When you implement a Retirement Fund or Group Retirement Annuity, employers provide their staff with cost- effective and tax- efficient retirement savings. Group Insurance (Life cover, disability, dread disease and funeral benefits) can be added to this as well, putting together great benefit packages for company staff. Contributions can either be fully funded by the employer, fully funded by the employee or else split between employer and employee, but paid by the employer.


  • Employer’s contributions are tax- deductible.
  • Member’s contributions are tax- deductible (subject to legislative limits).
  • Government legislation wants to make it compulsory for employers to provide retirement benefits. Employers will be able to choose who they implement Employee Benefits with, should they implement before legislation is in place.
  • There is flexibility for employer in deciding if they want to implement the Retirement Fund with or without the Risk benefits. The option for a Group Retirement Annuity can also be chosen.
  • The employer helps employees save for retirement.
  • There is incredible morale boost in employees when they feel that their employer cares about their well-being. This creates a more loyal work force.
  • Risk benefits are normally cheaper when done on a group basis.
  • Provide employees access to benefits that a lot of them could not afford on an individual basis.
  • Medical Free cover limits, provide uninsurable members with limited benefits which they otherwise would not have had access to.
  • Group Retirement Annuity can be transferred to individual capacity when employee leaves the company’s employment.

Frequently Asked Questions

What is the difference between a Retirement Fund and a Retirement Annuity?

All are retirement funds governed by the Pension Funds Act, but they serve different needs and purposes.

Pension and provident funds (Retirement Funds) are so-called ‘workplace funds’. If you become employed by a company that offers one of these funds, and you are eligible to join, then you must join this fund. It must be a condition of your employment. The purpose of a pension fund is to pay you a pension in retirement.

At retirement you would convert at least two-thirds of your pension fund into an annuity that will pay you a regular income for the rest of your life. You can take the other one-third as a cash lump sum. At retirement, the same distinction as between a pension and a provident fund applies.

A retirement annuity is a retirement fund for individuals who are self-employed, or whose employer does not offer a work place fund (Are set up as a Group Retirement Annuity). A retirement annuity is similar to a pension fund in that you must use at least two-thirds of the fund to purchase an annuity when you retire.

Unlike a pension/provident/preservation fund, you cannot cash in a retirement annuity before retirement (minimum age 55).

What portion of the Employer’s contribution to the retirement fund can be deducted from tax?

The full Employer contribution can be deducted from the employee’s income tax according to section 11(l) of the Income Tax Act. Employers are also allowed to deduct contributions made on behalf of employees to a (group) retirement annuity according to section 11(l) of the Income Tax act.

What is the difference between an approved and an unapproved fund?

Type of PolicyApprovedUnapproved

Who is the policyholder?

The Retirement Funds

The Employer

Do premiums qualify for a tax deduction?

Yes. The tax deduction is claimed as part of your
contribution deductions which is limited to 27.5% of your taxable income to a maximum of R350 000

No and the employee pays fringe-benefit tax on the contributions that the employer makes

Are benefits taxed at death?

Yes, amounts above R500 000 are taxed. Any amounts received tax-free from withdrawals or severance benefit payouts are counted towards the R500 000.

No. The benefits are exempt from estate duty.

Who are benefits paid to?

The trustees of the Fund decide (according to section 37C of Pension Funds Act and the rules of the fund)

The employee's chosen beneficiaries or their deceased estate if no beneficiaries.

What percentage of retirement contributions (retirement fund & retirement annuity) are tax deductible for the employee?

Contributing to pension, provident and retirement annuity funds during a year is tax deductible. An employee can deduct up to 27.5% of the greater of remuneration for PAYE purposes or taxable income, or limited to a maximum of R350,000 per annum before capital gains.

Is membership of a retirement fund (pension or provident) compulsory?

The answer is subject to the time of employment and if the employer had a pension or provident fund. If employment occurred and the employer has a retirement fund in place, membership will be compulsory for employees. If the fund came into existence during time of employment, it will still be optional for those employees to join.

What is Medical Free cover limits?

They differ from Insurance company to Insurance company and from Company to Company depending on the amount/ level of benefits taken. The higher the multiple of salary or the higher the salaries, the higher the Medical Free cover limit will be.

What is the minimum number of members (employees) needed for a company to start a retirement fund?

A retirement fund can be started for a company consisting of 5 members or more. It could however be more cost effective to rather implement a Group Retirement Annuity for smaller groups. The reason for this is that the administration costs for smaller retirement funds could be high, because most of the Insurance/ Administration companies have a minimum administration fees.

Are the retirement fund benefits, payable at death, taxable or not?

If the Retirement fund has been set up on an “approved” basis, the Retirement Fund is the owner of the Fund. In which case the first R500,000 as tax free. Any amounts received from withdrawals or severance benefits pay outs are counted towards the R500,000. The amount above R500,000 are tax using tax scales.

If the Retirement fund was set up on an “Unapproved” basis the Employer is the owner of the fund and no tax are paid on the amounts that are paid out. The payment is also exempt from Estate duty. Payment are made as per the Beneficiary appointment. Fringe benefit tax are payable on the premiums paid towards the Fund if set up on an Unapproved basis.

Who receives the retirement fund’s benefits at death?

If the fund is set up on an “approved” basis the trustees of the Fund decide who the proceeds need to be paid to (Section 37C of the Pension Funds Act). If the fund is set up on an “Unapproved” basis, the proceeds are paid out as per the beneficiary nomination. If no Beneficiary were appointed it will be paid to the estate.

Who is the policy holder of the retirement fund?

If the Retirement Fund is set up as “Approved” the Retirement Fund is the policy holder and Trustees need to be appointed. If the Fund is set up as “Unapproved, the Employer is the policy holder.

Does each employee on a Retirement fund need to complete an application form?

No, only one application form needs to be completed and that is an Employer application form. Each employee however has to complete a beneficiary form.

What is a Medical Free cover limit?

With regards to the Risk benefits, the applicable Insurer determines amounts of cover for each benefit except the Funeral benefit. Only Employees/ members who have cover/ benefits in excess of these amounts need to be medically underwritten.

What does ‘inclusively’ and ‘exclusively’ costed mean?

Inclusively costed means that all costs, except where otherwise indicated, forms part of the Employer contribution.
Exclusively costed means that these costs mentioned above, are on not included in the Employer or Employee’s contribution towards the Retirement fund.

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Fairtree Private Client (Pty) Ltd is an Authorised Financial Services Provider. (FSP 12179)