For high income earners in South Africa, deciding where to put extra investment capital is not a case of either or. A retirement annuity (RA), a tax free savings account (TFSA) and a discretionary LISP unit trust each play a different role. Understanding how they compare on tax, access and estate planning helps you build a smarter, more diversified plan.
The Retirement Annuity: The Tax Deduction Powerhouse
The single biggest advantage of an RA is the upfront tax deduction. You can deduct contributions of up to 27.5% of your taxable income or remuneration (whichever is greater), capped at R430 000 for the current 2026/27 tax year.
For someone in the 41% or 45% bracket, this is one of the largest legal tax breaks available to an individual.
Inside the RA, growth is completely free of income tax, dividends tax and capital gains tax, letting your money compound faster.
The obvious concern is access, since RA savings are locked away until age 55. This is where the two-pot system, introduced in September 2024, adds welcome flexibility. Contributions now split, with one third going into an accessible savings pot and two thirds into a retirement pot that stays locked until retirement. You can make one withdrawal a year from the savings pot in an emergency, taxed at your marginal rate rather than the more generous retirement tax tables, so it is best reserved for genuine need. At retirement, up to a third of your benefit can be taken as a lump sum, with the first R550 000 tax free (a lifetime allowance), and the balance taxed on a sliding scale.
Tax Free Savings Accounts: Flexible and Fully Tax Free
A TFSA works differently. There is no upfront deduction, but every rand of growth, interest, dividends and capital gains, is completely tax free, both while invested and on withdrawal. The annual contribution limit increased to R46 000 from 1 March 2026, with a R500 000 lifetime cap. Unlike an RA, a TFSA is fully accessible at any time, making it an excellent complement for medium term goals, though withdrawals permanently use up your lifetime allowance.
Discretionary LISP Unit Trusts: Unlimited and Liquid
Discretionary investments have no contribution limits and no access restrictions, making them ideal once your RA and TFSA allowances are used up. The trade off is tax: interest and dividends are taxed in your hands annually (dividends at a flat 20%), and capital gains tax applies on withdrawal or switching, at an effective maximum rate of around 18%. Still, the annual capital gains exclusion and the ability to structure withdrawals over time give you meaningful control over your tax bill.
Offshore Exposure
Regulation 28 caps offshore exposure in RAs at 45%, with a 10% sub limit for the rest of Africa within that. TFSAs and discretionary unit trusts fall outside Regulation 28, so they can be invested up to 100% offshore, giving high income earners a useful way to diversify currency and market exposure beyond what an RA alone allows.
Estate Duty: A Major Point of Difference
This is where RAs pull ahead again.
Under the Estate Duty Act, RA proceeds fall outside your estate entirely, escaping both estate duty (20% to 25% on larger estates) and executor’s fees (up to around 4% including VAT).
Payouts are handled under Section 37C of the Pension Funds Act, going directly to your dependants. TFSAs and discretionary unit trusts, by contrast, form part of your estate and are fully exposed to estate duty and executor’s fees.
Bringing It All Together
Each vehicle earns its place in a high income earner’s portfolio. The RA delivers an unmatched tax deduction, tax free growth and estate duty exemption, with the two-pot system now softening the age 55 access concern. The TFSA adds true tax free flexibility with no strings on withdrawals. The discretionary unit trust offers unlimited capacity and full liquidity, at the cost of ordinary tax treatment and estate inclusion. Used together, and diversified across offshore and local exposure, these three products let you optimise for tax efficiency today, flexibility along the way, and an efficient transfer of wealth to your family one day.
