Putting enough money away for a comfortable retirement is a daunting task and, while we all know that starting early is critical, the numbers are alarming. Statistics from the 2021 10X South African Retirement Reality Report which has just been released are frightening. Around half the people surveyed indicated that they are making no provision for retirement at all, while the other half indicated they have some form of savings plan in place. 74% of survey respondents accept that they will have to supplement their income after retirement – although unemployment statistics make this an unlikely option for many retirees. Interestingly, while 30% of respondents believe that it will take 40 or more years to save for a comfortable retirement, 71% indicated that they have no savings plan at all. And only 8% of respondents – a 2% increase from last year – indicated that they have a proper retirement plan in place.

While the government provides us with excellent incentives to invest through approved retirement funds so as to ultimately relieve the financial burden on the state, the uptake remains critically low, and the overwhelming majority of South Africans remain hopelessly underfunded for their retirement years.

Many employed South Africans have the option of investing through their employer’s pension or provident funds although, with unemployment being at an all-time high, this option is now available to fewer people than before. Retirement annuities, which are personal retirement funds that are not linked to your employer group, therefore make attractive investment vehicles, particularly for those who are self-employed, whose employer does not provide retirement benefits, or for those who want to supplement their pension or provident fund savings.

Modern retirement annuities are unit trust-based, fully transparent and provide investors with complete flexibility when it comes to choosing an investment strategy, albeit within the ambit of Regulation 28 of the Pension Funds Act. As with all approved retirement funds, investors can save up to 27.5% of their taxable earnings into an approved retirement fund on a tax-deductible basis, up to the annual maximum of R350 000. Besides the tax benefits of investing with pre-tax money, investors enjoy additional benefits in that no CGT, dividends withholding tax or income tax on any growth earned within these funds, meaning that investors benefit from the compounded tax benefits over the long term. However, to benefit fully from such structures, it is important to start early, consistently invest enough for your goals, invest appropriately and avoid dipping into your retirement savings. Simply put, the best time to start saving is right now – and if you’re still waiting to save, consider the following scenarios which demonstrate the cost of delaying your investment journey.

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