Retirement annuities (RAs) remain one of the most effective vehicles available to South Africans for building long-term wealth. Their appeal lies not only in their tax efficiency, but also in the structure and discipline they impose on retirement savings.
Yet, as investors accumulate policies over time – often through job changes, advisor transitions, or evolving product offerings – a common question begins to emerge: should you consolidate your RAs into a single structure, or can there be strategic value in holding more than one?
ADVERTISEMENT
CONTINUE READING BELOW
In our experience, the decision is less about how many RAs you have and more about why you have them.
Start with what you already have
Before considering whether to open an additional RA – or consolidate existing ones – it is critical to understand the nature of your current structures – because not all RAs are created equal.
Many older RAs, particularly those issued by life insurers, are contract-based policies that invariably come with inflexible contribution terms, higher embedded costs, and, in some cases, early termination penalties.
While these policies may have served a purpose at the time of inception, they can become increasingly restrictive as your financial circumstances evolve.
By contrast, modern unit trust-based RAs are typically far more flexible, allowing for contribution adjustments without penalty, offering transparent fee structures, and providing access to a wide range of underlying investments. For investors still contributing towards retirement, this flexibility can be highly valuable.
Read: Maximising your legacy: Five ways to lower your estate duty
Where an existing RA is outdated or inefficient, it may be worth considering a transfer into a more modern structure. In many cases, this can be achieved through a Section 14 transfer in terms of the Pension Funds Act – a process that allows the investment to be moved without triggering tax.
However, this process should never be approached lightly – penalties, guarantees, and policy conditions must be carefully assessed before proceeding.
When multiple RAs may make sense
While simplicity is often desirable, there are specific circumstances where holding more than one RA can be both intentional and advantageous.
One of the most common scenarios involves so-called ‘grandfathered’ RAs. These are typically older policies that are not fully subject to current regulatory constraints.
In some cases, they may allow for greater investment freedom or carry legacy benefits that would be lost if the structure were altered. Importantly, increasing contributions to these policies can result in them losing their grandfathered status – and in such circumstances, it may be more appropriate to preserve the existing RA in its current form, while directing new contributions into a separate, modern RA.
Another often-overlooked advantage of multiple RAs emerges at retirement. Each RA effectively becomes its own retirement ‘event,’ allowing you to annuitise them at different times.
This creates an opportunity for phased retirement, where you can begin drawing an income from one RA while allowing the others to remain invested and continue compounding.
Further to this, once converted into living annuities, each policy will have its own anniversary date on which drawdown rates can be reviewed and adjusted. For investors seeking greater control over income timing – particularly in volatile markets – this flexibility can be valuable.
Rather than being locked into a single annual adjustment, multiple policies can allow for more responsive income management over time.
Read: The hidden accelerator
The case for consolidation on a modern investment platform
Despite these advantages, there is a strong argument for consolidation in many cases – particularly where multiple RAs have been accumulated without a clear strategy.
ADVERTISEMENT:
CONTINUE READING BELOW
Fragmented retirement savings can lead to duplicated fees, inconsistent investment strategies, and unnecessary administrative complexity. It also becomes more difficult to maintain a coherent asset allocation when investments are spread across multiple platforms and providers.
Consolidating into a single, well-structured RA can improve transparency, reduce costs, and make it easier to manage your overall retirement strategy. It allows for a unified investment approach, clearer reporting, and a more streamlined engagement with your financial plan.
From a behavioural perspective, simplicity often leads to better outcomes as investors are more likely to remain disciplined when their strategy is easy to understand and manage.
Tax considerations remain unchanged
From a tax perspective, it is important to note that the South African Revenue Service does not distinguish between multiple RAs and a single RA. Contributions across all retirement funding vehicles – RAs, pension funds, and provident funds – are aggregated when applying the 27.5% deduction (subject to the annual cap).
Similarly, the tax treatment at retirement remains the same, regardless of how many RAs you hold. The ability to take a lump sum, the requirement to annuitise, and the tax applied to withdrawals are governed by the same rules.
The decision to hold multiple RAs is therefore not a tax-driven one, but rather a strategic and structural consideration.
Read: Retirement annuities remain SA’s most misunderstood investment
Estate planning and beneficiary considerations
Retirement annuities also occupy a unique position in estate planning because, being retirement fund assets, they fall outside of your estate and are distributed in terms of Section 37C of the Pension Funds Act. This means that trustees are responsible for allocating benefits to financial dependants and nominated beneficiaries.
Holding multiple RAs does not change this principle, but it can introduce practical considerations. Each RA will be assessed independently by its respective fund trustees, which may result in different timelines or outcomes in the distribution process. Where consolidation is appropriate, it can simplify administration for both the investor and their beneficiaries.
However, where multiple RAs are retained for strategic reasons, it is important that beneficiary nominations are consistently updated across all policies.
In practice, we find that multiple RAs are often the result of circumstance rather than strategy. Policies are opened at different points in time, under different advice frameworks, and with little consideration for how they fit together.
Read: The end of February rush: Why your retirement annuity is your best wealth shield
The real value lies in stepping back and assessing how these structures work together in the context of your broader financial plan. There are clear scenarios where maintaining more than one RA is not only justified but advantageous – whether to preserve grandfathered benefits, enable a phased retirement, or introduce greater flexibility in managing income over time.
Equally, there are many cases where consolidation can reduce costs, simplify administration, and strengthen overall investment coherence.
Ultimately, the decision should not be driven by product preference or convenience, but by intentional design. The objective is not to minimise or maximise the number of retirement annuities you hold, but to ensure that each structure plays a defined role in supporting a well-coordinated strategy aimed at long-term financial independence.
