What tax will I pay when I retire?

Key takeaways

  • At retirement you can take up to R550 000 of your savings tax free as a cash lump sum.

  • If you have withdrawn or retired from a fund before, the amounts taken previously may reduce your tax free amount.

  • Any amount over the tax free amount will be taxed at rates starting at 18% and up to 36% depending on how much you take or have taken in the past.

  • When you put your savings into an annuity from which you receive an income, your income will be taxed at your marginal tax rate.

At retirement, members of most funds are entitled to take a certain amount of their retirement savings in cash and a certain part of that cash sum can be taken tax free.

Beyond that, tax rates apply according to the tax table for retirement lump sums. It’s a progressive tax rate, which means the more you take, the higher the effective tax rate you will pay.

It is also a tax table that applies to all such lump sums taken over your lifetime and takes into account amounts you have withdrawn from a fund before.

The tax calculation gets more complicated if you have previously withdrawn or retired from a fund.

It is also more complex if you were a member of public sector or government retirement fund before March 1 1998, as you are entitled to take the amount that you accrued in your retirement fund before that date tax free.

The tax calculation will be performed for you when you inform your fund you want to retire and your fund applies for a tax directive from the South African Revenue Service (SARS). You have a right to request your retirement fund administrator to ask SARS what your tax free amount is before you apply for a directive.

How to work it out

If you want to know what to expect, without taking the rights of government employees who saved pre-1998 into account, here is how to work out how much tax you will pay on any amount taken in cash at retirement.

1. What you can take
Work out how much you plan to take in cash within the limits you are allowed to take (for most people, that will be up to one third of their retirement savings).

2. Add previous withdrawals
Add to that any lump sums you have taken as a withdrawal benefit since March 1 2009.

3. Add retirement lump sums
Add to that any lump sums you have taken as retirement lump sums since October 1 2007.

4. Add severance lump sums
Add to that any severance benefits and retirement lump sums you have taken on retrenchment since March 1 2011.

5. Deduct excess contributions
Deduct any contributions that were not allowed as a deduction previously.

6. Apply the table
According to the amount, apply the following table:


If your lump sum taken from March 1 2024 at retirement or on retrenchment (plus previous sums) is: The tax you will pay is:
R1 – R550 000 0% 
 R550 000 - R770 000 18% of the amount taken above R550 000
R770 001 – R1 155 000 R39 600 + 27% of the amount taken above R770 000
R1 155 001 and above R143 550 + 36% of amount above R1 155 000
www.smartaboutmoney.co.za Source: SARS

For retirement before March 1 2023, see rates in our tax tables.

7. From the tax calculated, deduct any tax paid on previous withdrawals since March 2009, retirement since October 2007 and retrenchment since March 2011.


Transfer to annuity

Any amount you transfer to an annuity is not taxed at the time of your retirement, and if you transfer to an investment-linked living annuity, any further investment growth is tax-free.

When you receive a pension from your annuity (living or guaranteed), the income will be taxed at your marginal tax rate. Read more: How do the income tax brackets work and what is my marginal tax rate? 

If you are 65 or older when you retire, your marginal rate will be lower than it was when you were working, as the tax threshold is higher and you will be able to apply the secondary tax rebate. And when you reach age 75, the threshold is higher again and a third tax rebate applies.

In addition, your annuity or pension is likely to be lower than your income was when you were working. This will also reduce your tax rate.