Building a Retirement Portfolio Across Several Pots: Unit Trusts, Retirement Funds and Offshore

A South African Retirement Portfolio: What It Is and Why It Spans Several Structures

A retirement portfolio in South Africa is straightforward in concept: it’s the collection of savings structures you hold across retirement funds, living or life annuities, and discretionary investments. Each one operates under different tax rules, access conditions, and investment limits.

The trick is understanding how they interact, not just picking the best-performing fund in each one.

Most people approaching retirement hold savings in at least two or three different places: an employer pension or provident fund, perhaps an old retirement annuity, a preservation fund from a previous employer, and some discretionary savings in their own name. Each structure has its own rules about when you can access the money, how it’s taxed when you draw it, and what happens to the balance when you die.

The decisions you face aren’t about choosing a single product. They’re about how to sequence withdrawals, how to allocate across asset classes within each pot, how much to move offshore, and how to draw income in the most tax-efficient order. These choices connect directly to the sequence of decisions at retirement that can meaningfully extend how long your money lasts over time.

This article covers the four main structures in a South African retirement portfolio, how to allocate assets across them, what unit trusts and ETFs do in that context, the offshore question, the tax treatment of each income stream, and how to sequence your drawdown. It’s general information, not personal financial advice.

Understanding Regulation 28 and its limits on retirement fund investment is essential background before making allocation decisions. That article covers it in detail.

The Four Main Structures in a South African Retirement Portfolio

The four main structures are: a retirement annuity, a pension or provident fund (typically through an employer), a preservation fund, and a living or life annuity used in retirement. Each has distinct rules on access, tax treatment, and what you can invest in.

Understanding the differences between these structures before you retire prevents expensive mistakes later.

Retirement annuity (RA). An RA is a tax-advantaged savings vehicle for building wealth outside an employer fund. Contributions are deductible up to 27.5% of taxable income (subject to a rand cap). The investment is subject to Regulation 28, which limits how much of a retirement fund can sit in each asset class, including a cap on offshore exposure within the fund. You can’t access an RA before age 55 except in cases of permanent disability or if the fund value falls below a prescribed threshold.

Pension and provident funds. These are employer-sponsored retirement funds. When you leave employment, you can take the benefit as a cash payout (with tax consequences), transfer it to a preservation fund, or if retiring, use it to purchase an annuity. At retirement, the rules between pension and provident funds now broadly align following legislative changes.

Preservation fund. A preservation fund holds retirement benefits transferred from an employer fund when you change jobs, without triggering immediate tax. This is where many readers get confused: a preservation fund and a retirement annuity aren’t interchangeable. A preservation fund holds money already accumulated in a retirement fund; an RA is for ongoing contributions. Crucially, a preservation fund allows one partial or full withdrawal before retirement (subject to tax), while an RA doesn’t permit pre-retirement withdrawals before age 55. For the mechanics in practice, how a provident fund works walks through the details.

Living annuity and life annuity. These are retirement income products, not accumulation vehicles. You purchase them at retirement using your retirement fund proceeds. A life annuity pays a guaranteed income for life in exchange for your capital. A living annuity keeps you invested and lets you draw income within set limits (currently 2.5% to 17.5% of the fund value per year), and the remaining balance can pass to beneficiaries. Many readers treat these as interchangeable with RAs; they’re not. They’re the products you buy after retiring from your RA or employer fund.

Asset Allocation for Retirees in South Africa: What to Hold Where

The right asset allocation for a South African retiree isn’t a single percentage split. It’s a set of decisions about which asset classes to hold in which structure, because each structure has different tax treatment, liquidity, and regulatory constraints.

Start with what you need your portfolio to do. If you’re drawing income from a living annuity, the structure itself is invested in underlying funds. The drawdown rate you choose determines how long the capital lasts, and the underlying asset allocation determines the growth that sustains those withdrawals.

Consider a practical illustration. With R10 million in a living annuity drawing at 5% per year, you need the portfolio to grow at a rate that at minimum keeps pace with inflation after fees. An allocation that’s too conservative—heavily weighted to cash or money market funds—may produce returns below the combined effect of drawdown and inflation, eroding the capital faster than planned. An allocation that’s too aggressive—heavily equity—introduces sequence-of-returns risk: a poor market in the early years of retirement can permanently impair a portfolio. The sustainable drawdown rates for a living annuity article covers this arithmetic in detail.

Within a living annuity, you’re not constrained by Regulation 28 because a living annuity isn’t itself a retirement fund. This gives you more flexibility on asset allocation. Inside an RA or preservation fund, Regulation 28 applies, limiting equity exposure and capping offshore holdings within the structure.

The practical implication: your living annuity can hold a higher proportion of equity and offshore assets than your in-fund accumulation structures, and this distinction matters when you’re planning the overall asset allocation across all your pots simultaneously. Building a diversified portfolio across all your structures is more nuanced than diversifying within a single fund.

On Shari’ah-compliant options. South African investors who require Shari’ah-compliant structures can access Shari’ah-compliant unit trusts and ETFs within living annuities, and some RA and preservation fund platforms accommodate Shari’ah-compliant underlying fund choices. The principles of avoiding interest-bearing instruments, prohibited industries, and excessive uncertainty apply across all structures. The range of available options has grown significantly, and dividend investing for retirement income can be structured to align with Shari’ah principles through equity-focused, screened funds.

What the right allocation looks like for your specific situation depends on your income needs, other assets, tax position, and risk profile. This is general information, not personal financial advice.

Unit Trusts and ETFs in a Retirement Portfolio: What They Do and What They Cost

Unit trusts and ETFs are the building blocks inside most South African retirement structures. They’re not separate retirement savings vehicles. Whether you hold them inside an RA, a living annuity, or in your own name, the unit trust or ETF is simply the fund your money is invested in.

A unit trust pools capital from many investors and is actively managed by a fund manager who makes decisions about which securities to hold. An ETF (exchange-traded fund) typically tracks an index passively, buying and selling only to mirror the index composition. Both are available on retirement structures; both come in Shari’ah-compliant versions.

The cost difference matters more than most people realise. A 1% annual difference in total investment charges on R10 million over 20 years doesn’t produce a 20% difference in outcomes. Because of compounding, the gap is substantially larger. That’s straightforward compound arithmetic. Run the numbers on any financial calculator and you’ll see why fee transparency is a first-order concern, not a secondary one.

When evaluating funds, look at the total expense ratio (TER) and the transaction costs disclosed in the minimum disclosure document. The total investment charge is what you actually pay. Don’t compare gross returns without deducting the full fee load: a fund with a higher TER needs to deliver meaningfully higher gross returns just to match a lower-cost alternative on a net basis.

One important distinction: investing offshore through a rand-denominated global unit trust (available on any local platform) isn’t the same as purchasing offshore shares directly or externalising capital through your foreign investment allowance. The mechanics, the tax treatment, and the administrative requirements are entirely different. The offshore unit trust options for South African investors covers the rand-denominated route. The ETFs available in South Africa for 2026 covers the broader range of passive options, including those with global exposure.

Concentration risk is separate. Holding most of your retirement savings in a single fund, a single asset class, or a single manager’s philosophy is a risk worth naming explicitly. The risk of concentrating your retirement savings in too few assets is often underestimated, particularly when a long-serving employer fund has defaulted into a single balanced fund for decades.

How Much to Hold Offshore and in Which Structures

Most South African retirement portfolios benefit from meaningful offshore exposure. The JSE represents a small fraction of global market capitalisation, and the rand has historically depreciated against major currencies over long periods. The question isn’t whether to hold offshore assets, but how much, and through which structure.

There are two distinct routes, and conflating them is a common and costly mistake.

Route 1: Rand-denominated global funds. You buy units in a local fund—unit trust or ETF—that invests in offshore assets. Your money never leaves the country legally; the fund manager uses their own offshore allowances. This is straightforward, requires no tax clearance, and is available on any standard investment or retirement platform. Inside a retirement fund (RA, pension, provident, preservation), Regulation 28 applies a cap to offshore exposure within the fund structure.

Route 2: True externalisation through your foreign investment allowance. South African tax residents can transfer capital abroad using the single discretionary allowance and the foreign investment allowance, subject to SARS requirements. This is how you purchase shares directly on a foreign exchange, hold assets in an offshore brokerage account, or invest in a foreign-domiciled fund. The limits, the tax clearance process, and the ongoing tax reporting obligations are governed by current SARS rules. Always verify the current figures directly with SARS or a tax professional, as allowance thresholds and procedures change. For the full mechanics, a practical guide to investing offshore as a South African covers the process in detail.

Offshore exposure held in a living annuity has no Regulation 28 constraint because the living annuity isn’t classified as a retirement fund under the Pension Funds Act. This is a meaningful structural advantage at retirement: you can hold a higher proportion in offshore assets within a living annuity than you could in an RA or preservation fund.

Using currency diversification ETFs for offshore exposure is one practical approach for achieving meaningful currency diversification without the administrative complexity of true externalisation. And why currency diversification matters for retirement savings explains the underlying rationale for not leaving all your retirement capital exposed to rand performance.

Tax on Retirement Income: Living Annuities, Life Annuities, and Lump Sums

Retirement income in South Africa isn’t all taxed the same way. The structure you draw from, and the form in which you draw it, determines the tax you pay.

Annuity income (living and life annuities). Income drawn from both a living annuity and a life annuity is taxed as ordinary income using the personal income tax tables. There’s no special rate for annuity income. The full amount drawn each year from your living annuity is added to any other income you receive and taxed accordingly. This answers a question many readers have: a living annuity doesn’t produce tax-free income simply because it sits inside a retirement structure. The growth inside the fund is tax-free while accumulating, but the income you draw is taxable.

Lump sums at retirement. When you retire from an RA, pension, or provident fund, you can take a portion as a cash lump sum (the rules on how much vary by fund type and history, so verify current rules at the time of your retirement). Lump sums at retirement are taxed using the retirement lump sum tax table, which provides a cumulative lifetime tax-free threshold. Amounts above that threshold are taxed at rates that increase in tiers. The rand thresholds in this table are adjusted periodically; don’t rely on a figure from an older source.

Preservation funds. A preservation fund allows one pre-retirement withdrawal (the full fund or a partial amount), taxed using the withdrawal lump sum table, which is less favourable than the retirement lump sum table. This is a meaningful distinction. Withdrawing from a preservation fund before retirement not only reduces your savings but uses up a portion of your withdrawal allowance and is taxed more heavily than a retirement-date withdrawal would be.

For the full treatment of how these products work before and after the drawdown decision, how living and life annuities work covers the mechanics clearly. Smart income choices for South African retirees covers sequencing income across different structures. The two-pot retirement system, which introduced a savings component that can be accessed before retirement, has its own set of rules and tax implications; the two-pot retirement system and how it affects access to your savings covers that separately. And how the 2026 budget affects retirement and investment decisions addresses any changes relevant to the current tax year.

Comparing the Main Retirement Structures at a Glance

The table below summarises how the main structures compare on the dimensions that matter most to someone building or drawing from a retirement portfolio in South Africa.

The key insight this table surfaces: your living annuity is the most flexible structure in retirement for asset allocation because Regulation 28 doesn’t apply. Your in-fund structures (RA, pension, provident, preservation) are constrained while accumulating. Always verify specific limits and thresholds against current rules before making decisions.

Which Pot to Draw From First at Retirement

The order in which you draw from your different savings structures is one of the highest-value decisions you make at retirement. Getting it wrong can cost you meaningfully in tax and reduce how long your money lasts.

The general principle is to draw from the structure that produces the least tax cost first, while allowing the most tax-efficient structures to continue compounding. But the right sequence depends on your individual tax position, the relative size of each pot, your income needs, and the rules of each structure.

A few fixed points to work around:

Retirement annuities can’t be accessed before age 55 (with narrow exceptions for permanent disability or a very small fund value). There’s no legal mechanism to access an RA early simply because you need the money or want to invest it elsewhere. This is also why supplementing an RA with a discretionary investment in your own name is useful for anyone who may need liquidity before age 55.

Preservation funds allow one pre-retirement withdrawal. Using that withdrawal early in your career because you need cash is often a decision people regret at retirement. It’s not just the withdrawn amount you lose; it’s all the growth that amount would have produced, plus the tax cost of withdrawing at the withdrawal lump sum rate rather than the retirement lump sum rate.

Living annuity beneficiary nominations are a retirement income decision with estate consequences. The balance remaining in a living annuity at death passes to nominated beneficiaries outside the deceased estate, which means it’s not subject to estate duty and falls outside the executor’s control. Keeping your beneficiary nominations current and deliberate is part of managing the portfolio, not a separate estate planning activity.

The full sequence of events at retirement in South Africa works through the decision order from the last day of employment through to the first income payment. Whether your provident fund should stay invested or be moved covers one common question at the point of transition.

Frequently Asked Questions

The questions below cover the decisions and distinctions that come up most often when South Africans are building or restructuring a retirement portfolio across multiple structures. Each answer is concise by design; the linked articles go into greater depth.

How is annuity income taxed for retirees?

Income drawn from a living annuity or a life annuity is taxed as ordinary income using the personal income tax tables. There’s no separate or reduced rate for annuity income. The tax is calculated on your total income for the year, including any other sources of income you receive alongside the annuity. For more detail, see how annuities work.

What are the tax implications of a living annuity?

Growth inside a living annuity accumulates free of income tax, capital gains tax, and dividends withholding tax. However, every rand you draw as income is fully taxable as ordinary income in the year you draw it. Choosing your drawdown rate is therefore both a sustainability decision and a tax planning decision.

What is the difference between a preservation fund and other retirement vehicles?

A preservation fund holds retirement benefits transferred from an employer fund when you leave employment, without triggering immediate tax. Unlike a retirement annuity, you can’t make further contributions to a preservation fund. Unlike a living annuity, a preservation fund is still an accumulation vehicle subject to Regulation 28. Crucially, it allows one pre-retirement withdrawal, whereas an RA doesn’t permit access before age 55.

How do you invest money offshore as a South African resident?

There are two distinct routes: buying units in a local rand-denominated fund that invests offshore (the simpler route, requiring no foreign tax clearance), or externalising capital through your personal foreign investment allowance (which requires compliance with SARS procedures). These aren’t the same activity. Investing offshore as a South African covers both routes and their requirements.

What restrictions apply to accessing retirement annuity funds before retirement age?

You can’t access an RA before age 55 except in cases of permanent disability or if the fund value falls below a very low prescribed threshold. There’s no early withdrawal option simply because you want or need the money. This restriction is one of the RA’s core features: it protects the savings from premature use.

What asset management fees should you expect to pay?

Total investment charges vary widely, from under 0.5% per year for low-cost index-tracking ETFs to well over 2% per year for actively managed funds with performance fees. The meaningful number to compare is the total investment charge, not just the annual management fee. A 1% annual difference compounds significantly over decades, so understanding what you’re paying and what you’re getting for it is a first-order decision, not a detail.

What Shari’ah-compliant investment options are available?

Shari’ah-compliant unit trusts and ETFs are available on most major South African platforms, covering local equities, global equities, and income funds screened to exclude interest-bearing instruments and prohibited industries. Several RA and living annuity platforms allow you to select Shari’ah-compliant underlying funds. The range has grown considerably, and offshore Shari’ah-compliant exposure is accessible through both rand-denominated and externalised routes.

Which retirement annuity product offers the best returns?

No RA product can honestly be identified as the best-returning option because returns depend on the underlying fund choices, the fee structure, and the period measured. The RA wrapper itself doesn’t generate returns; the underlying funds do. Comparing RA products should focus on the quality and breadth of underlying fund options, the total fee load, platform stability, and flexibility at retirement. See living annuity drawdown rates for how underlying growth connects to sustainable income in retirement.

How can you check a provident fund balance online?

Most employer-linked provident funds provide access to fund statements through the fund administrator’s member portal or via annual benefit statements. Contact your fund’s HR administrator or the fund administrator directly for login details and access instructions. If you hold a preservation fund or have transferred benefits, the platform or product provider will have an online portal.

Bringing It Together: A Portfolio That Works Across All Your Pots

The most important takeaway is that a retirement portfolio in South Africa isn’t a single product choice. It’s a set of connected decisions across structures that each have different rules, tax treatment, and investment constraints.

The asset allocation inside your living annuity affects how long your income lasts. The order in which you retire from each fund affects the tax you pay at retirement. How much you hold offshore, and through which structure, affects your currency exposure and your Regulation 28 headroom. The fees you pay inside each fund compound in the wrong direction across a long retirement.

These decisions don’t happen in isolation. A change to your drawdown rate affects your tax bill. A decision about offshore allocation interacts with what Regulation 28 permits in your in-fund structures. Beneficiary nominations on a living annuity determine what reaches your family and how.

If you’ve accumulated savings across several retirement structures and are within a decade of retirement, or already drawing, reviewing how all the pieces fit together is worth doing carefully and in one place.

For the broader framework of decisions to work through before you stop earning, preparing for retirement is the natural next step. To work through your own specific retirement portfolio decisions, a private consultation is the place to start.

This article is general information and doesn’t constitute personal financial advice. Your specific circumstances require individual consideration.