At retirement, members of most funds are entitled to take a certain amount of their retirement savings in cash and a certain part of that cash sum can be taken tax free.
Beyond that, tax rates apply according to the tax table for retirement lump sums. It’s a progressive tax rate, which means the more you take, the higher the effective tax rate you will pay.
It is also a tax table that applies to all such lump sums taken over your lifetime and takes into account amounts you have withdrawn from a fund before.
The tax calculation gets more complicated if you have previously withdrawn or retired from a fund.
It is also more complex if you were a member of public sector or government retirement fund before March 1 1998, as you are entitled to take the amount that you accrued in your retirement fund before that date tax free.
The tax calculation will be performed for you when you inform your fund you want to retire and your fund applies for a tax directive from the South African Revenue Service (SARS). You have a right to request your retirement fund administrator to ask SARS what your tax free amount is before you apply for a directive.
How to work it out
If you want to know what to expect, without taking the rights of government employees who saved pre-1998 into account, here is how to work out how much tax you will pay on any amount taken in cash at retirement.
| If your lump sum taken from March 1 2023 at retirement or on retrenchment (plus previous sums) is: | The tax you will pay is |
| R1 – R550 000 | 0% |
|---|---|
| R550 000 - R770 000 | 18% of the amount taken above R550 000 |
| R770 001 – R1 155 000 | R39 600 + 27% of the amount taken above R770 000 |
| R1 155 001 and above | R143 550 + 36% of amount above R1 155 000 |
For retirement before March 1 2023, see rates in our tax tables.
7. From the tax calculated, deduct any tax paid on previous withdrawals since March 2009, retirement since October 2007 and retrenchment since March 2011.
Transfer to annuity
Any amount you transfer to an annuity is not taxed at the time of your retirement, and if you transfer to an investment-linked living annuity, any further investment growth is tax-free.
When you receive a pension from your annuity (living or guaranteed), the income will be taxed at your marginal tax rate. Read more: How do the income tax brackets work and what is my marginal tax rate?
If you are 65 or older when you retire, your marginal rate will be lower than it was when you were working, as the tax threshold is higher and you will be able to apply the secondary tax rebate. And when you reach age 75, the threshold is higher again and a third tax rebate applies.
In addition, your annuity or pension is likely to be lower than your income was when you were working. This will also reduce your tax rate.
