The retirement annuity deduction: how much of your contribution SARS pays back
On a R500 000 income, R3 000 a month into a retirement annuity cuts your tax by R11 160 a year - so the contribution really costs about R2 070 a month.
In 30 seconds
- Retirement fund contributions are deductible up to 27.5% of income, capped at R430 000 a year from 1 March 2026 (was R350 000).
- The refund equals your marginal tax rate - 31% on a R500 000 income, so every R1 000 you contribute costs about R690.
- Anything above the limit is not lost - it rolls over to the next tax year.
How the deduction works
Money you put into a pension fund, provident fund or retirement annuity (RA) comes off your taxable income before SARS works out your tax.
The deduction is the lowest of:
- what you actually contributed,
- 27.5% of the greater of your remuneration or taxable income,
- R430 000 a year,
- your taxable income before the deduction.
Your employer's contributions to a pension or provident fund count toward the same limit. Budget 2026 Tax Guide · SARS Budget 2026 FAQ
Note: the R430 000 cap comes from the Budget 2026 Tax Guide and SARS's Budget FAQ. When we checked, SARS's separate section 11F page still showed the old R350 000. The cap only bites on incomes above about R1.27 million (old cap) or R1.56 million (new cap) - below that, the 27.5% limit applies first.
Why your marginal rate is the number to know
The deduction comes off the top of your income, so it saves tax at your highest bracket. For 2026/27 (SARS brackets):
| Taxable income a year | Each R1 000 contributed costs you |
|---|---|
| R245 101 - R383 100 (26%) | R740 |
| R383 101 - R530 200 (31%) | R690 |
| R530 201 - R695 800 (36%) | R640 |
| R887 001 - R1 878 600 (41%) | R590 |
On R500 000, R36 000 a year into an RA brings tax down by R11 160. The same deposit costs a higher earner less, and a low earner gets less back.
Getting the refund
- Through your employer's fund, the saving shows up in your payslip every month.
- Through a private RA, you normally get it back when you file your tax return - using the contribution certificate the fund sends you.
- Paying in more than the limit is not wasted: the excess rolls over and can be deducted in a later year (SARS FAQ).
The trade-off
- The money is locked away for retirement. Under the two-pot system only a part of new contributions can be reached early, and that withdrawal is taxed.
- Tax is deferred, not cancelled. What you draw in retirement is taxed then - usually at a lower rate than while you work.
- A tax-free savings account is the opposite: no deduction now, no tax later. Many people use both.
The two-pot and retirement-tax points are general and not linked to a primary source here. See our retirement and two-pot calculator for the numbers.
How MaxWealth helps
The MaxWealth income tax tool has the retirement annuity contribution as a slider. Move it and your PAYE and take-home pay for 2026/27 update on your own salary, with the 27.5% and R430 000 limits applied. You can try it as a guest, without signing up.
Sources
- 27.5% limit, R430 000 cap, carry-forward: National Treasury - Budget 2026 Tax Guide; SARS - Budget 2026 FAQ.
- 2026/27 brackets and R17 820 rebate: SARS - Rates of tax for individuals (checked 15 Oct 2026).
- Tax saved: our own calculation, shown in the calculator above.
Education, not financial advice. This post explains how the rules and the arithmetic work. It does not recommend any financial product, and your own situation may differ - speak to a registered financial adviser or tax practitioner before you act. Figures were checked against the linked sources on the date above.