What are my choices at retirement?

Key takeaways

  • You cannot retire from your retirement fund before the retirement age set in the rules of the fund, or in the case of a retirement annuity, age 55.
  • Once you reach retirement age, it is your choice whether you retire from your fund or not. If you are able to keep working, you can delay your retirement to a later date.
  • You can take up to a third of your savings as a cash lump sum and maybe more under some circumstances, but not all of this may be tax free.
  • Deciding how much to take depends on your circumstances, but it's generally more tax efficient to use anything beyond the tax-free amount to buy an annuity.
  • With your retirement savings that you do not use for a lump sum, you need to buy an annuity or monthly pension.

As you approach retirement age you will have to start making a number of decisions.

As you make these decisions, keep in mind the goals you should have for this season:

  • You want to provide for an income which sustains your standard of living or as close to it as possible.
  • You want that income to keep up with inflation each year so your income doesn’t lose its purchasing power.
  • You want an income that lasts as long as you (and possibly a life partner) live without the risk of your capital being depleted or your income declining.
  • You may want to leave any remaining savings to your family.

The decisions you need to make include:

When to retire

South Africa has 60 as the age at which you can qualify for a state old age grant, but if you are saving for your own retirement, there is no official retirement date.

If you are employed, your employer will set an age by which you must retire from employment and the rules of any retirement fund your employer sponsors will likely specify the same age as the earliest age you can "retire" from the fund. This means that when your employer decides you should retire, you will be able to access your savings as a pension.

Despite your employer and retirement fund’s retirement age, if you are able to make an arrangement to continue working, for example for your employer on a contract basis, or to find other work, you have the option to delay your “retirement” from your fund and the drawing of a pension from your savings.

You can do this either by becoming a deferred member of your employer-sponsored retirement fund, or by transferring your retirement savings to a retirement annuity (RA). You can also transfer your savings to a preservation fund but you will not enjoy the right to make one withdrawal as you would when transferring before retirement.

A transfer to a RA, however, may not be a good idea if you were a provident fund member before March 1 2021 as it could involve the loss of rights to withdraw.

If you are a member of a RA, you cannot retire from that fund before age 55, but after that age, the choice on when to retire from the fund is yours.

If your savings have been moved to a preservation fund, access will depend on whether it is a pension or provident fund preservation fund and you need to check the rules of the fund regarding what is allowed. What is allowed can depend on factors such as when the transfer took place.

The lump sum/annuity split on retirement

When you elect to retire, you are entitled to take up to one third of your retirement savings as a lump sum, and with the remainder you are obliged to buy an annuity or pension for life.

There are exceptions to this rule:

For any retirement fund member:

  • If your retirement savings are less than R247 500 you can take the entire amount as a lump sum.

For provident fund members who were members of the fund before March 1, 2021:

  • You can take the entire amount you saved before March 1, 2021, plus any growth on that amount after March 1, 2021 until you retire, as a lump sum.
  • If you were 55 or over on March 1, 2021, you can withdraw all your savings from a provident fund as a lump sum. It does not matter whether you made those savings before or after March 1, 2021. You may also invest any portion of your savings to provide a pension.
  • If you were under the age of 55 on March 1, 2021 and the amount you save after March 1, 2021 is less than R247 500, you can also take those savings as a lump sum.
  • If you were under the age of 55 on March 1, 2021 and the amount you save after March 1, 2021 is more than R247 500, you can take up to one third of that as a lump sum.



Regardless of whether you are a provident fund member or pension fund member and regardless of how much you are allowed to take as a cash lump sum, there are limits on how much of that cash lump sum will be tax free at retirement.

If you have never withdrawn from or retired from a retirement fund before or taken any retrenchment benefits tax free: R550 000 can be taken tax free.

If you have withdrawn or retired from a retirement fund before, the amount you took as a withdrawal and any amounts you took as a retrenchment benefit, depending on the date you took it, could reduce the tax-free amount you are entitled to at retirement.

How much to take as a lump sum

You must invest at least two thirds of your retirement savings in an annuity or pension – subject to the exclusions listed above – but there is nothing stopping you from using all of your savings to do so.

The more you use to buy a pension, the greater your income will be in retirement. It may also be more tax efficient in the case of lump sum amounts that are taxable.

Remember that while you can take one third as a lump sum at retirement, it may not all be tax free. You are entitled to take up to R550 000 tax free at retirement, but exact amount you can take will depend on whether you have retired or withdrawn from any retirement fund previously and whether you have taken any tax-free amounts on retrenchment. Read more: What tax will I pay when I retire? 

Just how much you should take as a lump sum will depend on your circumstances – how much you have saved, how much you can take tax free and whether you have any tax exemptions for the investments you plan to make.

Some financial advice may assist you in making this decision, but the things you, or you and your adviser, should consider include:

  • The amount you can take tax free provides an opportunity to access capital tax free.
    It is a good idea to have some capital set aside if you will incur once-off expenses such as home maintenance, car replacement or overseas travel during retirement.
    You may also have debt you could use the lump sum to repay.
  • How much tax you will pay on any amounts above the tax-free limit.
  • It may be more tax efficient to use any amounts above the tax-free amount to buy an annuity. If you choose to use an investment-linked living annuity, growth on your investments is tax free and you only pay tax on the annuity or pension that you are paid. When it is paid, you may be on a lower tax rate as a result of a reduced income and the second and third tax rebates that take effect after age 65 and 75 respectively.
    However, the tax you will pay on any sums above the tax free amount, the way you plan to invest any lump sum and whether you will be able to use any interest and capital gains tax exemptions when you draw from it, should also influence your decision.
  • You may need all your savings to buy a reasonable income and so may not want to take anything as a lump sum. You can, however, consider taking the tax-free lump sum and using it to buy a voluntary purchase annuity. When such an annuity is paid to you, the capital repayments are tax-free, but you will pay tax on that part of the pension that is derived from the returns.
  • If you have a lot saved, remember whatever you take out as cash will be included in your estate when you die. What you use to buy a living annuity, however, will be exempt from estate duty and can be passed on to your heirs either as cash or as an ongoing annuity.

Buying an annuity

With the amount you decide to use to buy a pension, you need to choose whether you want a pension that is guaranteed for the rest of your life or whether to invest your savings in an investment-linked living annuity to provide an income. Depending on your circumstances, you may find a combination of the two very effective.

You will also need to decide whether to use the default annuity provided by your fund, or a different financial services provider.

Read more: What kinds of annuities can I invest in when I retire?