What new rule changes mean for your Retirement Funds


As of 1 March 2021, there are some quite significant changes impacting the retirement savings industry in South Africa and this will be important to you if you save through either a Retirement Annuity, Pension Fund, Provident Fund or Preservation Fund structure.

Before we look at the specific changes, let’s just do some simple jargon busting around these four investment vehicles before the new legislation kicks in:  

Retirement Annuity (RA)

A retirement annuity (RA) is a tax efficient structure which encourages individual South Africans to save for their retirement with the added bonus of being able to reduce their tax liability. You can claim up to 27.5% of your contributions (to any combination of your pension, provident or RA funds) back for tax purposes limited to the greater of remuneration or taxable income (to a maximum of R 350 000) each year for contributions made to an RA.                                                                         

Typically, funds invested in a Retirement Annuity cannot be accessed before the age of 55. When you retire after 55, you can take up to a maximum of one third of the value of your fund in cash (subject to taxation) and the balance must be used to purchase an annuity product that will be used to provide you with an income in your retirement years. 

Retirement annuities are ideal for those that want to supplement and boost their retirement savings. 

Pension Fund

In a Pension Fund, an employee enjoys a tax benefit for making contributions toward the employees’ retirement. Contributions made to the Pension Fund also count towards your 27.5% limit along with RA’s and Provident funds.

If you reach retirement age (normally linked to your employer’s retirement date), you can take up to one third of your savings in cash (subject to tax) and the balance must go into an annuity product of some kind. Similar to the options available at retirement in a retirement annuity.

 Provident Fund:

Similar to a Pension Fund structure with contributions from both an employer and employee but offers more flexibility when you retire, in that you could take out the full fund value (subject to tax) and don’t need to buy an annuity product.

In other words the 1/3rd and 2/3rd restrictions currently don’t apply to Provident funds as they do to RA’s, Pension Funds and Pension Preservation funds when one retires from these funds. The decision however to access all the cash at retirement needs careful consideration as the more you take in cash the greater the tax liability. 

Preservation Funds:

As their name implies, a Preservation Fund is a vehicle aimed at preserving funds that you have accumulated for retirement purposes. Ideal for people who have accumulated money in a Pension or Provident Fund and have left their employer for reasons other than retirement.

You can typically make one full or partial withdrawal, subject to tax, from a Preservation Fund before the age of 55.  However, you cannot make further contributions to a preservation fund like you can with RA’s, Pension and Provident funds.

So what does the new legislation propose?

As of 1 March 2021 the treatment of Pension, Provident, Preservation Funds and Retirement Annuities, collectively known as Retirement Funds, will be treated the same at retirement. In other words all of these retirement funds will be subject to the 1/3rd and 2/3rd restrictions after 1 March 2021.

In essence the treatment of a Provident and Provident Preservation fund at retirement will change.

However if you were a member of a Provident and/or Provident Preservation Fund prior to 1 March 2021 you will still have the option to make a full withdrawal (subject to tax) from the pre 1 March 2021 portion when you reach retirement.

The value of your fund (and growth) pre 1 March 2021 will be known as vested rights and the 1/3rd cash commutation limit does not apply. The portion or value of your funds (and growth) post 1 March 2021 is subject to the 1/3rd limitation in a Provident and Provident Preservation fund.

If you are 55 or older on 1 March 2021 and have not yet retired from your Provident or Provident Preservation Fund you are entitled to 100% of the benefit as a cash lump sum (subject to tax) - including any fund returns. If you are under 55, at least two thirds of the funds invested after 1 March 2021 will have to be put into an annuity product when you eventually retire.

If the fund value in your Provident or Provident Preservation fund is less than R 247 500 at retirement (post March 2021), you can still withdraw the full amount in cash as a lump-sum subject to tax.

Lastly, if you are planning to emigrate to move to another country, there’s a material change that you need to be aware of if you have funds sitting in a Preservation Fund or Retirement Annuity. In the past, you were able to “financially emigrate” and cash in your RA / Preservation Fund savings in full. (“Financial Emigration”)

As of 1 March 2021, you will now only be able to do so after a 3 year waiting period to ensure that all emigration processes have been successfully concluded. This could have a material impact on your financial planning around this process.

South Africans don’t have a strong savings culture and are often tempted to cash in their Retirement Funds when they change jobs (or quit a job to cash in) and this means that they do not enjoy the benefit of long-term compounded investment returns.

In short, the motivation behind these changes is to help South Africans have money set aside for retirement to ensure financial stability in their old age.


OUTvest is a licensed FSP. Ts and Cs apply. All our investments are exposed to risk, not guaranteed and dependent on the performance of the underlying assets.


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