Tax Directive for Pension Payment: Forms, Rates, and IT88L

A tax directive for a pension payment is an instruction from the South African Revenue Service (SARS) that tells your fund administrator exactly how much tax to deduct from your lump sum before paying it out. The requirement sits in the Fourth Schedule to the Income Tax Act 58 of 1962, and it applies to every pension, provident, retirement annuity, preservation, and two-pot savings payout, regardless of the amount.1South African Revenue Service. Completion Guide for IRP3(a) and IRP3(s) Forms Until SARS issues the directive, the fund cannot legally release a cent.

When You Need a Tax Directive

Your fund administrator must obtain a directive before releasing money in any of these situations:

  • Retirement, where you elect a lump sum from your pension, provident, or retirement annuity fund.
  • Resignation or withdrawal from a fund, including drawdowns from a preservation fund.
  • Retrenchment, where a severance benefit is paid under a separate tax table.
  • Death, where benefits are distributed to beneficiaries.
  • Divorce, where a court order awards a share of the pension interest to a non-member spouse. The directive is applied for under the non-member spouse’s tax reference number.2South African Revenue Service. Guide to Complete the Lump Sum Tax Directive Application Forms
  • Two-pot savings withdrawals, since 1 September 2024.
  • Emigration or cessation of tax residency, once the three-year non-resident waiting period is met.

The rule applies even when you expect to fall below the taxable threshold. SARS makes that call, not the fund and not you.

How Much Tax Gets Withheld

The rate depends on why the payout is happening. Retirement and severance benefits use one table; resignation and pre-retirement withdrawals use another; two-pot savings withdrawals use your marginal income tax rate.

Retirement and Severance Benefits

When you retire or receive a retrenchment severance, the first R550,000 is tax-free. Amounts above that are taxed at rising rates up to 36 percent. For the 2026 tax year (1 March 2025 to 28 February 2026):3South African Revenue Service. Retirement Lump Sum Benefits

  • R1 to R550,000: no tax.
  • R550,001 to R770,000: 18% on the amount above R550,000.
  • R770,001 to R1,155,000: R39,600 plus 27% on the amount above R770,000.
  • R1,155,001 and above: R143,550 plus 36% on the amount above R1,155,000.

These thresholds are cumulative over your lifetime. Every previous retirement lump sum you have taken gets added to the current one before SARS calculates the tax. If you took R400,000 at an earlier retirement, most of the tax-free band is already used up.

Resignation and Pre-Retirement Withdrawals

If you resign, are dismissed, or withdraw from a preservation fund before retirement age, the tax-free portion drops sharply to R27,500. The 2026 brackets:3South African Revenue Service. Retirement Lump Sum Benefits

  • R1 to R27,500: no tax.
  • R27,501 to R726,000: 18% on the amount above R27,500.
  • R726,001 to R1,089,000: R125,730 plus 27% on the amount above R726,000.
  • R1,089,001 and above: R223,740 plus 36% on the amount above R1,089,000.

The gap between the two tables is why financial advisors push preservation funds. Cashing out on resignation costs you the R550,000 tax-free cushion that retirement would give you.

Two-Pot Savings Withdrawals

Withdrawals from the savings component do not use either lump sum table. They are treated as ordinary income and taxed at your marginal rate, which runs from 18 to 45 percent depending on your total earnings for the year.4South African Revenue Service. More Than 2 Million Taxpayers Withdraw From Their Savings Pot The withdrawal sits on top of your salary, so timing matters. A withdrawal in a high-earning year gets pushed further up the brackets. Minimum withdrawal is R2,000, and you are limited to one per tax year.

SARS has warned that it identifies and penalises taxpayers who understate their income on the directive application to try to secure a lower rate.4South African Revenue Service. More Than 2 Million Taxpayers Withdraw From Their Savings Pot

Which Form the Fund Files

You do not fill in a directive form. The fund administrator does. Which form they use depends on the type of benefit:5South African Revenue Service. I Want to Get a Tax Directive

  • Form A&D: retirement, death before retirement, or ill-health retirement from a pension or provident fund.
  • Form B: resignation, withdrawal, retrenchment, fund transfers, divorce, unclaimed benefits, and housing loan deductions from a pension or provident fund.6South African Revenue Service. Form B Request for Tax Deduction Directive Pension and Provident Funds
  • Form C: lump sums from a retirement annuity fund.
  • Form E: post-retirement payments by an insurer or fund, including living annuity commutations.
  • IRP3(a): employer gratuities and two-pot savings withdrawals.
  • ROT01: transfer between approved funds before retirement.

Your job is making sure the details the fund submits are correct. Check that your tax reference number, identity number, and personal information match what SARS has on file. Mismatches are the most common reason directives get rejected. For divorce directives, the non-member spouse’s tax reference number is also required.2South African Revenue Service. Guide to Complete the Lump Sum Tax Directive Application Forms

How Long It Takes

Fund administrators submit directive applications electronically through SARS eFiling. SARS checks the application against your tax records for mismatches, outstanding returns, unpaid assessments, and other compliance issues. When everything is in order, processing can be quick. For two-pot savings withdrawals, SARS has committed to processing within one hour between 08:00 and 19:00, every day of the year, provided you are tax-compliant.4South African Revenue Service. More Than 2 Million Taxpayers Withdraw From Their Savings Pot Applications that involve double taxation agreement (DTA) relief for non-residents take up to 21 working days.7South African Revenue Service. Tax Directives 2025 Legislative Changes and Enhancements

When SARS rejects a directive, it is usually because of something on your side: unfiled returns, an unregistered tax number, or a mismatch between the identity details the fund holds and the ones SARS has. Sort these out well before you expect a payout, because clearing outstanding returns can take weeks.

If You Owe SARS Money: The IT88L

When SARS issues the directive (formally an IRP3e notice), it may attach an IT88L stop order if you have outstanding tax debt. The IT88L instructs the fund to deduct an additional amount on top of the normal tax on the lump sum. Debts that trigger it include assessed tax, provisional tax, and administrative penalties.8South African Revenue Service. Tax Directive Enhancements and Tax Implications of the Two-Pot Retirement System

SARS does not attach the IT88L to every payout. Death benefits, fund-to-fund transfers, and housing loan deductions are excluded. And once attached, the IT88L cannot be cancelled by cancelling the directive. If you have already settled the debt or arranged terms, the fund needs a letter from SARS Debt Collection confirming this before it can disregard the IT88L amount.2South African Revenue Service. Guide to Complete the Lump Sum Tax Directive Application Forms

The math is unforgiving. If you owe SARS R50,000 in back taxes and withdraw R100,000 from your savings pot, the fund deducts the normal income tax plus that R50,000. Clearing outstanding debt before you request a payout is far cheaper than discovering it on the payslip.

If You Have Left South Africa

Non-residents still need a directive, and the rules layer on top of the usual ones. Since 1 March 2021, you must remain a confirmed non-resident for three uninterrupted years before you can withdraw your retirement and vested components. The savings component stays accessible without the wait. Former temporary visa holders who leave after visa expiry can generally access the full benefit without the three-year wait.

The three-year clock starts only when SARS is formally notified that you have ceased tax residency, not from the date you flew out. If you left years ago but never updated your status, the waiting period may not have begun.

The withdrawal tax table applies unless a DTA between South Africa and your new country of residence assigns taxing rights to that other country. Where a DTA applies, the fund asks SARS to evaluate the directive under the treaty, and processing takes up to 21 working days.7South African Revenue Service. Tax Directives 2025 Legislative Changes and Enhancements A DTA directive, once issued, is valid for three tax years as long as you can prove continued residence in the same country each year.

After the Directive Is Issued

Once the fund receives the IRP3e directive from SARS, the payout moves fast. The administrator deducts the tax on the directive, adds any IT88L amount, and pays the net balance into your bank account. You receive a tax certificate (IRP5 or IT3(a)) reflecting the gross benefit and tax withheld, and that feeds into your annual return.

The directive is a withholding estimate, not the final word. If it overstates what you owe, the excess comes back as a refund when you file. This happens often with two-pot withdrawals, where SARS estimates your marginal rate on projected annual income; a lower actual income means a refund, and a higher one means you owe the difference at assessment. Either way, the annual return is where everything trues up.