Thinking of switching jobs in South Africa? Here’s what you need to know about your pension or provident fund, how the new Two-Pot system works, and how to make the best financial choice for your retirement.
Quick Overview: Your Main Options
When you leave your job, you can usually:
- Leave your retirement fund where it is (become a “paid-up member”)
- Transfer it to your new employer’s fund
- Transfer to a preservation fund (pension or provident fund)
- Transfer to a retirement annuity (RA)
- Take some cash out (subject to strict new Two-Pot rules)
Key points:
- Transfers between approved retirement funds are tax-free.
- Cashing out triggers tax and reduces your retirement pot.
- Since 1 Sept 2024, the Two-Pot system limits how much is accessible in cash when you change jobs.
Understanding Your Fund: Pension vs Provident vs Two-Pot
Old Rules vs New Rules
- Pension Fund: Traditionally, you had to use most of your money to buy a pension (annuity) at retirement.
- Provident Fund: You could take it all as cash at retirement.
- Since 2021, the rules have been mostly very similar, except for certain members aged 55+ on 1 March 2021 (see below).
The Two-Pot System (from 1 Sept 2024)
Your retirement savings will be split into three “pots”:
Savings Pot:
- Small, more flexible.
- You can withdraw from it once per tax year (subject to your fund’s rules and limits).
- Withdrawals taxed as income.
Retirement Pot:
- The big one.
- It can’t be withdrawn upon resignation. Must stay invested until retirement.
- Can be transferred to another fund.
Vested Pot:
- Money saved before Two-Pot started or under previous “vested” rights.
- May still be accessible on resignation, depending on your age and fund rules.
Many people got a 10% “seed” (max R30,000) from previous savings added to their Savings Pot on 1 Sept 2024.
Your Options When You Change Jobs
1. Leave Funds as “Paid-Up” in Your Old Fund
Pros:
- No immediate tax
- Money keeps growing
- Simple for now
Cons:
- Less admin support and fewer investment choices
- Fees may go up
Who is this for? People wanting hassle-free preservation while they consider their next move.
2. Transfer to Your New Employer’s Fund
Pros:
- Keeps retirement savings together
- Usually tax-free (Section 14 transfer)
- Low admin, steady contributions
Cons:
- Your new fund’s investment options may be limited
- Paperwork can take a few weeks
Who is this for? People who prefer everything in one place.
3. Transfer to a Preservation Fund
Pros:
- Tax-free transfer
- Wide choice of investments
- Flexible – good if you change jobs often or become self-employed
Cons:
- Any cash-out is taxed
- Must have discipline not to spend
Who is this for? People wanting more control and choice.
Two-Pot Note: Withdrawal rights on “vested” money may still apply. New contributions fall under Two-Pot rules – check with your fund!
4. Transfer to a Retirement Annuity (RA)
Pros:
- Tax-free transfer
- Strong long-term protection (no access before retirement)
- Excellent investment variety
Cons:
- Funds are locked in until retirement (a plus for many)
- Fees vary – compare carefully
Who is this for? Long-term savers, including self-employed people.
5. Take Cash (Where Allowed)
Pros:
- Quick access if you’re in serious need
Cons:
- Heavily taxed (lump-sum withdrawal tax applies)
- Shrinks future retirement and tax-free allowances
- Reduces compounding over time
Who is this for? True emergencies only!
Tax and Withdrawals: The Basics
- Transfers (to another approved fund): No tax
- Cash withdrawals: Taxed using SARS’s lump-sum withdrawal table, which is cumulative over your life
- Retirement lump-sum taxation is more generous than early withdrawals
Example: Take R200,000 in cash: Only R27,500 may be tax-free; you lose a big chunk to SARS, and future tax-free allowances drop too.
How The Two-Pot System Changes Resignation (from Sept 2024)
- You CANNOT access your whole fund in cash
- You can access only your Savings Pot (once per year) and possibly some of your Vested Pot (depends on your history and fund)
Special case: Aged 55+ on 1 March 2021 (in provident fund)
Your pre-Two-Pot savings and any growth may maintain old, more flexible access rules (if you stayed in that fund). New contributions probably follow the Two-Pot rules.
Decision Checklist: Picking the Best Option
- How long until you retire? The longer, the more you gain from compounding.
- Do you have enough cash elsewhere? Don’t break retirement savings just for short-term needs.
- Tax now vs later: Avoid withdrawing in high-income years if possible.
- Compare fees & options: Look at old, new, preservation, and RA choices.
- Are you easily tempted? If yes, stronger preservation (like an RA) helps.
- Employer benefits: Stay aware of perks like group life cover and lower fees.
- Beneficiaries: Always keep your nominations current (Section 37C governs payouts if you die).
Step-by-Step: Moving Your Retirement Savings Smoothly
Before Resigning:
- Request your latest benefit statement (shows your “pots” and amounts)
- Ask HR/fund for forms, deadlines, and any exit/paid-up fees
During Your Notice Period:
- Decide where each “pot” will go – you can split if you want
- Fill in all forms, get certified copies (FICA/KYC requirements)
- Update beneficiary details
After You Leave:
- Your old fund processes your exit/payout/transfer
- SARS will issue a tax directive if you take cash
- Transfers can take 2–8 weeks – always confirm final receipt
Common Mistakes to Avoid
- Withdrawing cash “because you can” – huge cost in long-term value
- Not understanding tax consequences – early withdrawals shrink your future opportunities
- Missing paperwork or deadlines can delay your money
- Ignoring the new access rules, you probably can’t cash out as much as you think
- Forgetting to update your beneficiaries
What Documents Should I Request?
- Latest fund statement (with split: Savings, Retirement, Vested pots)
- All exit/transfer/paid-up forms
- Details of your new fund or chosen product
- Fees and investment options for your new choice
Practical Tips to Keep More of Your Money
- Don’t cash out unless absolutely necessary
- If you must withdraw, keep it small and use the Savings Pot
- Compare fees — small differences add up over time
- Get your paperwork right: certified ID, forms, instructions
- Ask for a full pot split statement before you decide
Next Steps
Changing jobs is your chance to make smart decisions so more of your money grows for retirement. Speak to Financial Future Planners for advice tailored to you.
Disclaimer: This guide is for general info only. Rules and taxes change regularly. Always check with SARS and a qualified financial advisor for your exact situation.
Related Reading
Investment Basics – How to Grow Your Wealth Over Time
How Much Money Do You Need to Retire Comfortably in South Africa?
Retirement Planning 101: Are You on Track for a Comfortable Future?