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Time to start balancing RAs with 12Js

With some careful planning investors’ tax liabilities could be vastly reduced by combining the two investment vehicles.
Wealth managers can also balance their clients’ investments to ensure that funds invested are accessible before the age of 55. Image: Shutterstock

For individual taxpayers, retirement annuities (RAs) and Section 12J investments (12J investments) are effective annual investment options which allow taxpayers to reduce their income tax or capital gains tax liabilities. 

Read: Understanding the Section 12J marketplace

Given the significant upfront and backend tax benefits associated with RAs, it’s no wonder that wealth managers have for many years encouraged clients to max-out their RA contributions each year. With a sharp increase in 12J investments, as an additional tax shielding mechanism, wealth managers have started to combine 12J investments with RA investments, to further reduce their clients’ tax liabilities (in some cases to zero). An excellent example is one introduced to me by seasoned wealth manager, Craig Gradidge of Gradidge-Mahura Investments who explained to me that:

“Depending on various personal circumstances of each client, I would look to invest R800 000 in a Section 12J investment. This would allow the client to claim a refund of approximately R360 000 from Sars. I would then allocate R350 000 into an RA, which will allow the client to claim a refund of approximately R157 000.

By balancing an RA and a 12J investment, the net effect is that the client’s asset of R800 000 would have grown to R1 317 000 just through the refunds paid by Sars.”

The combination of investing in both RAs and 12J investments is not limited to the tax benefit, wealth managers can balance their clients’ investments to ensure that funds invested are accessible before the age of 55. This is as a result of 12J investments only having to be held for five years in order to enjoy the full tax benefit. 12J investments also provide dividend income streams through the duration of the investment. This careful balancing mechanism can create liquidity prior to retirement.

In addition, the 12J investments market is extremely diverse with taxpayers having the option of investing in high growth riskier investments, mid-tier conservative investments and low-risk capital preservation investments. These options allow wealth managers to balance their clients’ risk profiles together with their RA contributions.

Unlike RAs, 12J investments are not vanilla investments and have historically been notorious for charging taxpayers high performance fees and in some cases, have failed to invest investors’ capital timeously. The market has since developed, with new alternative 12J investments starting to gain in popularity, allowing wealth managers to diversify their clients’ exposures across a number of 12J investments. Even though the market has started to mature, taxpayers would be well advised to consult their wealth manager before making an investment.

From a tax planning perspective, wealth managers and taxpayers should understand the intricacies of 12J investments to minimise the amount of tax payable by their clients. Below is a comparison of some investment characteristics, between 12J investments and RAs: 


12J investment

Retirement annuity


5 years

Age 55


100% deductible

100% deductible

Underlying investments 

Private equity (hotels, asset rental, private equity investments into SMEs etc)

Limited by regulation 28

Offshore exposure

Zero – prohibited by law

Max 25% of total funds invested

Dividend/income stream

Dependent on the type of underlying 12J investment. Usually, dividends for low-med risk investments are expected to be paid within 18 months from the date of investment

No income stream until retirement

Tax implications during term

Dividends withholding tax on all distributions


Tas implications on exit

Dividends withholding tax on all distributions and capital gains tax at a base cost of zero on exit

Retirement withdrawal tax (R500 000 tax free with 18-36% banded thereafter)


Medium to high (depending on underlying investment)

Low to high (depending on fund choice)


Treasury has proposed to cap deductions at R2.5 million p.a for individuals/trusts and R5 million p.a for corporates.

27.5% of remuneration capped to R 350 000 p.a.


R100k to R1 million

No minimum


Target of 15% to 40% p.a., risk profile dependent.

Fund and time horizon dependant. Low risk = CPI +2%. High risk = CPI + 5%


Typical: 2.5% p.a and 20% performance fee

1.5% – 2.5% p.a and a possible performance fee above hurdles


No legal restriction when funds can be withdrawn

Only after term and only 1/3 can be accessed in cash. 2/3’s must be contributed to a compulsory annuity.

Last date to invest

30 June 2021 (unless extended)



Jonty Sacks is a partner at Jaltech Fund Managers.

The views and opinions shared in this article belong to their author, cannot be construed as financial advice, and do not necessarily mirror the views and opinions of Moneyweb.


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With respect : venture capital investment should be a VERY small portion of a wealthy individual’s retirement savings and probably zero proportion of poorer households. It is irresponsible to compare potential 40% VC returns to virtually certain RA returns.

2.5% and 20% percent??!! Even beats the hedge funds 2 and 20. No wonder 12J salesmen are popping up all over the place.
And note the CGT on exit.
A good strategy is simple – some retirement fund with associated tax benefits and tune out the 30% offshore limit with added direct offshore exposure. Choose ratio offshore/SA and work backwards from there to choose the mix.
And minimise ongoing fees through the food chain wherever possible.

Yep, CGT on exit is based on zero base cost and divs are taxed normally.

Highly misleading

Craigs comment is worth noting. Basically a r500k tax shield on R1.2m of income, R800k invested. As long as you can find the right investment for the R800k… Private equity is not it unless you have lots of diversification of equity first and you’re happy with low liquidity (much more a risk than the private company part)

Remember to check the small print with 12Js, looking particularly for differential share classes, free shares issued to management etc. The cost of dilution can exceed the disclosed fees.

All the investment “gurus” coming out with different pitches now that sales are down.

How many 12J investments achieve worthwhile returns though? Private equity into SA inc by unknown managers sounds like gambling to me not investment. Why are reputable asset managers not offering 12J investments? What due dilligence can an advisor perform on these? I would be very careful to part with R800k a year until I see more mainstream private equity players like Old Mutual, Ethos, Brait, Lereko Metier etc.

With respect; once again we have a very misleading article that only deals with tax at entry. What about tax on exit? The article does not explain fully the implications.

It all depends on your tax strategy. I for one have managed better returns on my direct JSE investments than I have on either pension or RA returns after the allowable tax deductions to the extent that I even managed to claw back the value of the tax deductions.

But on retirement I don’t have to worry about tax on income at a sliding rate as I will only pay CGT at a maximum of 18% and dividend tax of 20%.

Work out the tax on normal income of, say, R720K. A great deal more than my average of 19% IF my base cost is zero, which it isn’t. In fact it is lower than 15%.

As far as sec 12J is concerned, I have not found any that beats a decent share even with the tax advantage.

So, good people out there, don’t be misled by the lure of tax deductions – you don’t analyze an investment on tax deductions alone.

Did you not see the table? You should read an article carefully before giving an opinion.

The idea is great, if it can work for normal investors and not only the super-wealthy. I invested in a section 12J investment vehicle but, I was unable to claim my tax deduction on my returns as I am not a provisional taxpayer? So before you invest, also consult your tax advisor as well.

You are mistaken, any taxpayer (provisional or not) can claim a 12J deduction if they invest in a 12J company. Which 12J did you invest in and did you enquire with them?

I’d never touch anything that has to do with SJ12.


Pls review article before publishing

Where are the CGT calculations

Show me some VC returns of 40%

Show me some PE returns > 20%
All just scams

End of comments.





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