  

As an investor, you need to shift your focus from gross returns to looking at the value after all costs, and optimise those costs where you can. 

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The long-term impact of fees 

As mentioned, fees play a major role in your retirement outcomes and must be taken into account when determining final returns. Higher fees may reduce the available returns to be reinvested, and this can impact the growth of your RA, especially when compounded over the long term. Lower fees, on the other hand, may result in there being more returns available to compound and potentially grow over time, which can work significantly in your favour.  

Let’s have a look at the effect of 1% fees versus fees of 3%, when compounded over time, assuming the following factors: 

Investment period of 30 years 

Initial lump sum investment of R50,000 

Monthly contributions of R2000 

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 

As you can see, a seemingly small difference in fees can mean a significant difference in real investment value when compounded over many years. This example is for illustrative purposes only, and actual results may vary. 

The Effective Annual Cost (EAC) of your retirement annuity is a standardised metric introduced by ASISA in 2015. Your EAC highlights all the costs and fees associated with owning an investment over a one-year period of time. You can usually view your EAC on your investment statement, or it can be requested from your service provider. The fees which you may see making up your EAC are the following: 

Administration fees: These are fees charged for administration-related tasks such as tax, compliance and reporting. 

Advisor fees: An advisor may charge fees for their services and the financial advice being provided. There could be both an initial and an ongoing fee charged. 

Management fees: This refers to the fees charged for the management of the fund. 

Other fees: There may also be other applicable fees, such as early exit penalties. 

All factors being equal, you may find that a higher EAC means that there are fewer returns to compound and grow over time. On the other hand, a lower EAC means that there may be more returns available to compound over the long term. Keep in mind that when comparing different service providers, the EAC of your investment is just one factor to consider.  

10X offers this useful EAC calculator here. This is a free tool which allows you to compare your current EAC with that of 10X, and use this information to help you analyse the various costs involved with your investment. With this information on hand, you can determine whether you would like to switch service providers or not.  

At 10X, fees are kept low, simple and easy to understand for all investors. There are also no hidden costs. Fees charged on retirement products are usually 1% or less, depending on the product chosen and the amount invested. Please visit our website for the most up-to-date fee information.  

Real returns: Adjusting for inflation  

Inflation is the gradual increase in the cost of goods and services over time. In simple terms, it means that the same amount of money buys you less in the future than it does today. In South Africa, inflation typically averages around 6% per year. You can see inflation at play whenever you do some grocery shopping, as goods will undoubtedly be slightly more expensive than they were the year before. Over time, these small increases add up.

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In order for your retirement annuity to grow, you need to ensure that it is outperforming inflation. Of course, when evaluating the returns that your retirement annuity is making, be sure to look at the real returns and not just the nominal returns. Real returns are calculated by adjusting nominal returns for inflation. Let’s look at an example:  

If your retirement annuity has generated a return of 12% over a defined period of time, and inflation is on average 6% over that period, then your real return is 6% (12-6). If your RA is generating low returns that do not outpace inflation, then the value of your capital is decreasing over time, once the effects of inflation are factored in. This example is for illustrative purposes only. 

Tax considerations: Contributions, growth, and withdrawals 

Contributions to retirement annuities are tax-deductible, subject to annual limits; these are up to 27.5% of your income or a maximum of R350 000. Investment returns within the retirement annuity are exempt from income tax, dividends tax and capital gains tax while invested, allowing for more of your returns to be invested and potentially grow over time. 

The Two-Pot Retirement System, introduced in September 2024, has changed the way that withdrawals from retirement products operate in South Africa. All contributions to retirement products are now split between a ‘retirement’ and a ‘savings’ pot. There is also a third portion called the ‘vested pot’. The vested pot includes all savings saved prior to September 2024, and is governed by the rules which were in place prior to the introduction of the Two-Pot Retirement System.  

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The savings pot allows limited access to your money before retirement. You can make one withdrawal per tax year for a minimum amount of R2,000. Withdrawals are, however, taxed at your marginal rate and subject to an administration fee. The savings pot should only be accessed in an emergency, such as for medical expenses.  

The majority of your savings go into the retirement pot and remain reserved exclusively for use at retirement. The savings in this pot must be used to purchase a retirement product, such as a living annuity, upon retirement. The idea is to make sure your savings are preserved for your retirement needs.  

As mentioned, there is also a vested component. The vested pot is for your savings accumulated before the system’s introduction, and continues to be governed by the old rules.  Please consult the latest FSCA guidance for the most up-to-date information on the Two-Pot Retirement System.  

The retirement age in South Africa is currently from age 55. At retirement, your retirement annuity will be taxed according to the SARS Retirement Benefit Tax Table, which is as follows: (taken from the SARS website) 

 Retirement annuity asset allocation  

The importance of asset allocation should not be underestimated when structuring and managing your RA. The asset allocation is the mix of different asset classes in which your savings are invested, such as equities, bonds, real estate (property) and cash. As an investor with 10X, you can customise your underlying portfolio by choosing from a selection of carefully curated funds. The different funds have different asset allocations, and each is geared towards different investor profiles. When choosing a retirement annuity fund, you should consider your risk profile, retirement goals, time horizon and financial circumstances. 

Equities may offer the best returns in the long term, albeit also being the most volatile of the asset classes. Historically, equities have shown to outperform inflation in the long term (based on JSE All Share Index performance versus CPI from 1960-2020). Of course, past performance does not guarantee future results. Bonds add stability to a portfolio but are likely to generate lower returns than equities. Cash is the most stable of the asset classes but generally generates the lowest returns.  

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As an investor, you should generally look to diversify your portfolio across the different asset classes, as this would allow for potential gains in certain asset classes while also mitigating against any losses in other asset classes. It may also be beneficial to include some offshore exposure in your portfolio. At the end of the day, finding the right balance comes down to your personal circumstances and investor profile.  

The international market is a lot bigger than the local South African market, so this may offer more access to different industries and companies. Investing offshore could also provide some protection against local market instability due to political instability or similar events, and any subsequent depreciation of the Rand. 

Retirement annuities are governed by Regulation 28 of The Pension Funds Act, which puts a limit on the percentage of your retirement annuity that you may invest both in equities and offshore. Currently, the limits are 75% in equities and 45% offshore. This is to help protect investors against poorly diversified portfolios.  

At 10X, there are a number of RA funds on offer. These funds are suitable for different investor profiles with different timelines and goals. You can find out more about our funds here. Fund information is correct as of 22 August 2025. If you have any queries, feel free to reach out to our investment consultants.  

How to maximise returns in an RA 

There are a few principles you can consider to maximise your returns in a retirement annuity. Let’s look at these: 

Keep fees low  

Be aware of the EAC and fees that you’re being charged and consider switching to a low-cost provider if you realise that fees are eroding your returns. Even small differences can compound into larger amounts over time.  

Diversified asset allocation  

A well-diversified portfolio that includes growth assets may give you a better chance of beating inflation. Generally, you should avoid being overly reliant on more conservative or ‘defensive’ assets, as in the long term, this can reduce growth.  

Contribute regularly to take advantage of compound growth  

Consistent contributions mean you can potentially reap the benefits of compound growth. Even modest amounts added monthly can lead to big retirement outcomes. Let’s take a look at an example of how compound growth works:  

In Scenario 1, you start with a R100k lump sum and generate 6% real return over 30 years.  

In Scenario 2, you start with a R100k lump sum, and you include a R1,000 debit order per month to it for 30 years, also generating 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 amounts compounded over time add up significantly, highlighting the importance of regular contributions.  

Stay invested for the long-term  

Ideally, you should avoid withdrawing from your retirement annuity savings. Withdrawing from your savings would not just reduce your capital, it would interrupt compound growth. By staying invested and focusing on your long-term retirement goals, you are potentially giving yourself the best chance at reaching your retirement goals.  

Final thoughts on growth and fees in retirement annuities  

You should focus on the real investment value of your RA instead of the gross returns, as this will give you a more accurate view of how your retirement plan is going. Inflation and fees may impact the growth of your RA over time, so this should always be reviewed. Keeping fees low, diversifying asset allocation, making regular contributions and staying invested can all contribute to maximising your RA returns.   

10X offers a transparent and low-cost RA which focuses on excellent long-term returns for the investor. To find out more about the 10X RA, follow this link or get in touch with our highly qualified investment consultants today!