Key Takeaways
- You can deduct up to 27.5% of your taxable income in RA contributions, capped at R350 000/year.
- The higher your marginal tax rate, the more valuable the RA deduction becomes.
- Excess contributions above the annual limit roll over to future tax years.
- Undeducted contributions reduce the tax on your retirement lump sum at exit.
- Self-employed South Africans benefit most — the RA is their main tax relief vehicle.
Last updated 25 February 2026
This article explains how the retirement annuity tax deduction works in South Africa and how much tax you can save based on your income. If you’re contributing to a retirement annuity, you’re entitled to a tax deduction. That deduction lowers your taxable income, which means you pay less tax now. The question most people have is: how much less?
The answer depends on two things: how much you contribute, and what tax bracket you’re in.
How the 27.5% Rule Works
SARS allows you to deduct retirement annuity contributions from your taxable income, up to 27.5% of your remuneration or taxable income for the year. There’s also a hard cap: R350,000 per tax year.
That means if you earn R500,000 a year, you can deduct up to R137,500 (which is 27.5% of R500,000). If you earn R2 million a year, you can still only deduct R350,000; the cap kicks in before you hit 27.5%.
The deduction happens before tax is calculated. So if you earn R500,000 and contribute R100,000 to your RA, SARS only taxes you on R400,000. The R100,000 you contributed is excluded from your taxable income entirely.
Retirement Annuity Tax Deduction in South Africa
Your marginal tax rate is the percentage of tax you pay on your last rand earned. In SA, SARS uses a progressive tax system, which means the more you earn, the higher the rate on each additional rand.
For the 2025/2026 tax year, the brackets look like this, according to SARS:
| Taxable income (R) | Rates of tax (R) |
|---|---|
| 1 – 237 100 | 18% of taxable income |
| 237 101 – 370 500 | 42 678 + 26% of taxable income above 237 100 |
| 370 501 – 512 800 | 77 362 + 31% of taxable income above 370 500 |
| 512 801 – 673 000 | 121 475 + 36% of taxable income above 512 800 |
| 673 001 – 857 900 | 179 147 + 39% of taxable income above 673 000 |
| 857 901 – 1 817 000 | 251 258 + 41% of taxable income above 857 900 |
| 1 817 001 and above | 644 489 + 45% of taxable income above 1 817 000 |
If your taxable income is R550,000, you don’t pay 36% on the entire amount. You pay 18% on the first R237,100, then 26% on the next slice, then 31%, and only 36% on the portion above R512,800.
There’s also a primary rebate of R17,235 that gets subtracted from your total tax bill. That’s why someone earning R95,750 per annum or less pays zero tax.
When you make an RA contribution, it reduces your taxable income from the top down. That means the tax savings usually happen at or near your marginal rate, which is the highest rate you’re currently paying.
Example 1: 31% Tax Bracket (R400,000 Taxable Income)
You earn R400,000 a year. Your marginal tax rate is 31%, and let’s assume you contribute R50,000 annually to your retirement annuity, dropping your taxable income to R350,000.
Without contributing to your RA, your tax payable will be R69,272. With the RA contribution, your tax payable will be R54,797. This means you save about R14 475 in tax.
Use our Retirement Annuity Calculator to estimate the value of your contributions at retirement.
The impact of your RA deduction
The higher your marginal tax rate, the more valuable the RA deduction becomes. If you’re in the 18% bracket, a R10,000 contribution saves you roughly R1,800 in tax. If you’re in the 45% bracket, that same R10,000 saves you R4,500.
That’s why retirement annuities tend to make the most sense for people earning above the 31% threshold, roughly R370,500 and up. Below that level, the tax saving is real but smaller. Above that level, the government is effectively funding a third to nearly half of your retirement contribution.
Self-employed people and high earners without workplace pension schemes tend to benefit most. If you’re already contributing to a company pension fund, those contributions also count toward your 27.5% limit, so there’s less room left for an RA deduction.
If you’re a small business, self-employed, or running a freelance business, then you need a platform that allows you to create invoices, quotes, track expenses, and explore other tax tools in one simple app without an accounting degree. Eazy-biz is the best platform for you.
Exceeding the limits of a Retirement Annuity
If you contribute more than 27.5% of your taxable income, or more than R350,000 in a year, the excess doesn’t disappear. It rolls over to the next tax year and can be deducted then, subject to the same limits.
So if you contribute R200,000 this year but only qualify for a R150,000 deduction based on the 27.5% rule, the remaining R50,000 carries forward. You can claim it next year, assuming you still have room under the 27.5% threshold.
But there’s no benefit to exceeding the limits deliberately. The deduction only works when it reduces your taxable income in the year you claim it. Delaying it just delays the tax benefit.
Consult a Financial Advisor
This article explains how the retirement annuity tax deduction works and provides examples based on current SARS tax tables. It does not constitute financial advice.
Your personal tax situation depends on your total income, existing retirement fund contributions, employment status, medical aid credits, and other factors that affect your tax liability. What makes sense for someone else may not make sense for you.
Before making any decisions about retirement annuities or tax planning, consult a certified financial planner who can assess your specific circumstances and help you structure contributions in a way that aligns with your retirement goals and current tax position.
If you want to estimate your own numbers, use an RA calculator to model different contribution amounts, or a salary calculator to work out your taxable income.
Use those tools as a starting point for a conversation with a professional, not as a substitute for proper advice.
Sphiwe Maluleka
Personal Finance Educator · The Azanian Investor
I help South Africans start investing with clarity and confidence — no jargon, no sponsored content. Everything I write is based on official SARS data, Stats SA research, and JSE-listed instruments.