Paul Mafisa, Business Development Manager at ASI Financial Services

Retirement Funds vs Pension Funds

Did you know that only 6% of South Africans are expected to retire comfortably? The majority of us are left depending on family or government grants just to get by. If that statistic doesn’t make you think twice about your retirement, it should.

“Retirement is not just a financial event; it’s a lifestyle transition. Too many South Africans think a pension fund alone is enough, but that’s a dangerous assumption,” says Paul Mafisa, Business Development Manager at ASI Financial Services.

If you’re employed and contributing to a pension fund, you might think you’re sorted. But that’s just one piece of your retirement strategy. Retirement planning is about creating a sustainable income for life after work, and that takes more than one savings tool. Let’s clear up the confusion.

Pension fund vs retirement fund: what’s the real difference?

While people often use these terms interchangeably, it’s important to know that a pension fund is a type of retirement fund, usually provided by your employer. A retirement fund is a broader term that includes:

• Pension Funds (employer-based)
• Retirement Annuities (RA) – privately owned and flexible
• Preservation Funds – to keep your savings safe if you leave a job

“A pension fund can give you a head start, but it’s not always enough. Think of retirement annuity as your backup engine and every journey needs one. It’s important to also understand that one can only belong to a pension fund if they are part of an employer group,” Paul Mafisa explains.

Pension funds are structured, professionally managed, and cost-effective and great if you’re employed. But they have limits:

• They depend on how long and how consistently you contribute.
• They may not offer enough flexibility to max out your tax benefits.

This is where retirement annuities come in offering flexibility, continuity, and tax efficiency even if you’re self-employed or between jobs.

“Combining an employer pension fund with a personal retirement annuity is one of the smartest ways to build a resilient retirement strategy,” says Mafisa

The Income Tax Act allows any employee that belong to a Retirement Funds to contribute the lower of R350 000 or 27.5% of taxable income to a Retirement Fund. How this benefits an employee is that whatever they contribute to a Retirement Fund reduces their taxable Income while saving money for post-retirement.

Who manages your money?

It depends on the type of retirement fund you choose. All retirement funds are managed by authorised providers such as Sanlam, Old Mutual, or other financial institutions offering retirement annuities. These providers must be registered with the Financial Sector Conduct Authority (FSCA) and are licensed to manage your funds.

Whether You are 25 or 55: Here's what you can do today

• In your 20s/30s: Open a retirement annuity even with just R500/month. Time is your biggest advantage.
• In your 40s/50s: Top up your pension with an RA and consolidate old savings into a preservation fund.
• Near retirement: Work with your fund manager to create a secure, income-producing plan for your later years.

Why it matters for you and for South Africa

When South Africans save smartly, we reduce dependence on the government and family, strengthen communities, and build a culture of financial independence.

“Retirement planning isn’t selfish it’s responsible. You’re reducing the burden on your family and the government and creating a future where you live on your own terms,” says Mafisa.

Your call to action

• Check your current pension fund, how much are you really saving?
• Open a retirement annuity to supplement and personalise your savings.
• Use a preservation fund if you change jobs, don’t cash out!

At ASI Financial Services, we are here to help you take control of your retirement because your future is too important to leave to chance. Start now and ensure that your retirement is built on solid foundations.

Stay connected with ASI Financial Services

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