The 2026 Budget may seem technical and understated on the surface, but beneath the line items lies a set of policy shifts that quietly strengthen the retirement system.
According to Danie van Zyl, the head of the Smooth Bonus Centre of Excellence at Sanlam Corporate: Investments, and Lize de la Harpe, senior legal adviser at Sanlam Corporate, the Budget signals a renewed – and unusually supportive – stance towards long-term savings.
During a webinar on 3 March, they described the Budget as “unexpectedly friendly” to retirement savers and the broader savings ecosystem. Although some of the changes appear incremental, they collectively expand tax incentives, refine technical rules, and hint at a more serious policy effort to lift South Africa’s persistently weak savings rate.
A nation of poor savers
Van Zyl said the country’s gross national savings rate is about 12% to 14% of GDP, well below international peers. Emerging markets typically save 25% to 35% of GDP, while the OECD average is around 22% to 25%.
Within that modest savings pool, retirement funds carry significant weight. Van Zyl said retirement savings account for 5% to 7% of GDP, meaning roughly half of South Africa’s total savings originate from retirement funds.
The retirement system resembles a national wealth pool – albeit a decentralised one. It functions as “a democratized version of a sovereign wealth fund”, because the capital ultimately belongs to fund members and is governed through trustee structures rather than the state.
From a policy perspective, he argued that the government has four broad levers to strengthen retirement savings: raising contribution levels, expanding tax incentives, broadening participation among uncovered workers, and improving preservation when employees change jobs.
The Budget leaned into the second.
Higher deduction limits: overdue relief
One of the most significant measures is the increase in the retirement fund contribution deduction cap.
De la Harpe said the 27.5% deduction formula remains unchanged, but the annual rand cap has finally been lifted from R350 000 to R430 000.
The previous cap had been frozen since 2016, making the increase long overdue.
Members can still contribute more than this amount, she noted, but contributions above the cap will not be deductible in the relevant tax year and will instead be treated as disallowed contributions that can be offset against tax when benefits are taken.
Van Zyl shared data from the Sanlam Umbrella Fund to illustrate the impact. Of more than 350 000 members, only 1 843 were contributing above the R350 000 threshold, and 827 are already contributing above R430 000.
Most of these savers, he noted, are in their 50s – a life stage when children have finished studying and households can redirect resources towards retirement savings to accelerate their retirement funding.
Still, Van Zyl pointed out that the adjustment remains below what inflation indexing would have produced. If the R350 000 cap had been increased annually in line with inflation since 2016, it would now be closer to R540 000.
Although he welcomed the increase to R430 000, Van Zyl suggested the contribution limit should ideally be adjusted annually in line with inflation, rather than remaining fixed for long periods and then requiring large increases.
Tax-free savings accounts: more room, same ceiling
The Budget also expands the annual contribution space for tax-free savings accounts (TFSAs).
De la Harpe said the annual TFSA limit rises from R36 000 to R46 000, following earlier increases from the original R30 000 cap introduced in 2015.
However, the lifetime contribution limit remains unchanged at R500 000.
For disciplined investors who have maximised contributions since inception (2015), this means the lifetime ceiling will be reached within the next three years.
Van Zyl highlighted a broader industry debate: whether retirement funds are truly the best vehicle for emergency savings.
Withdrawals from retirement vehicles are taxed at marginal rates and the products are inherently long term.
“There is a case to be made,” he suggested, that tax-free savings accounts may be a more efficient vehicle for emergency savings, although views across the industry differ.
Living annuities and the new commutation rules
De la Harpe also addressed the annuitisation de minimis rule – an area she said continues to cause confusion, particularly since the introduction of the two-pot retirement system.
Under South African retirement law, retirees must generally use two-thirds of their retirement benefit to purchase an annuity, with the remaining one-third available as a cash lump sum at retirement. A de minimis threshold provides an exception. If the benefit is small enough, the retiree may take the entire amount in cash rather than purchasing an annuity.
Before the Budget, this threshold was R247 500. The 2026 Budget increases it to R360 000, effective from 1 March 2026.
De la Harpe said often arises because the rule is sometimes described in terms of the annuity portion rather than the full benefit. Two-thirds of the old threshold (R247 500) equals R165 000, which led some to believe that the de minimis level had been changed to that figure.
In reality, the rule simply expresses the same threshold in two different ways.
With the new limit of R360 000, the equivalent annuity portion becomes R240 000. If the amount that would otherwise have to purchase an annuity is less than R240 000, the retiree may take the entire benefit in cash.
She also clarified that the de minimis rule continues to apply in the post-two-pot environment. When applying the threshold for members who have both retirement pots and vested pots, funds must consider the full value of the retirement pot plus two-thirds of the non-vested portion of the vested pot.
The Budget also increases the living annuity commutation threshold from R125 000 to R150 000. This rule applies only to living annuities, not guaranteed life annuities, which cannot be commuted.
The Budget further settles a long-running interpretive dispute over how the commutation limit should be applied. Some industry bodies argued that the threshold should apply per policy, allowing members with multiple small annuities to access their capital more easily.
National Treasury disagrees. It says the R150 000 threshold must be assessed cumulatively per insurer or per fund, meaning multiple policies with the same provider must be aggregated when testing against the limit.
Unclaimed assets: central fund debate intensifies
The presenters also revisited the increasingly urgent issue of unclaimed financial assets.
South Africa is estimated to have about R88 billion in unclaimed financial assets, including retirement benefits, bank balances, investment proceeds, and insurance payouts.
The Financial Sector Conduct Authority first mapped the problem in a discussion paper published in September 2022, which examined how unclaimed assets are identified, monitored, and managed across the financial sector.
One of the most controversial proposals in that paper was the creation of a central unclaimed assets fund, or alternatively the transfer of assets into the National Revenue Fund.
In its response to industry comments published in March 2024, the FSCA maintained its support for a centralised solution, although it acknowledged the operational and governance complexities involved.
The 2026 Budget signals the next step in that process: a discussion note for public consultation on a proposed framework for dealing with unclaimed assets.
The framework is expected to address the identification, monitoring, management, tracing, and reporting of unclaimed assets across the financial sector.
De la Harpe noted that the issue is becoming more pressing as retirement preservation rules tighten. Members are now required to preserve their retirement pot when changing jobs, which means many small balances may accumulate across multiple funds over time. This raises the risk of large numbers of “orphan pots” that members – or their beneficiaries – may lose track of.
Industry concerns centre on how a centralised system would operate in practice.
Funds argue that sufficient time must be allowed for active tracing of members and beneficiaries before assets are transferred to a central vehicle. There are also questions about whether tracing will continue once assets have moved into a central fund.
De La Harpe said any central unclaimed assets fund would require strict regulation and oversight to ensure proper governance and to prevent mismanagement, corruption, or fraud.
All in all, Van Zyl described the package as containing “a lot of positive surprises”, adding that it was “quite pleasing for everybody in the retirement industry”.
The Budget, in effect, provides better tools and clearer rules – but whether those translate into stronger retirement security will depend on whether South Africans use them to save.
