By Marschant Probart – Certified Financial Planner

Updated 30 July 2025

Are you paying more tax than necessary?

If you’re a high-earning South African, chances are you are. The good news: Retirement Annuities (RAs) and Endowment policies offer powerful, legal ways to cut your tax bill, grow your savings, and streamline estate planning.

In this article, we’ll explain:

• How to use Retirement Annuities to reduce personal income tax
• How Endowments help lower capital gains tax and simplify estate planning
• Real examples that show just how much tax you can save

1. Slash Income Tax with a Retirement Annuity (RA)

What is a Retirement Annuity?

A Retirement Annuity (RA) is a personal, tax-deductible investment vehicle designed to help you save for retirement.

Key benefits of an RA:

• Contributions are tax-deductible up to 27.5% of your taxable income (capped at R350,000/year)
• No tax on growth (interest, dividends, or capital gains) within the RA
• Partial tax-free withdrawal at retirement (from age 55)

Example: Tax Saving Using a RA

Let’s compare two scenarios: contributing vs not contributing to a RA.

Scenario 1 – No RA Contributions

• Gross Income: R90,000/month
• Tax paid: R27,090/month
• Effective tax rate: 30%

Scenario 2 – Max RA Contribution (27.5%)

• RA Contribution: R24,750/month
• Tax paid: R17,068/month
• Effective tax rate: 19%

Result: You save R10,022 in tax every month.
Plus, you’re investing R24,750 toward retirement at a real cost of just R14,728 thanks to the tax deduction.

Bonus: Section 10C – Overcontribution Advantage

Even if you contribute more than the allowed limit (R350,000/year), those excess contributions aren’t lost. They are deferred and can be used in retirement to:

• Reduce taxable income
• Lower tax on lump-sum withdrawals

Example:

• RA balance at 55: R10 million
• Over-contributions: R3.5 million
• Retirement income needed: R50,000/month
  👉 Pay zero income tax for the first 5 years of retirement using the deferred contributions.

2. Reduce Capital Gains Tax with an Endowment Policy

What is an Endowment?

An Endowment policy is a long-term investment product ideal for high-income earners (those with a marginal tax rate above 30%).

Why use an Endowment?

• Tax is capped at 30% for individuals
• Insurer handles all tax admin and reporting
• Invest for at least 5 years with flexible access (1 withdrawal per year)
• Ideal for estate planning and offshore investing

Example: Direct Investment vs Endowment

Direct Investment

• Portfolio Value: R5 million
• Growth over 5 years at 10%: R8,052,550
• Marginal tax rate: 41%
• Capital Gains Tax: R494,058

Endowment Investment

• Same portfolio inside an Endowment
• Tax rate: capped at 30%
• Capital Gains Tax: R361,506

Tax saving: R132,552 – that’s a 26.8% reduction in CGT.

Estate Planning Benefits of Endowments

Endowments aren’t just tax-smart – they’re estate-smart too.

✅ Nominate beneficiaries and save up to 4.025% (incl. VAT) in executor’s fees

Example: On R8 million, you save R324,115

✅ No offshore probate or will needed
✅ Simplified tax admin – no SARS headaches
✅ Taxed under the Five Funds Approach – the insurer pays all tax on your behalf

Bottom Line: Legally Lower Your Taxes and Build Wealth Faster

By incorporating Retirement Annuities and Endowment policies into your financial strategy, you can:
✅ Keep more of your income
✅ Grow your investments tax-efficiently
✅ Simplify wealth transfer to your heirs

Final Thoughts

Tax is likely the biggest expense you’ll face in your lifetime – but unlike most expenses, it can be reduced.

If you’re earning well and saving hard, don’t let unnecessary tax erode your progress. With smart planning and the right financial products, you can significantly cut your tax liability and accelerate your journey to financial independence.

Need help optimising your taxes and investment structure?
Reach out today – and let’s create a tax-smart wealth plan that works for you.