Tax on a preservation fund withdrawal depends on when you take the money and which portion of the fund it comes from. A withdrawal before age 55 is taxed under the SARS Withdrawal Benefit Tax Table, where only the first R27,500 across your lifetime is tax-free. A lump sum taken at retirement uses the Retirement Lump Sum Benefit Tax Table, with a far larger R550,000 lifetime tax-free threshold. Since 1 September 2024, the two-pot retirement system also lets you draw once a year from a savings component, and that withdrawal is taxed at your marginal income tax rate rather than under either lump sum table.
Pre-Retirement Withdrawal Rates
If you access your preservation fund before age 55, the payout falls under the Withdrawal Benefit Tax Table. For the 2026 tax year (1 March 2025 to 28 February 2026), the rates are:1South African Revenue Service. Retirement Lump Sum Benefits
- R1 to R27,500: 0% (tax-free)
- 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
Preservation fund members are allowed one full or partial pre-retirement withdrawal from the vested portion of the fund.2South African Revenue Service. Tax and Retirement Once you use it, the remaining vested balance stays locked until retirement or a qualifying event such as emigration.
The Cumulative Lifetime Rule
The R27,500 tax-free band is a lifetime limit, not a fresh allowance for each withdrawal. SARS calculates the tax on a cumulative basis: every lump sum you have ever received from any retirement fund is added together, the current table is applied to the running total, and the tax already paid on earlier withdrawals is subtracted.1South African Revenue Service. Retirement Lump Sum Benefits
The effect is straightforward. A first-ever withdrawal enjoys the full zero-percent band. A member who has already drawn from previous pension or provident funds may find the entire current withdrawal sitting in the 27% or 36% bracket. If you withdrew R15,000 from another fund years ago, only R12,500 of your current withdrawal falls into the zero-percent band.
Withdrawals Under the Two-Pot System
Since 1 September 2024, new contributions to a preservation fund split into two pots. One-third goes to a savings component, and two-thirds to a retirement component. Anything already in the fund on 31 August 2024 sits in a vested component and continues to follow the old withdrawal rules.3National Treasury. Media Statement – Signing of Pension Funds Amendment Bill Into Law
You can withdraw from the savings component once per tax year, subject to a R2,000 minimum.4National Treasury. Frequently Asked Questions – Two-Pot Retirement System The tax treatment is different from a normal preservation fund withdrawal: SARS treats the payout as ordinary income and taxes it at your marginal rate, which sits between 18% and 45% depending on your total taxable income for the year.3National Treasury. Media Statement – Signing of Pension Funds Amendment Bill Into Law The withdrawal is added on top of your salary and other income, so a high earner drawing R100,000 from the savings pot can lose up to R45,000 in tax.
The seed capital that was moved into the savings component when the system launched (10% of the fund value on 31 August 2024, capped at R30,000) follows the same marginal-rate treatment when withdrawn.4National Treasury. Frequently Asked Questions – Two-Pot Retirement System
The vested component still qualifies for the traditional one pre-retirement withdrawal under the Withdrawal Benefit Tax Table above. The retirement component is locked until age 55 and cannot be taken as cash at all unless the total retirement interest is R247,500 or less.2South African Revenue Service. Tax and Retirement
Tax When You Retire
From age 55 (or on retirement due to disability), any cash lump sum falls under the Retirement Lump Sum Benefit Tax Table. For the 2026 tax year:1South African Revenue Service. Retirement Lump Sum Benefits
- R1 to R550,000: 0% (tax-free)
- 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
The R550,000 tax-free threshold is the main reason waiting until retirement is more efficient than withdrawing early. Like the withdrawal table, it is applied cumulatively. Previous retirement lump sums, withdrawal lump sums taken from March 2009 onward, and severance benefits from March 2011 onward all reduce the tax-free amount you have left.1South African Revenue Service. Retirement Lump Sum Benefits
You may take a maximum of one-third of the vested component as a cash lump sum. The remaining two-thirds must buy a life or living annuity. If your total retirement interest in the fund is R247,500 or less, you can take the entire amount in cash. The annuity income itself is not taxed under the lump sum tables. The fund administrator deducts PAYE from each payment based on your personal income tax bracket, the same way a salary is taxed.2South African Revenue Service. Tax and Retirement
If You Have Left South Africa
If you have ceased to be a South African tax resident, you can withdraw the full preservation fund balance before retirement, but only after being a non-resident for an uninterrupted period of three years or longer.5South African Revenue Service. Guide to Tax Directive for Cease to be Resident and Expiry of Visas This rule took effect on 1 March 2021 and replaced the older process that ran through the South African Reserve Bank. The three-year period can start before 1 March 2021 if you have evidence of when you became a non-resident. Residents of Namibia, Lesotho, and Eswatini also qualify under the Common Monetary Area, subject to the same three-year requirement.
The lump sum is taxed under the Withdrawal Benefit Tax Table, so the R27,500 tax-free threshold applies rather than the R550,000 retirement threshold.5South African Revenue Service. Guide to Tax Directive for Cease to be Resident and Expiry of Visas If your new country of residence also taxes the withdrawal, check whether a double taxation agreement between South Africa and that country provides relief.
Tax on Death Benefits
If a preservation fund member dies, the lump sum paid to beneficiaries is taxed under the Retirement Lump Sum Benefit Tax Table, with the R550,000 tax-free threshold.1South African Revenue Service. Retirement Lump Sum Benefits The calculation runs against the deceased member’s cumulative lump sum history, not the beneficiary’s. Any lump sums the member received during their lifetime reduce the tax-free amount available to the estate.
How the Tax Actually Gets Deducted
You cannot receive a preservation fund payout without a tax directive from SARS. The directive tells the fund administrator exactly how much tax to withhold, and the administrator applies for it on your behalf through SARS eFiling.6South African Revenue Service. Guide to the Tax Directive Functionality on eFiling You provide your tax reference number and identification; the administrator handles the correct form for your withdrawal type.7South African Revenue Service. Guide to Complete the Lump Sum Tax Directive Application Forms
SARS aims to process compliant applications within 21 working days, though delays are common when documents are missing or a member has unresolved tax issues.8South African Revenue Service. Tax Directives – 2025 Legislative Changes and Enhancements The 21-day clock restarts each time SARS asks for more information. Outstanding tax returns are the most common cause of a delayed or rejected directive, so filing anything overdue before you request the withdrawal saves time. Once the directive is issued, the fund deducts the specified tax and pays you the net amount.