The big distinction between the three is that you can only join a Pension or Provident Fund through a company. This is something your employer should set up for you.
A Retirement Annuity (RA) is different because it is independent of the company employing you. If you run your own business and operate as a sole proprietor, then this is the way you will probably be saving for retirement. You can however contribute to a RA via your employer and in fact, many companies are now switching to RAs, because they offer more flexibility and choice for their employees.
Difference between funds
The main difference between these funds is how they’re treated when you retire, or when you want to take the money out. When a member of a pension or provident fund retires, they can choose to withdraw up to one third of the total benefit as a cash lump sum, while the other two-thirds must be paid out as a pension over the rest of their life.
A provident fund member can however choose to withdraw the full amount at retirement if they want to.
There is an exception to the above which applies across all three types of funds – if the entire value of the fund is less than R 247 500, then you can withdraw the entire fund value as a lumpsum.
The other difference is that a member can withdraw from a Pension or Provident Fund at any stage before they retire, however members of an RA can’t cash out before reaching 55 years old.
It's important to consider your financial goals, tax planning, and retirement objectives when deciding between a retirement fund and a provident fund. The tax treatment and preservation rules can impact the choice you make, and it's advisable to consult with a financial advisor or tax professional to make an informed decision based on your specific circumstances.
Read here how a Retirement Fund can reduce your tax liability.
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