Updated October 2026: When you retire or leave an employer, the money in your pension or provident fund has to go somewhere. The choice you make decides how much tax you pay, how much cash you can reach, and how long your income lasts. The rules changed in 2021 and again with the two-pot system from 1 September 2024, so older advice may no longer apply to you.

What You Will Learn

• The five things you can do with your retirement fund
• How the two-pot system changes what you can take as cash
• How much of a lump sum is tax-free in 2026/27
• What to check before you decide

Step One: Know What Is in Your Fund

Under the two-pot system, contributions made since 1 September 2024 are split. One third goes to a savings component and two thirds to a retirement component. Your older money sits in a vested component, which keeps the rules that applied before. On 31 August 2024, the lower of 10 percent of your fund value or R30,000 was moved into the savings component as a once-off.

Ask your fund for a benefit statement that shows the three components, because each one is treated differently when you leave.

Your Five Options

1. Take Cash

What you can take depends on the fund type and which component the money sits in.

• Pension fund, pension preservation fund and retirement annuity: at retirement you can take up to one third of the vested component as cash, and all or part of the savings component as cash. The retirement component and the rest of the vested component must buy an annuity.
• Provident fund: money built up before 1 March 2021, plus growth on it, can still be taken in full as cash. Contributions made from 1 March 2021 follow the pension fund rule of one third cash and two thirds annuity. Members who were 55 or older on that date and stayed in the same fund have their older rules protected.
• Retirement component: it must be used to buy an annuity at retirement.
• Small balances: if your relevant retirement interest is R360,000 or less, you may take everything as cash. This limit rose from R247,500 with effect from 1 March 2026.

If you leave before retirement age, you can withdraw your vested and savings components as cash, but the retirement component stays invested until you retire. Cash withdrawals before retirement are taxed on the withdrawal table, which gives only the first R27,500 tax-free. Savings component withdrawals are taxed at your marginal rate.

2. Buy a Living Annuity

A living annuity keeps your capital invested and lets you choose a yearly income of between 2.5 and 17.5 percent of the balance. The income is not guaranteed. If you draw too much, or markets fall while you draw, the money can run out. Whatever is left when you die can go to your beneficiaries.

3. Buy a Guaranteed Annuity

A guaranteed annuity pays an income for life, or for a set term, from an insurer. The income does not depend on markets. The trade-off is flexibility: most of these purchases cannot be reversed. You can move from a living annuity to a guaranteed annuity later, but not the other way round.

4. Move to a Preservation Fund

This suits you if you are leaving your employer but not retiring. The transfer is tax-free and your capital stays invested. You cannot add new contributions to a preservation fund. It follows the two-pot structure, so the savings component can be withdrawn once per tax year (minimum R2,000, taxed at your marginal rate) while the retirement component waits for retirement.

5. Move to a Retirement Annuity

A retirement annuity also accepts a tax-free transfer, and unlike a preservation fund it lets you keep contributing and claim a tax deduction of up to 27.5 percent of income, capped at R430,000 a year from March 2026. Legacy retirement annuity policies were left outside the two-pot rules, so check which type you hold.

Compare retirment fund types

What if you were retrenched?

The Tax on a Retirement Lump Sum (2026/27)

• First R550,000: 0 percent
• R550,001 to R770,000: 18 percent of the amount above R550,000
• R770,001 to R1,155,000: R39,600 plus 27 percent of the amount above R770,000
• Above R1,155,000: R143,550 plus 36 percent of the amount above R1,155,000

Lump sums you took earlier count towards these bands. Transfers into an annuity, preservation fund or retirement annuity are not taxed at the time, but the income you draw later is taxed as ordinary income. For 2026/27 the tax threshold for people aged 65 to 74 is R153,250.

Which Option Fits Your Situation?

• Leaving your employer with many working years ahead: a preservation fund or retirement annuity, and resist cashing out.
• Retiring with enough capital for a comfortable income: a split between a living annuity for flexibility and a guaranteed annuity for a floor of income.
• Retiring with thin savings: lean towards income certainty, because a market fall early in retirement is hard to recover from while you are drawing money.
• Planning to spend your cash lump sum: remember that it comes out of retirement capital, and that tax applies above R550,000.

Our article on living annuity asset allocation shows how to invest once you have chosen.

Before You Decide: A Short Checklist

• Get a benefit statement showing your vested, savings and retirement components.
• Confirm your fund rules, because they can be stricter than the law.
• Compare costs, which differ widely between providers.
• Check your health, your dependants and whether you want to leave money to beneficiaries.
• Run the numbers on your required monthly income.
• Talk to a registered financial planner before you sign anything.

Key Takeaways

• Your options are cash, a living annuity, a guaranteed annuity, a preservation fund or a retirement annuity.
• The two-pot system means the savings component can be accessed, but the retirement component must buy an annuity.
• Provident fund savings from before 1 March 2021 can still be taken fully in cash. Later contributions follow the pension rule.
• The first R550,000 of a retirement lump sum is tax-free in 2026/27.
• If your retirement interest is R360,000 or less, you can take all of it as cash.

Frequently Asked Questions

How much of my retirement fund can I take in cash?

From a pension fund, pension preservation fund or retirement annuity you can take up to one third of the vested component in cash, plus all or part of the savings component. The rest buys an annuity. A provident fund allows full cash on savings built before 1 March 2021. If your total is R360,000 or less, you can take it all.

How much tax do I pay on a retirement lump sum?

For 2026/27 the first R550,000 is tax-free. The next slice up to R770,000 is taxed at 18 percent, up to R1,155,000 at 27 percent above a fixed amount, and anything higher at 36 percent above a fixed amount.

What is the two-pot retirement system?

Since 1 September 2024, one third of new contributions go to a savings component you can withdraw from once a tax year, and two thirds to a retirement component that is preserved until retirement. Older savings sit in a vested component under the previous rules.

Can I leave my retirement money to a beneficiary?

A living annuity can pass the remaining balance to the beneficiaries you nominate. A guaranteed annuity depends on the type: a life annuity with no guarantee stops on death. Rules for money still in a fund when you die differ, so ask your fund.

Should I choose a living annuity or a guaranteed annuity?

A living annuity offers flexibility and leaves capital to heirs, but the income is not guaranteed. A guaranteed annuity offers certainty but less flexibility. Many retirees combine the two. A financial planner can model your own numbers.

Compare Your Options With a Planner

Use our retirement calculators to test how long your money lasts, or find a registered adviser in our financial planners directory.

This article was prepared with AI assistance for general information only. It is not financial, tax or legal advice. Rules and thresholds change, and your fund rules may differ. Speak to an authorised financial services provider before making retirement decisions.