Annuitants would not be able to treat multiple small living annuities as separate when applying the R150 000 commutation limit if the proposed tax amendment is enacted.
The draft 2026 Taxation Laws Amendment Bill (TLAB) would expressly require the values of multiple living annuities held with the same insurer or fund to be aggregated.
The proposal does not change the R150 000 threshold, which has applied since 1 March 2026. It would put into the Income Tax Act the cumulative approach that the South African Revenue Service already applies, addressing uncertainty over whether the limit should instead be tested policy by policy.
National Treasury and SARS published the draft TLAB and draft Tax Administration Laws Amendment Bill on 30 July 2026. Written comments must be submitted to National Treasury and SARS by close of business on 28 August 2026.
When may a living annuity be cashed out?
A living annuity provides an income after a retirement fund member retires. It may be purchased from a registered insurer or provided by the retirement fund itself.
Living annuities are generally non-commutable. This means an annuitant cannot ordinarily cancel the annuity and withdraw the remaining capital as a lump sum.
However, the definition of “living annuity” in section 1 of the Income Tax Act permits the full remaining value of the underlying assets to be paid as a lump sum in two circumstances.
The first is when the value of the assets falls below an amount prescribed by the Minister of Finance. This is known as the de minimis commutation limit.
The limit increased from R125 000 to R150 000 with effect from 1 March 2026. The Minister formally prescribed the new amount in Government Gazette 54399, published on 23 March 2026.
The second circumstance applies in anticipation of the termination of a trust that became the owner of the living annuity after being nominated on the death of the original annuitant.
Why multiple living annuities matter
An individual can have more than one living annuity.
This may happen where the person belonged to more than one retirement fund. For example, the individual may have been a member of an employer’s pension fund and a retirement annuity (RA) fund. Retirement from each fund is a separate event, and the benefit arising from each may be used to purchase a separate living annuity.
The rules of a retirement fund may also provide for multiple annuities. SARS confirmed this possibility in Binding General Ruling 58, says Lize de la Harpe, senior legal adviser at Sanlam.
The uncertainty has been whether the R150 000 threshold applies separately to each living annuity policy or cumulatively to the annuitant’s living annuities held with the same insurer or fund.
De la Harpe says the Association for Savings and Investment South Africa previously raised the issue with National Treasury, which undertook to engage SARS. SARS has continued to apply the limit cumulatively at insurer or fund level, rather than separately to each policy.
How the cumulative approach works
Consider an annuitant with two living annuity policies purchased from the same insurer:
- Policy A is worth R80 000.
- Policy B is worth R90 000.
- Their combined value is R170 000.
Although each policy is individually below R150 000, the annuitant would not meet the commutation threshold because the aggregate value of the policies with that insurer exceeds the limit.
If the policies were worth R60 000 and R70 000, their combined value would be R130 000. The aggregate value would then be below the threshold.
The proposal applies to multiple living annuities with the same insurer or fund. It would not require an individual’s living annuities with unrelated insurers or funds to be aggregated.
Bringing the legislation into line with SARS’s approach
The draft explanatory memorandum to the draft TLAB says the policy intention is that the limit should apply on a per-insurer or per-fund basis.
Treasury says applying the threshold separately to each policy could allow an annuitant to commute several small annuities even though their combined value exceeds R150 000.
It could also facilitate tax-motivated restructuring of retirement benefits, weakening the policy objective of preserving retirement savings to provide a sustainable income in retirement.
The draft TLAB would therefore amend the definition of “living annuity” to state expressly that the prescribed limit must be determined cumulatively where an annuitant holds multiple living annuities with the same insurer or fund. Treasury says this would ensure consistent application of the law and support the preservation of retirement savings.
What the proposal would and would not change
The proposal would:
- make cumulative application of the limit explicit in the Income Tax Act;
- confirm that multiple living annuities with the same insurer or fund must be aggregated; and
- remove the uncertainty in the legislation over whether the threshold may be applied policy by policy.
It would not:
- change the R150 000 threshold; or
- require living annuities held with unrelated insurers or funds to be aggregated.
The proposal is still contained in a draft Bill and may be amended before enactment.
Separate clarification for paid-up RAs
The draft TLAB contains a separate aggregation proposal involving small interests in RA funds.
It would clarify that the R15 000 de minimis threshold applying in certain circumstances when a member has stopped contributing to an RA fund must be determined at fund level. Where the member has multiple paid-up policy contracts in the same fund, their relevant interests would have to be aggregated instead of applying the limit separately to each contract. This is distinct from the R150 000 limit, which concerns the commutation of living annuities after retirement.
