As the current tax year draws to a close at the end of February, investors may wish to consider maximising their annual benefits by topping up their retirement funds, especially if they’ve made withdrawals since the two-pot system was introduced, says Carla Rossouw, head of Tax at Allan Gray.

From 1 September 2024, when the two-pot retirement system was first introduced, to June 2025, over four million retirement fund withdrawals were processed, totalling R57 billion, according to SARS.

With the end of the tax year approaching, Rossouw believes now is an opportune time for those who have made withdrawals to restore their position.

Time to top up

“It is important to remember how contributions are now treated,” she explains. “Two-thirds of every contribution is allocated to your retirement component and one-third to your savings component, with only the latter being accessible as cash, either once per tax year before retirement or at retirement.”

This means that if you’ve already withdrawn R30 000 from your savings component, you will need to contribute R90 000 to restore its original value. “Of course, this doesn’t account for any investment growth you may have lost between the withdrawal date and the replacement date,” she says.

It pays to maximise contributions

Contributions to pension, provident and retirement annuity funds are tax-deductible within certain limits. “This serves as an incentive to save for your retirement and be rewarded by means of an annual deduction to be claimed against your taxable income,” Rossouw asserts. “In addition, you benefit from growth free of any tax (including dividends tax, income tax on interest and capital gains tax) while you are invested – a big win if you invest for the long term.”

She also adds that the good news is if you are a member of a company pension or provident scheme, you can supplement your retirement savings by contributing to an RA in your own name. You can make regular or ad hoc contributions, allowing you to bump up your retirement investment when you can.

These tax benefits and the magic of compound interest make for a powerful combination. “If you contribute 15% of your salary to your retirement fund every month and manage to top that up with a R10 000 lump sum before the end of each tax year for 30 years, you will accumulate about 20% more at retirement than without the lump sum contributions,” she says, citing Allan Gray research that assumes a starting annual income of R350 000, an investment return of 10% per year, inflation of 6% per year and ongoing platform administration fees of 0.23% per year (including VAT).

“There are no penalties for overcontributing to a retirement fund,” says Rossouw, explaining that the tax benefits attached to these so-called “excess contributions” roll over to future years, so you continue to enjoy a tax reduction all the way through the lifespan of your investment. “The benefit is never lost,” she adds.

The ongoing benefits of these excess contributions include reducing your tax liability in future working years, reducing your tax bill on any cash lump sum you take at retirement, having your tax bill reduced on your living annuity income if you retire with unused excess contributions, and reducing the tax on cash lump sums received by your beneficiaries if you pass away.

It is important to remind yourself of the benefits and restrictions of retirement products. “Speak to a tax practitioner or independent financial adviser to help you make the decisions that are right for you,” concludes Rossouw.