Retire: Resignation, retrenchment, early retirement

Carina Jooste Latest, Retire

Life rarely goes from A to B in a straight line. So what happens to your pension or provident fund when you get retrenched, resign or decide to take early retirement?  

Quick note: This blog post only refers to employer-sponsored retirement products, such as pension and provident funds. The same rules still apply to retirement annuities (RAs) – you can only retire from an RA from the age of 55. However, there are exceptions to this rule, including financial emigration, ill health and divorce.


If your employer offered a retirement fund benefit, you are allowed to withdraw the balance in your account when you resign from your place of work. Recent amendments to the pension fund act mandate funds to provide financial counselling during this stage to help members make the best decision when reinvesting their accumulated savings. Options include becoming a paid-up member and keeping your savings in your employer’s fund or investing the funds in an RA or preservation fund. You can also opt to take the full benefit, but you will be liable for tax – and it will be quite hefty if you haven’t reached retirement age. We discuss tax and retirement more in-depth here.

If your employer contributed to your pension or provident fund, but you opted not to make any contributions to the fund, you may be able to withdraw the balance in your account, i.e. the contributions made by your employer and accumulated growth.


The biggest difference between resigning and being retrenched from your job is the associated tax implications. Depending on your contract, your severance package can include the balance of your pension or provident fund benefits. Special tax rates apply to severance benefits and these rates are based on the retirement lump sum tax table. This means the first R500,000 of your severance benefit is not subject to tax. This qualifies as a lump sum payment and will reduce the lump sum benefit of a tax-free R500,000 in the case of subsequent withdrawals, e.g. when you receive a lump sum payment from your retirement annuity.

However, you may reduce your tax liability and transfer a portion of your retrenchment benefits to an RA or preservation fund tax-free.

Early retirement

When you decide to take early retirement, the first R25,000 of your pension or provident fund withdrawal will be tax-free, the rest will be subject to tax as per the retirement lump sum tax table: 18% of the balance up to R660,000 and 27% of the balance up to R990,000 and the rest at 36%. If you decide to wait until retirement age to withdraw from your retirement fund, the first R500,000 will be tax-free. Just saying.

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

Retire blog

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