Why simplicity matters in your retirement annuity

The uncomfortable truth about retirement in South Africa - Rands and Sense by 10X [video]

We sit down with 10X Investment Consultant lead Andre Tuck and discuss the retirement savings crisis in South Africa. We also delve into living annuities, retirement annuities, TFSAs and everything in between. Read more

It can be easy, as an investor, to think that choosing a more complex investment strategy for your retirement annuity will lead to better long-term performance and outcomes. But a more complicated strategy may instead result in higher costs, emotional decision-making and, at times, confusion. This may lead to less desirable retirement outcomes in the long term.

Rather, focusing on a simpler approach that includes consistency and discipline may produce better results in the long run. Simplicity, when it comes to your retirement annuity, may help you stay focused on your long-term retirement goals, reduce emotional decision-making, and keep costs on the lower end of the spectrum.

In this article, we’ll take a closer look at the benefits of taking a simple approach to your retirement annuity investment strategy.

What is a retirement annuity?

A retirement annuity (RA) is a long-term investment retirement savings vehicle that allows you to save for your retirement years, while also taking advantage of the attractive tax benefits on offer. Updated regulations from the 1st of March 2026 state that contributions are tax-deductible up to R430,000 and a maximum of 27.5% of your salary per annum. This may reduce your taxable income.

All growth within the retirement annuity is tax-free, allowing for more of your returns to be reinvested and to grow and compound over time. Your retirement annuity is a cornerstone of your retirement savings and benefits from a consistent, disciplined investment approach that isn’t overcomplicated.

You can set up a regular debit order to contribute to an RA, or you may instead make lump-sum contributions, depending on your preferences. You can access savings from your retirement annuity from retirement age, which is currently 55 in South Africa, though many continue to work for much longer. The savings will then be used to purchase an annuity (either a life annuity or a living annuity), which will provide you with an income during your retirement years.

The hidden cost of complexity

It's easy for investors to overcomplicate their investment approach when presented with so many options. There is considerable pressure to perform and achieve the best returns, driven by the easy access to information. This may also influence your behaviour as an investor.

It’s natural to want to constantly scrutinise your retirement annuity, and this may, in turn, lead to emotional or knee-jerk decision-making. Emotional decision-making, especially during periods of market volatility, can lead to errors. You may find that you aren’t as focused on your retirement financial goals, and that your attention shifts to current performance.

This may also result in switching funds more often, especially if you find yourself chasing high returns, and this may not always work out. A more complex approach to managing your retirement annuity may also mean higher fees without the long-term returns you were chasing.

The behavioural advantage of simplicity

A simpler investment strategy can help investors avoid any unnecessary complexity, stay disciplined, and remain focused on their long-term retirement goals. Let’s look at a few of the behavioural advantages that a simpler strategy may offer:

• Simplicity encourages discipline: A simpler approach to your investing encourages you to stay disciplined and consistent.
• It reduces emotional decision-making: Keeping things simple and trusting the process may help to reduce emotional decision-making.
• It keeps the focus on retirement goals: Your focus will be on your retirement goals, and there will be less temptation to react to any short-term market volatility and noise that may occur.
• It helps investors avoid performance chasing: Your focus will be on the consistent, long-term returns, and there won’t be any need to chase performance.

The role of asset allocation in a simple retirement annuity strategy

Asset allocation is the mix of asset classes your capital is invested in within the RA wrapper. Your usual asset classes will include equities, real estate, bonds and cash. At 10X, you’ll have the freedom to choose from several different carefully curated funds, each with a different mix of assets and aimed at different investor profiles.

Cash is the most stable and liquid of the asset classes, but is also likely to generate the lowest returns over time. Bonds are also stable but may generate some lower returns; although bonds are generally considered more conservative, they may still outperform expectations. Real estate, on the other hand, may generate some strong returns while also being a good hedge against inflation. Equities will likely produce the best returns in the long run, but they are also 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), although past performance does not guarantee future results. A well-diversified portfolio can help you to balance both your risk and return. You may also consider investing offshore, which can be a good hedge against any local market instability.

Retirement investment products are governed by Regulation 28 of The Pension Funds Act, which means that you will need to adhere to the stipulated limits. Currently, you may invest up to 75% of your portfolio in equities and up to 45% of your portfolio offshore. A simple yet effective way to select your asset allocation is to make sure it is well-aligned with your retirement plan. You also want to align your asset allocation with both your risk tolerance levels and your investment timelines.

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 shows. As mentioned, at 10X, we offer you a well-diversified range of funds to suit a variety of different investor profiles. Please explore our funds page for the most up-to-date fund information.

Why fees matter in your retirement annuity

Fees may affect the growth potential of your RA. High fees may mean that there are fewer returns to compound and grow over time. If the fees you are being charged are lower, this may then mean that there are more available returns to reinvest and to grow over time. It’s important to be aware of the fees that you might be charged for your RA. The typical fees which you may expect to see are as follows:

• Administration fees: There may also be some administration fees. These would be the fees charged for the administration tasks related to the fund, such as compliance, reporting, tax and related.
• Advisor fees: If you are using an advisor, they will charge for the services that they offer. You will usually be charged both an initial and an ongoing fee.
• Management fees: These are the fees that you might see charged for the running and management of the fund.

Higher fees very likely means lower returns (and here's the maths to prove it)

Paying high fees on your retirement investments (such as a retirement annuity or a living annuity) almost always means less money in your pocket, and less money for your retirement. Read more

Let’s look at an example to illustrate the effect of fees of 3% versus fees of 1%: We will assume the following information for our example:

• 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

As this example shows, a difference of just 2% can have an impact on your final investment values. This example is for illustrative purposes only, and real results may vary. You can find out more about the effects of fees on retirement outcomes here.

The Effective Annual Cost (EAC) is a standardised metric which ASISA introduced in 2015. This useful metric will allow you to see all of the fees and costs that are associated with owning an investment product over one year. All things being equal, you may see that a higher EAC would result in fewer returns being available for reinvestment, compared to a lower EAC, which may mean there are more returns available to be reinvested and potentially compound over time. The EAC should be just one factor to consider when comparing service providers.

You may also like to try out our free online EAC calculator, which is a part of our free online suite of tools that can be found on the 10X website. This calculator allows you to compare and evaluate your EAC with that of other service providers. This percentage can be seen on your investment statement or requested from your provider.

Our fees at 10X are kept simple, transparent and low-cost. Fees charged on retirement products are usually 1% or less. This depends on the product selected and the amount invested. Please explore our products for the most up-to-date fee information. Fee information is correct as of 25 May 2026.

The Two-Pot Retirement System

The Two-Pot Retirement System was implemented in September 2024 in South Africa. This has changed the way that both contributions and withdrawals to and from retirement products are now dealt with in South Africa. All contributions to retirement products are now separated between two pots under this new system. These pots are: a ‘retirement pot’ and a ‘savings pot’. There is also a third pot, which is called the ‘vested pot’, for all savings accumulated prior to September 2024. The vested pot is governed by the old rules.

Withdrawals from the savings pot are allowed once per year, for a minimum amount of R2,000. These withdrawals are taxed at your marginal tax rate, and there is also an administration fee charged. The savings pot should ideally remain invested, but it can be accessed in emergencies.

All contributions made to your retirement annuity will be split between the retirement pot and the savings pot. One-third of contributions will go to the savings pot, and two-thirds will be invested in the retirement pot. The retirement pot can only be accessed upon retirement, where it will then be used to purchase either a life or living annuity. Please consult the latest FSCA guidance for the most up-to-date information on the Two-Pot Retirement System.

Why index-tracking investing supports simplicity

Index tracking is an investment strategy that aims to provide stable, consistent, long-term growth for investors. The approach is kept simple: a benchmark index, such as the S&P 500, is mimicked to generate returns similar to this fund. There are fewer activities with such an approach, as there won’t be the need for expenses such as research or analysis, which may result in lower costs and fees for you as an investor.

An actively-managed fund is where your fund manager spends time looking for the funds that he or she believes will generate the best returns in the long-term. This will involve research, analysis, as well as trading costs, which may then increase the overall costs, resulting in potentially higher fees to pay for investors.

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.

At 10X, we use an index-tracking investment strategy alongside a more active approach to asset allocation, while staying focused on long-term retirement outcomes. H2: Common mistakes investors make There are a few common mistakes that investors may make while managing a retirement annuity. Some of these decisions may seem insignificant at the time, but they can have a meaningful impact on your retirement outcomes. Let’s have a further look at some of these:

• Ignoring fees: It’s important to review your fees to ensure that the fees you are being charged are not excessive. Remember, low fees can lead to stronger retirement outcomes in the long-term.
• Not focusing on the long-term: It’s crucial that you always revert to your long-term financial and retirement plan when making decisions. This is a good method of ‘staying on track’. Simplicity can help maintain a disciplined approach.
• Reacting to short-term market noise: Market volatility is a normal part of investing. Making emotional or knee-jerk decisions during periods of uncertainty may negatively impact long-term outcomes. You should ideally avoid becoming distracted by short-term noise.
• Avoid switching funds unnecessarily: Constantly switching between funds in an attempt to chase performance may result in poor long-term investing behaviour. Frequent changes can make it more difficult to remain disciplined and committed to a long-term investment strategy.
• Not reviewing your RA annually: While we recommend not overanalysing your portfolio, your retirement annuity should still be reviewed annually to make sure that your asset allocation, fees and investment strategy stay aligned with your investor profile, retirement timelines, and financial goals.

Final thoughts: Simplicity can be powerful

It’s easy to over-complicate your retirement investing, but this doesn’t need to be the case. Simplicity can be a powerful tool when it comes to your investing journey. By taking a simple approach to investing that focuses on consistent, long-term investing, low fees and a diversified portfolio, you can set yourself on the right track to meet your retirement goals. If you have any queries regarding your retirement annuity, the helpful and knowledgeable investment consultants at 10X are here to assist you! Get in touch today!