If you take cash out of a South African retirement fund before you retire, the amount you receive is not the amount you asked for. SARS taxes the withdrawal first, and it does so using a separate set of tax tables that apply only to retirement fund lump sums.
There are two tables. One applies when you withdraw before retirement. The other applies when you retire, are retrenched, or on death. The difference between them is large, and knowing which one applies to your situation changes what you should expect to receive.
This article explains how the tables work, how SARS adds up your past lump sums, and what happens with two-pot savings withdrawals.
Read more: Tax on retirement annuity withdrawal in SA – what expats need to know
South African retirement annuity: The two tables are not the same
Retirement fund lump sum withdrawals come from various funds, including pensions, pension preservation, provident funds, provident preservation, or retirement annuities. It also includes amounts assigned under divorce orders.
Lump sum benefits can be taken from these funds in cases of death, three-year tax non-residents, withdrawal, retirement, or when employment ends. This can happen if you reach age 55, or due to sickness, accident, injury, incapacity, redundancy, or the end of your employer’s trade.
The first category is taxed on the withdrawal benefit table. The second is taxed on the more generous retirement and severance benefit table.
The South African retirement fund withdrawal benefit table
This is the table that applies to early access. For the 2027 tax year, running from 1 March 2026 to 28 February 2027, there are no changes from the previous year.
| Taxable amount (R) | Rate of tax |
| 1 – 27 500Â | 0%Â |
| 27 501 – 726 000Â | 18% of the amount above 27 500Â |
| 726 001 – 1 089 000Â | 125 730 plus 27% of the amount above 726 000Â |
| 1 089 001 and above | 223 740 plus 36% of the amount above 1 089 000 |
Source: SARS, retirement lump sum benefits, withdrawal benefit table, 2027 tax year
Only the first R27 500 is free of tax, and that R27 500 is a lifetime figure, not an annual one. More on that below.
The retirement and severance benefit table
This table applies at retirement, on death, and to severance benefits. It is also unchanged for the 2027 tax year.
| Taxable amount (R) | Rate of tax |
| 1 – 550 000Â | 0%Â |
| 550 001 – 770 000Â | 18% of the amount above 550 000Â |
| 770 001 – 1 155 000Â | 39 600 plus 27% of the amount above 770 000Â |
| 1 155 001 and above | 143 550 plus 36% of the amount above 1 155 000 |
Source: SARS, retirement lump sum benefits, retirement fund lump sum benefits or severance benefits table, 2027 tax year
The tax-free portion is R550 000 rather than R27 500. The bands are also wider, so the higher rates start later. The gap between the two tables is what you give up when you access your money early.
What the difference looks like in rands
Take a lump sum of R1 500 000, assuming no previous lump sums have been taken.
On the withdrawal table, the tax is R223 740 plus 36% of R411 000, which comes to R371 700.
On the retirement table, the tax is R143 550 plus 36% of R345 000, which comes to R267 750.
The same R1 500 000 attracts R103 950 more tax when taken early.
A second example, using R700 000 with no prior lump sums. On the withdrawal table, the tax is 18% of R672 500, which is R121 050. You would receive R578 950. On the retirement table, the same amount would attract R27 000 in tax, because R550 000 falls in the zero band and only R150 000 is taxed at 18%.
Your past lump sums reduce your tax-free amount
SARS does not apply the table to each withdrawal in isolation. It applies the table to the running total of everything you have taken.
Tax on a specific withdrawal benefit is calculated by adding that lump sum to all other retirement fund lump sums received since March 2009, all retirement fund lump sums from October 2007, and all severance benefits from March 2011. Then, it subtracts the tax on the total of those earlier amounts.
In simple terms: SARS treats all your lump sums as one large payment and then subtracts the tax already paid on the earlier amounts.
You get the zero band once in your lifetime, not once per withdrawal.
Here is what that means in practice.
Assume you took a withdrawal of R500 000 some years ago and are now withdrawing R700 000.
- Add the two together. The aggregate is R1 200 000.
- Apply the withdrawal table to R1 200 000. The tax is R223 740 plus 36% of R111 000, for a total of R263 700.
- Apply the withdrawal table to the earlier R500 000 separately. The tax is 18% of R472 500, which is R85 050.
- Subtract step 3 from step 2. The tax on the current withdrawal is R178 650.
Without the earlier withdrawal, the tax on R700 000 would have been R121 050. The earlier lump sum has added R57 600 to the current bill.
Retirement lump sums and severance benefits count towards the same running total. A retirement lump sum you received years ago will reduce the room available on a withdrawal today, and a withdrawal today will reduce the room available at retirement.
Two-pot savings withdrawals are taxed differently
Savings component withdrawals under the two-pot retirement system do not use either of the tables above.
SARS taxes the savings withdrawal benefit using the annual payment calculation based on the member’s marginal rate of tax.
No retirement rates, allowable deductions, exemptions, or tax-free amounts are used in this calculation. SARS confirmed that the marginal rate can range from 18% to 45%, depending on the member’s income. Since the calculation relies on the member’s tax position, registration for income tax is mandatory. The fund must also receive a tax reference number.
If the directive rate is lower than your actual marginal rate, the shortfall will be addressed on your annual assessment, not at the time of withdrawal.
The tax directive and outstanding debt
No lump sum is paid without a tax directive. Your fund applies to SARS, and then SARS calculates the tax using your full recorded lump sum history, after which the fund pays the net amount to you.
SARS will not issue a tax directive if you have outstanding returns. Where you are in arrears with SARS, the debt is deducted from the payout. Where a payment arrangement is already in place, no debt deduction is made from the withdrawal.
This is why getting your filing history in order before applying matters. An outstanding return from several years ago can stop a directive that is otherwise straightforward.
Tax on South African retirement annuity: Where do you start?
Before you apply for a South African retirement annuity withdrawal, it is worth knowing which table applies, what your previous lump sums have already used up, and whether anything on your SARS account will hold up the directive. FinGlobal can check all three and, if the money needs to leave South Africa, manage the transfer as well. Get in touch for a free consultation.