Your Pension Fund When You Leave a Job

Leaving a job triggers one of the most financially consequential decisions many South Africans face: what to do with accumulated retirement savings. Get it right and the money keeps growing, tax-sheltered, for decades. Get it wrong and a significant chunk disappears in tax - permanently, because the tax-free thresholds available at retirement are cumulative and cannot be recovered.

Since 1 September 2024, South Africa's two-pot retirement system changes how this works. This guide explains your options under the new rules.

The two-pot retirement system

Since September 2024, all retirement fund contributions are divided into three components:

The vested pot. Everything you accumulated before 1 September 2024. These funds operate under the old rules - accessible as a lump sum when you leave employment.

The savings pot. One third of new contributions (from 1 September 2024 onward). You can access this when you leave employment, or once per year as an active member (minimum R2,000 withdrawal). Withdrawals are taxed at your marginal income tax rate.

The retirement pot. Two thirds of new contributions. Locked until retirement at age 55 or older (or earlier in cases of disability or emigration). This cannot be taken as cash when leaving a job - it must be preserved or transferred.

When you leave employment now, you can access your vested pot and your savings pot. The retirement pot must be preserved.

What you can do with your vested pot

Option 1: Take it as cash

The money is paid out after tax. The fund requests a SARS tax directive specifying the deduction rate. Cash arrives in your bank account, minus tax.

The problem with cash: Tax on early withdrawals is significant, and every rand of tax-free allowance you use now is permanently gone. South Africans who repeatedly cash out their pension on resignation consistently arrive at retirement with far less than those who preserved.

Option 2: Transfer to a preservation fund

Transfer the benefit tax-free to a preservation fund. Your money continues growing until retirement. You are allowed one partial withdrawal before retirement if you genuinely need access.

This is usually the best option unless you face an immediate financial emergency with no other solution.

Option 3: Transfer to a new employer's fund

If your next employer has a pension or provident fund, you can transfer your benefit directly. No tax is triggered and your savings continue in the new fund without interruption.

The tax cost of taking cash

The withdrawal tax table (for resignations and dismissals) applies to the vested pot:

• First R27,500: 0%
• R27,501 to R726,000: 18%
• R726,001 to R1,089,000: 27%
• Above R1,089,000: 36%

These thresholds are lifetime cumulative. Each cash withdrawal you take - across every job you ever leave - reduces the tax-free amount available when you finally retire at 55+. Confirm the current table at sars.gov.za, as the thresholds are adjusted periodically.

Retrenchment is treated more favourably. The retirement lump sum benefit tax table applies, with a higher tax-free threshold. Make sure the reason for your exit is correctly recorded on your claim documentation.

The process: how to claim

Your employer's HR or payroll department initiates the fund claim. You provide them with:

• Your ID
• Bank account details (for cash payouts)
• SARS income tax reference number
• Completed fund withdrawal or transfer forms
• Written instruction on whether you want cash, preservation, or transfer

The fund administrator requests a SARS tax directive (for any cash portion), processes the claim, and either pays out or transfers within four to eight weeks of your exit date.

If you are unsure whether to take cash or preserve, ask the fund administrator or a financial advisor. Most can run the numbers for you quickly.

If you have lost track of an old fund

Billions of rands in unclaimed retirement benefits sit in South African funds. Former employees either did not claim on leaving, changed address, or simply lost track. If you worked for previous employers and are unsure whether there is money in a fund:

• Contact the Guardian Fund at 012 319 1911 (administered by the Master of the High Court)
• Check the FSCA's unclaimed benefits portal at fsca.co.za
• Contact the employer's former HR department if the company still exists

Tracing these benefits is worth the effort - the amounts can be significant.