Thomas Berry, Head of Sales at PSG Wealth

The freedom to work on your own terms is undoubtedly one of the biggest advantages of self-employment. But this autonomy comes with responsibility – particularly with regards to retirement planning. Without an employer pension or provident fund to rely on, you are solely accountable for securing your future income.

While it’s tempting to prioritise short-term business growth over long-term savings, the reality is that a well-structured retirement annuity (RA) can offer the same savings benefits as an employer’s retirement plan.

Building your own safety net

Traditional employees have the advantage of automatic retirement deductions from their salary each month. In contrast, self-employed individuals and contractors need to create that discipline themselves. Contributing regularly to an RA is one of the most efficient ways to do this.

An RA allows you to deduct up to 27.5% of your taxable income each year (capped at R350 000) from your taxable income. In other words, by investing in your future, you’re rewarded in the present through lower taxes. Those savings can then be reinvested back into your business or used to increase your RA contributions over time.

The growth within your fund – including interest, dividends and capital gains – is tax-free. Over time, this accelerates the compounding effect and helps you build a meaningful nest egg, even if your income fluctuates from year to year.

Protection beyond performance

Unlike many short-term investment products, an RA also offers important estate planning and creditor protection benefits. Funds in an RA do not form part of your estate and are protected from creditors, which means your retirement savings remain intact should your business face financial difficulties.

From a planning perspective, an RA also ensures that your loved ones are protected, providing an extra layer of financial security in the event of your death.

New flexibility under the two-pot system

Recent legislative amendments have made RAs more accessible. With the introduction of the two-pot retirement system in 2024, members can now make one withdrawal per tax year from the savings component of their retirement fund, while the retirement component remains preserved for long-term growth.

This reform gives self-employed investors greater financial flexibility without undermining the core goal of long-term saving. It allows access to a limited portion of funds in times of genuine need, while ensuring the bulk of your investment continues to compound for your future self.

The power of starting early

One of the biggest advantages of being self-employed is the ability to design your own financial roadmap. The earlier you start contributing to an RA, the greater your advantage – even modest, consistent contributions can grow significantly over time.

Let's compare two investors who both start saving in a RA. Investor One starts saving for retirement at the age of 20 with a monthly contribution of R500 (investment term to retirement at age 65 is 45 years). Assuming the same real return, Investor Two, who starts saving at the age of 35 (investment term 30 years), must contribute R2 500 per month to end up with the same amount at retirement. This is five times more per month than Investor One. That being said, it is never too late to start saving.

By working with a financial adviser, self-employed professionals can build a tailored plan that aligns with irregular income patterns, business expenses, and personal goals. It’s about transforming uncertainty into opportunity, and ensuring your financial independence extends well beyond your working years.

Your work may be your passion, but your RA is your protection. Upgrade your future self with the same dedication you bring to your business every day.