Saving for Retirement: Pre- & Post-Retirement Accounts

WHY SAVING FOR RETIREMENT MATTERS

Long-term investing for retirement works best when three things happen at the same time:

• You start early and keep contributing (so compounding has time to do the heavy lifting).
• Your money grows faster than inflation over time, so your purchasing power doesn’t shrink.
• You invest as tax-efficiently as possible, so more of the return stays in your hands.

Markets can be noisy year to year, but time is the investor’s advantage. Over longer periods, the focus shifts away from short-term volatility and toward building a growing pool of capital — so the key mindset shift is to think in decades, not years.

As you reach retirement, the goal pivots from accumulation to decumulation — where your investments are structured to provide an income, while remaining invested to support a retirement that could last 20–30 years or more.

HOW TO START SAVING FOR RETIREMENT: A THREE-STEP PROCESS

With that in mind, the goal is to set up a structure that makes accumulation easier: contribute consistently, use the right account for retirement saving, and choose an investment strategy that matches your time horizon. A simple three-step process can help you get started:

1. Decide on a contribution you can commit to
   With a Coronation Retirement Annuity, you can start from R500 per month, or an initial lump sum of R10,000.
   
   
2. Choose the investment account that fits the job
   Retirement Annuity (RA): a simple account that lets South African investors save for retirement. It invests in unit trusts and offers tax benefits to help you grow your nest egg. Post-retirement, a living annuity can help you draw a retirement income while your savings remain invested.
   
   
3. Select a Coronation fund that matches your time horizon
   Coronation’s long-term investing approach highlights the role of growth assets over time, and the use of multi-asset growth funds to help investors stay invested through cycles.

Below is how the main retirement accounts work across the two phases — building before retirement, then drawing an income after retirement.

RETIREMENT SAVINGS PLANS WITH CORONATION

Retirement saving usually has two phases: building and preserving capital before retirement, then converting that capital into a sustainable income after retirement.

PRE-RETIREMENT: BUILDING YOUR RETIREMENT SAVINGS WITH RAs AND PRESERVATION FUNDS

Before retirement, an RA and a preservation fund usually play two different roles: an RA helps you make ongoing contributions, while a preservation fund helps you keep and grow retirement savings you’ve already built when you change jobs.

Both accounts are designed for long-term saving. An RA is meant for retirement, with limited access before then under the rules, while a preservation fund is meant to preserve what you already have until you retire.

• Retirement Annuity (RA): long-term, tax-efficient retirement saving

An RA offers dual tax benefits that make it a popular way to build up capital for retirement: RA contributions are tax-deductible up to certain limits (for example, up to 27.5% or R430,000 annually, whichever is lower), and investment growth while invested in the RA is tax-free. This allows compounding to work on the full gross return rather than the after-tax remainder.

How it works: when you contribute, your money is split into two components invested in the same underlying fund/s:

• Two-thirds goes to the Retirement Income Component
• One-third goes to the Retirement Lump Sum Component

These two components are commonly referred to as the “two-pot” system — the Retirement Income Component (retirement pot) and the Retirement Lump Sum Component (savings pot).

• Preservation Fund: preserve and grow what you’ve already saved

A preservation fund helps you keep and grow your retirement savings tax-efficiently until you retire — typically when you change jobs or your workplace pension/provident fund closes. It’s designed to help you keep retirement savings invested for the long term, instead of interrupting compounding when your employment changes.

You make a once-off investment (minimum R50,000) and transfer savings in; once invested, you cannot add more later because the account is meant to preserve what you already have.

POST-RETIREMENT: DRAWING AN INCOME WITH A LIVING ANNUITY

A living annuity is a flexible investment account that can pay you a retirement income while the underlying investment remains invested and can continue to grow. It’s typically funded with the proceeds from an RA, preservation fund, pension or provident fund when you retire.

• You choose your annual drawdown rate within the prescribed range (2.5%–17.5% of the investment value per year) and you can change it annually.
• You choose the underlying fund(s) to invest in and can switch between funds over time as your circumstances change.
• The income you draw is taxed at your marginal income tax rate, and the remaining value can be paid to your nominated beneficiaries.

READY TO START SAVING FOR RETIREMENT?

Saving for retirement gets easier when you can turn “I should start” into real numbers. Use Coronation’s investment calculator to see how Regulation 28-managed retirement funds (such as Balanced Plus) might have performed if you had invested sooner — based on past performance, with all calculation assumptions explained on the tool. And because retirement planning includes both accumulation and income, it’s worth understanding the post-retirement picture too — where a living annuity can be invested in funds such as Capital Plus and Balanced Defensive.

Learn more about Coronation’s Retirement Annuity, Preservation Funds, or Living Annuity.

Frequently asked questions (FAQ)

• What is a Retirement Annuity (RA)?
  A retirement annuity (RA) is a simple account that lets South African investors save for retirement. It invests in unit trusts and offers tax benefits to help grow your retirement nest egg. It can be used as a primary retirement solution (especially if you’re self-employed) or to supplement your employer fund contributions.
  
  
• How do contributions work in a Coronation RA?
  Once you start contributing, your money is split into two components invested in the same underlying fund/s: two-thirds is allocated to your Retirement Income Component, and one-third to your Retirement Lump Sum Component.
  
  
• What is the “two-pot” system in an RA?
  In Coronation’s RA structure, the two components are commonly referred to as the “two-pot” system: the Retirement Income Component (retirement pot) and the Retirement Lump Sum Component (savings pot). In practice, two-thirds is allocated to the Retirement Income Component and one-third to the Retirement Lump Sum Component under the rules.
  
  
• What is a preservation fund used for?
  A preservation fund helps you keep and grow retirement savings tax-efficiently until you retire — often when you change jobs or if your workplace pension/provident fund closes. It’s designed to help you keep retirement savings invested for the long term, so you don’t interrupt compounding when your employment changes.
  
  
• What is a living annuity?
  A living annuity is a flexible investment account that pays you a retirement income while the underlying investment remains invested. You choose your drawdown rate within the prescribed range (2.5%–17.5% per year) and you can change it annually.
  
  
• Can I withdraw the full value of my living annuity?
  You cannot withdraw the full value of a living annuity whenever you choose. Instead, it pays a regular retirement income. The only time you can take the remaining balance as a lump sum is if the total value falls below R125,000 (a commutation).

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