Retirement savings - Invest in your future and get tax back soon

For many South Africans, saving for retirement feels like a luxury – something to worry about later. Between home loans, school fees, groceries and everyday expenses, long-term planning often takes a backseat. 

Yet, saving for your retirement can put money back in your pocket sooner than you might think. Thanks to tax benefits offered by the SA Revenue Service (Sars), investing in a retirement annuity (RA) could reduce your taxable income and result in a tax refund – giving you extra cash as soon as it’s tax season, while helping you secure the retirement you deserve.

How the tax benefit works

Sars offers tax incentives to encourage retirement savings. If you contribute to a pension fund, provident fund or RA, you can deduct up to 27.5% of your taxable income (capped at R350 000 per year) from your annual taxable income.

This means that:

• You pay less tax because Sars calculates your tax based on a lower income figure.
• You could receive a tax refund when you submit your annual tax return.
• Your savings grow tax-free in your retirement account, maximising your long-term investment.

Depending on your tax bracket and deductions, you could be eligible for a sizable tax refund from Sars - giving you extra cash in hand that you can put towards your financial goals.

A smarter way to save for retirement

Many people put off saving for retirement because they worry it will stretch their budget too thin. In reality, thanks to Sars’ tax benefits, your retirement contributions won’t impact on your budget as much as you might think. This makes it more affordable to secure your retirement goals.

Let’s look at an example:

Sarah is 30 years old and earns R30 000 per month. She decides to invest R1 000 per month into a retirement annuity, bringing her total annual contribution to R12 000.

Because RA contributions are tax-deductible, she qualifies for a tax refund of R3 120 from Sars at the end of the tax year. This means that while R12 000 is now invested into her retirement savings, and will now start earning compound interest, her actual out-of-pocket expense is only R8 880 after the tax benefit.

By making this small and manageable contribution every month, Sarah is growing her long-term wealth while reducing her immediate tax burden – helping her plan for retirement without putting extra strain on her finances today.

Addressing other common concerns

Affordability is not the only reason some might be hesitant to start saving towards their retirement. Many South Africans share other similar concerns, such as:

• “Retirement feels too far away to worry about now”

The earlier you start, the more time your money has to grow – thanks to the power of compound interest. That means you will have to invest less money in the long-run to reach your retirement goals because you will earn more interest.

• “I don’t know where to start”

With so many financial options, it can feel overwhelming. That’s why partnering with a financial adviser can make all the difference.

Free online tools to help you get started

To make retirement planning easier to understand and more accessible, Old Mutual has created a range of free digital tools to help you get started.

Tax Back calculator – See how much you can get back when you invest in a retirement annuity. Just like Sarah’s example, you can easily work out how much tax you’ll get back during tax season. 

Retirement Annuity calculator – Understand how your savings will grow over time with the power of compound interest.

These tools provide a practical starting point, helping you understand the financial benefits of saving for retirement and giving you the insights needed to make informed decisions. 

Expert financial advice to take the next step

While digital tools give you valuable insights, a financial adviser can help to turn those insights into a personalised plan of action. A qualified financial adviser can:

• Help you maximise your tax savings while building a sustainable retirement plan.
• Guide you in choosing the right annuity options that fit your budget and future needs.
• Review your retirement planning annually to help ensure you remain on track to reach your goals.
• Ensure your retirement strategy aligns with your family’s financial security.

By combining the right tools with expert advice, you can make informed choices that help you build a stronger financial future. Use Old Mutual’s free Tax Back calculator to see how much you can get back when investing in an Old Mutual retirement annuity, or speak to your financial adviser to get started today. 

Disclaimer:

The tax benefits and refunds referenced in this article are based on current South African Revenue Service tax regulations, and are subject to change. The potential tax refund from retirement annuity contributions depends on individual tax circumstances, including total taxable income, other deductions and Sars assessment. 

* Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and Life Insurer.