Is it Possible to Open a New Retirement Annuity After Retirement and Continue to Benefit from Tax Advantages? (Part II)
Thank you for your inquiry. To put it simply, yes – there are no legal restrictions against opening a new retirement annuity (RA) once you have retired from another retirement fund and begun receiving your living or guaranteed annuity income.
Read: Can I open a new retirement annuity after retiring and still receive tax benefits? (Part I)
The term “retirement” refers to membership in a particular retirement fund and does not pertain to you personally, which means this opportunity remains viable.
The tax deduction is determined by income, not by employment status.
As it stands, the deduction is limited to the lesser of three criteria: 27.5% of the greater of remuneration or taxable income (including capital gains); taxable income (excluding capital gains); or R430,000.
Your existing annuity counts as taxable income, allowing you to establish a deduction limit based on it even if you do not have a salary. Additional income sources such as consulting or directorship fees, rental income, interest, and more can contribute to this base and may enhance your contribution and deduction limits.
Here are a few important considerations …
If your annuity income is below the tax threshold, making contributions to a new RA will not provide a tax advantage in the form of a deduction prior to tax calculation.
Any contributions exceeding your deductible limit are not lost from a tax deduction perspective. These excess contributions are carried forward by the South African Revenue Service (SARS) and classified as deemed contributions in the subsequent tax year.
Read:
The retirement lump-sum decision: Strategy before access
How should you invest a retirement lump sum to supplement annuity income?
These last two scenarios present the significant long-term benefits for someone in your situation.
They guarantee that contributions which were never deducted can still offer advantages by lowering the taxable portion of your eventual lump sum or annuity income from this new RA.
Thus, even contributions that do not provide an immediate tax deduction can still benefit you in the long run.
Regarding access: since you have already retired from your existing fund, you are presumably over 55, which is the minimum retirement age for any RA. This alleviates the typical lock-in concerns.
Upon retiring from the new fund, the usual division of one-third lump sum and two-thirds annuitisation applies, unless the value falls below the de minimis threshold of R360,000 (effective from 1 March 2026), at which point the entire amount can be taken as a lump sum.
It’s essential to apply these regulations to the various elements of your retirement fund membership, so consider consulting your financial advisor for detailed guidance.
For many clients who are retired, the deduction is less significant compared to the quieter advantages related to estate planning.
Investments within retirement funds, including a new RA, are excluded from your estate concerning estate duty and executor’s fees.
Distributions are managed under Section 37C of the Pension Funds Act, rather than by your will, with trustees accountable for distributing benefits among dependants and nominated beneficiaries.
Read:
Timing matters: Retiring from your retirement annuity
One retirement annuity or several? A strategic decision with long-term ramifications
You may lose some direct control compared to a will, but you gain substantial efficiency: no estate duty (20% up to R30 million, 25% above), no executor’s fees on that part (up to 3.5% plus value-added tax), and no delays in estate settlement before beneficiaries receive the funds.
Therefore, yes, you can open a new RA and still benefit in numerous ways:
- Through the contribution deduction, depending on your income;
- Via a deduction when retirement fund lump-sum tax is assessed;
- Through Section 10C relief once you eventually retire from the fund; and
- With the estate-planning advantages.
I recommend asking your advisor to determine how these benefits apply significantly to your unique circumstances, as their value will vary depending on your marginal tax rate and overall estate strategy.