Thank you for your question. Provident funds, which are governed by the Pension Funds Act, are specifically designed for retirement savings. They are only available to you if your employer runs one. When leaving your employer and therefore leaving the fund, you can either cash in the savings subject to your withdrawal tax table or move the funds into a personal retirement annuity (RA), preservation fund or another employer’s fund without paying tax. A combination of the two is also possible. If you are leaving the fund and over the age of 55, retiring from the fund is also possible.
The R500000 tax-free cash “withdrawal” that you have referred to is only available at the time that you retire from the fund. The earliest that you are usually able to retire from the fund is at the age of 55.
The other times that you are able to retire from the fund are when you stop working due to ill health or when you financially emigrate (which you mentioned is not the case in your situation).
It is important to note that as of March 1 2021, there was a harmonisation between pension and provident funds where provident fund contributions after this date will have to be treated the same as a pension fund and members will not be able to access 100% of their funds when they retire and will be restricted to the one-third withdrawal rule.
So, while it is safe to assume that you will be able to access nearly 100% of your funds when you retire from your provident fund, any contributions and growth on those contributions after March 1 2021 (the non-vested portion) will be subject to a maximum cash commutation of one-third and the remaining two-thirds will need to be used to purchase a life or living annuity. If the non-vested amount is less than R247 500, you will be able cash in the entire amount subject to the relevant tax table.
The reason we mention this is that should you retire from the fund and be forced to take out a life or living annuity due to the non-vested value of the provident fund being over R247 500, you will need to retain a South African bank account in order to receive the benefits from the life or living annuity.
Should you preserve your funds when you resign and then look to retire from the preservation fund, the above information will still apply – in other words, the vested and non-vested rights will pull through into your preservation fund.
When retiring from a compulsory fund such as an RA (retirement annuity), pension, provident or preservation fund, the cash commutation you take from all funds you retire from is taxed as per the following tax table:
| Taxable income (R) | Rate of tax (R) |
| 1– 500 000 | 0% of taxable income |
| 500 001 – 700 000 | 18% of taxable income above 500 000 |
| 700 001 – 1 050 000 | 36 000 + 27% of taxable income above 700 000 |
| 1 050 001 and above | 130 500 + 36% of taxable income above 1 050 000 |
Withdrawals from retirement funds like pension or provident funds, which are often made before members reach age 55 such as in the case of resignation are taxed on a different set of tax tables as seen below:
| Taxable income (R) | Rate of tax (R) |
| 1– 25 000 | 0% |
| 25 001 – 660 000 | 18% of taxable income above 25 000 |
| 660 001 – 990 000 | 114 300 + 27% of taxable income above 660 000 |
| 990 001 and above | 203 400 + 36% of taxable income above 990 000 |
However, although you have the tax-free portion of R500 000 at retirement, keep in mind that if you have withdrawn from any other pension or provident funds during your lifetime, these benefits – along with your retirement cash benefit – will be aggregated and taxed as a lump sum. As such, a tax simulation is advisable before making your final decision as this will show the estimated tax you will pay on a withdrawal or retirement subject to previous withdrawals.
A simple example of this can be seen below:
Member XYZ withdrew R36 000 from a provident fund in 2012 when they resigned and moved the rest of their funds into their new employer’s fund.
The tax table is as follows and shows how much tax they will pay on the R36 000 withdrawal:
2023 tax year (March 1 2022 – February 28 2023) (no changes from last year)
| Taxable income (R) | Rate of tax (R) |
| 1– 25 000 | 0% |
| 25 001 – 660 000 | 18% of taxable income above 25 000 |
| 660 001 – 990 000 | 114 300 + 27% of taxable income above 660 000 |
| 990 001 and above | 203 400 + 36% of taxable income above 990 000 |
In this case, the tax was as follows:
(R36 000 – R25 000) * 18% = R 1 980.
In 2022, Member XYZ is now ready to retire and has R2 000 000 saved in their provident fund with their new employer. They would like to know how much tax they will pay if they retire from the fund and take what they think is the R500 000 tax-free amount.
Should they take the full R500000 now, the tax will be calculated as follows:
- R 36000 (previous withdrawal)
- R 500000 (current withdrawal)
- R 536000 (full cash portions)
The retirement tax tables that will apply:
2023 tax year (March 1 2022 – February 28 2023) (no changes from last year)
| Taxable income (R) | Rate of tax (R) |
| 1– 500 000 | 0% of taxable income |
| 500 001 – 700 000 | 18% of taxable income above 500 000 |
| 700 001 – 1 050 000 | 36 000 + 27% of taxable income above 700 000 |
| 1 050 001 and above | 130 500 + 36% of taxable income above 1 050 000 |
(R536 000 – R500 000) * 18% = R6 480
The previous tax amount of R 1 980 will be subtracted from this, which will leave Member XYZ with a tax bill of R4 500.
This example serves to demonstrate the importance to have a Sars tax simulation done before withdrawing the cash so as to establish as far as possible how much you’ve withdrawn from funds before. The financial planner who set up your provident preservation fund will be able to contact the relevant asset manager to assist with this.
