What’s the difference between early retirement, retirement and resignation? Let’s start with what they do have in common: You’re leaving your employer. And most of the time, that’s the only commonality. Where they differ most relates to accessing your retirement savings (and the associated tax implications). But there are one or two other issues to consider.

A quick vocab refresher

Retirement annuity: An investment product you can invest in when your employer doesn’t provide a pension fund.

Pension fund: A workplace-based retirement plan that is set up by your employer.

What’s the retirement age in South Africa?

The Basic Conditions of Employment Act doesn’t prescribe a set retirement age for employees, but in the context of understanding what constitutes early retirement, the following should be considered:

• The Government Employees Pension Fund (“GEPF”) mandates specific retirement ages for its members: 55, 60 or 65 years.
• For non-government employees, the retirement age is usually 60 or 65 years. According to LegalWise, an employee cannot be forced to retire, unless a retirement age has been stipulated in their employment contract.
• A retirement annuity (RA) can only be accessed from the age of 55 years, and the rules of a pension fund can also determine a retirement age that must be complied with.

Retire vs resign

For a start, some employers offer company benefits upon retirement, like death and medical benefits. If an employee resigns (as opposed to retiring from their company), those benefits can fall away. This is especially true in the case of government employees.

The examples below are based on individuals who are members of a pension fund.

Resignation:

• You are entitled to withdraw your entire pension as a lump sum. You can also leave the money in the fund, or transfer it to another fund.
• The associated tax implications on a lump sum withdrawal are significantly higher with resignation, as only the first R22,500 is not taxed.

Retirement: 

• You can only withdraw one-third of your pension benefits as a lump sum. The other two-thirds will be paid out as a monthly pension.
• Tax implications on lump sum withdrawal are more favourable when you take retirement, as the first R500,000 is tax-free.

Our Tax Elves wrote an amazing blog on the tax implications of both options. You can access it here.

It’s important to keep in mind that each person’s situation is unique. So it’s always best to consult a certified financial adviser for professional guidance when you need to take action. It’s also good to know that if you’re a member of a workplace retirement plan, you should be offered retirement benefit counselling when you do retire or resign. That way you can make sure you understand the options and implications of your specific retirement fund.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.