Most retirement savings in South Africa cannot all be taken as cash. When you retire, part of the money must buy an annuity, which pays you an income instead. There is one exception for small balances, and it was raised in 2026. The rule is easy to get wrong, because the headline figure of R360,000 is not exactly what the test measures. This guide explains what must be annuitised, how the small-balance test works, and what a few rands either side of the limit can cost you.
What You Will Learn
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- Which parts of your retirement savings must buy an annuity
- How the small-balance rule is tested in 2026 (and why R240,000 matters as much as R360,000)
- Worked examples, including the cliff edge at the limit
- What the choice between a living and a guaranteed annuity involves
- The separate limit for cashing in a living annuity
What Must Buy an Annuity?
An annuity is a product, bought from a life insurer or through a living annuity provider, that pays you a regular income in retirement. At retirement, the rules depend on which component the money sits in:
- Retirement component (new contributions since 1 September 2024, two-thirds of each): the full value must buy an annuity.
- Vested component (savings before 1 September 2024): you can take up to one third in cash, and the rest must buy an annuity.
- Savings component (new contributions, one third of each): you can take what is left in cash, or use it to buy an annuity.
- Provident fund savings from before 1 March 2021: up to 100 percent can be taken in cash. Contributions since then follow the pension fund rule, and members aged 55 or older on 1 March 2021 who stayed in the same fund keep the old rule.
Retirement annuities and pension preservation funds follow the same pattern as pension funds. Read our guide to living annuities and the guaranteed annuity for what you can buy.
The Small-Balance Rule
If the amount you would have to annuitise is small, you may take all of it in cash instead. The Budget raised the limit from R247,500 to R360,000 with effect from 1 March 2026. The change was left out of the Act gazetted on 1 April 2026, but National Treasury and SARS have said it applies from 1 March 2026, according to Moonstone.
The test is applied to the amount that would otherwise be locked into an annuity. You add your retirement component to two-thirds of your vested component. If the total does not exceed R240,000 (two-thirds of R360,000), you can take everything in cash. Sources written before the 2026 increase described the same test with R165,000, which is two-thirds of the old R247,500.
- If all your money is in the vested component, the test works out to a total balance of R360,000.
- If you have a retirement component, it counts in full against the R240,000 limit. A member with only a retirement component can take it all in cash only up to R240,000.
- The savings component is not part of the test, because you can take it in cash anyway.
The rule does not apply to provident fund savings from before 1 March 2021, which can already be taken fully in cash. Older sources say the test is applied fund by fund and is not added up across funds, but the 2026 sources do not say. Ask your fund how it applies the test.
Worked Examples
These examples use the test above and are for illustration only.
- Example 1: a pension fund member has R350,000, all in the vested component. Two-thirds is R233,333, which is under R240,000. The member can take all R350,000 in cash.
- Example 2: the same member has R400,000. Two-thirds is R266,667, which is over R240,000. The member can take one third (R133,333) in cash, and R266,667 must buy an annuity.
- Example 3: a member has R300,000 in the vested component and R100,000 in the retirement component. Two-thirds of R300,000 is R200,000, and adding R100,000 gives R300,000, over the R240,000 limit. The member can take one third of the vested component (R100,000) in cash, and R300,000 must buy an annuity.
- Example 4: a new member has only a retirement component of R240,000. That passes the test, so all R240,000 can be cash. At R250,000 the whole amount must buy an annuity.
- Example 5: tax on the cash. Cash at retirement is taxed on the retirement lump sum table. A member who takes R350,000 in cash after an earlier lump sum of R300,000 pays R18,000 in tax: A is the tax on R650,000 (18 percent of R100,000), and B is the tax on R300,000 (R0). With no earlier lump sums, the same R350,000 is tax-free. See our guide to leaving a retirement fund for how the tables work.
The Cliff Edge
Examples 1 and 2 show the problem. With R350,000 the member takes R350,000 in cash. With R400,000, which is R50,000 more, the member takes R133,333 in cash. A bigger balance has produced R216,667 less cash, because the small-balance exception no longer applies. Neither outcome is wrong, but you should know which side of the line you are on before you choose your retirement date or move money between funds.
What an Annuity Pays
If you buy a living annuity, you choose a drawdown rate between 2.5 and 17.5 percent of the balance each year. On the R266,667 in Example 2, that is between about R6,667 and R46,667 a year before tax (R556 to R3,889 a month). The top of the range uses up capital quickly. A guaranteed annuity pays a fixed income for life, and the amount depends on your age and the insurer’s quote.
Cashing In a Small Living Annuity
There is a separate limit for a living annuity you already own. From 1 March 2026 you can commute it for a single payment if its value is R150,000 or less, up from R125,000. The limit applies per insurer, not per living annuity, so two annuities of R100,000 with the same insurer count as R200,000.
Key Takeaways
- The retirement component and two-thirds of the vested component must usually buy an annuity.
- The small-balance rule lets you take all in cash if retirement component plus two-thirds of vested component does not exceed R240,000 (R360,000 for money that is all vested).
- The rule creates a cliff edge, where a larger balance can mean much less cash.
- Cash at retirement is taxed on the retirement table, and earlier lump sums reduce the tax-free R550,000.
- A living annuity can be cashed in at R150,000 or less, tested per insurer.
Frequently Asked Questions
What is compulsory annuitisation?
It is the rule that part of your retirement savings must be used to buy an annuity, which pays an income, instead of being paid out as cash. It applies to the retirement component and to two-thirds of the vested component.
What is the R360,000 small-balance rule?
It is the limit below which you may take your retirement savings fully in cash instead of buying an annuity. From 1 March 2026 it is R360,000, up from R247,500. In the two-pot system the test adds your retirement component to two-thirds of your vested component, and the total must not exceed R240,000.
Can I take my whole pension fund as cash at retirement?
Only if you pass the small-balance test. Otherwise you can take up to one third of the vested component in cash, and the rest must buy an annuity. Provident fund savings from before 1 March 2021 can still be taken fully in cash.
How much of my savings component can I take as cash?
All of it. The savings component is not part of the small-balance test, and you can take the balance in cash at retirement or use it to buy an annuity.
What types of annuity can I buy?
The two main types are a living annuity, where you choose how much to draw each year, and a guaranteed annuity, which pays a fixed income for life.
Can I cash in a living annuity?
Yes, if its value is R150,000 or less from 1 March 2026. The limit is tested per insurer.
Check Your Own Position
Ask your fund for a retirement quote that shows each component separately, then test the numbers with our retirement annuity calculator. If you are close to the limit, request a portfolio review.
This article is general information and not financial, tax or legal advice. Retirement rules and limits change, and your fund’s rules decide how they are applied. For help with your own situation, request a portfolio review.
