1. The Short Answer
When you retire from a pension fund, provident fund, preservation fund or retirement annuity, you can usually take up to one-third in cash. The other two-thirds must buy an annuity that pays you a monthly income. The cash part is taxed on a special SARS table where the first R550,000 is tax-free over your lifetime and the rate tops out at 36%.
Two figures changed or matter more from 1 March 2026:
- If the part of your fund that would have to buy an annuity is R360,000 or less (up from R247,500), you can take it all in cash.
- The lump sum tax table itself is unchanged for 2026/2027: SARS has kept it the same since 1 March 2023.
2. How Much You Can Take in Cash
Since the two-pot system started on 1 September 2024, a retirement fund can hold up to three components, and each has its own rule at retirement:
| Component | What it holds | At retirement |
|---|---|---|
| Vested component | Savings built up before 1 September 2024, plus growth | The old rule: up to one-third in cash, the rest buys an annuity. Provident fund members have extra rights (below). |
| Savings component | One-third of contributions since 1 September 2024, plus seed capital | Can be taken in full as cash |
| Retirement component | Two-thirds of contributions since 1 September 2024 | Must buy an annuity, unless it is small enough to fall under the de minimis limit |
The de minimis limit: R360,000 from 1 March 2026
If the amount that would otherwise have to buy an annuity is small, buying an annuity makes little sense. The law lets you take it in cash instead. From 1 March 2026 this limit is R360,000, up from R247,500. It is tested on the retirement component and the part of the vested component that would have to be annuitised, added together. SARS and funds have applied the new figure from 1 March 2026; the amending legislation is still to follow, with retrospective effect.
Provident fund members
Before 1 March 2021, provident fund members could take their whole fund in cash. If you were 55 or older on 1 March 2021 and stayed in the same fund, you keep that right for your vested balance. If you were younger, the balance you had on 1 March 2021, plus growth on it, can still be taken in cash; later contributions follow the one-third rule.
When you can retire
For a pension or provident fund, the fund rules set the retirement age, usually 55 to 65. For a retirement annuity you can retire from age 55. Early retirement because of ill health is allowed at any age.
3. The SARS Retirement Lump Sum Table
This table applies to lump sums taken at retirement or death, and to qualifying severance benefits, for 2026/2027 (1 March 2026 to 28 February 2027):
| Taxable lump sum | Tax |
|---|---|
| R0 – R550,000 | 0% |
| R550,001 – R770,000 | 18% of the amount above R550,000 |
| R770,001 – R1,155,000 | R39,600 + 27% of the amount above R770,000 |
| R1,155,001 and above | R143,550 + 36% of the amount above R1,155,000 |
A separate, harsher table applies to withdrawals before retirement (for example when you resign and cash out the vested component): only the first R27,500 is tax-free. Savings-pot withdrawals before retirement are different again: they are taxed at your normal marginal rate. See our two-pot withdrawal guide.
4. Earlier Withdrawals Reduce Your Tax-Free Amount
The R550,000 is not a fresh allowance at retirement. SARS adds together every retirement fund lump sum, withdrawal lump sum and severance benefit you have received (retirement lump sums from 1 October 2007, withdrawal lump sums from 1 March 2009 and severance benefits from 1 March 2011), then works out the tax on the total using today's table and subtracts the tax that today's table would charge on the earlier amounts.
In plain terms: if you cashed in a pension when changing jobs, part of your R550,000 is already used. Savings-pot withdrawals under the two-pot system do not count, because they were taxed at your marginal rate.
5. Worked Examples
Example A: R3 million pension fund, one-third in cash
Pieter retires at 63 with R3,000,000 in his pension fund. He has never taken a lump sum before and takes the full one-third, R1,000,000, in cash.
- Tax: R39,600 + 27% × (R1,000,000 − R770,000) = R39,600 + R62,100 = R101,700
- Cash in hand: R898,300 (an effective rate of about 10%)
- The remaining R2,000,000 buys an annuity.
Example B: the same, after a cash-out years ago
Grace retires with the same fund and also takes R1,000,000. In 2012 she resigned and took R300,000 from her pension fund in cash.
- Total lump sums: R300,000 + R1,000,000 = R1,300,000
- Tax on R1,300,000 on today's table: R143,550 + 36% × R145,000 = R195,750
- Tax on the earlier R300,000 on today's table: R0
- Tax on Grace's retirement lump sum: R195,750, nearly double Pieter's
Example C: a small fund
Busi retires from an RA worth R330,000. Because the full amount is under R360,000, she can take it all in cash. If she has no earlier lump sums, the whole R330,000 falls inside the R550,000 band and is tax-free. Under the old R247,500 limit she would have had to buy an annuity with two-thirds of it.
6. Tax on Your Annuity Income
The two-thirds that buys an annuity is not taxed when it goes in. Instead, every monthly payment is taxed as normal income, and the annuity provider deducts PAYE as an employer would.
- Living annuity: you choose a drawdown rate between 2.5% and 17.5% of the capital each year, and the money stays invested. If the capital falls below R150,000 (up from R125,000 from 1 March 2026), you may take it all in cash.
- Life (guaranteed) annuity: an insurer pays you a fixed or inflation-linked income for life. You cannot change it later.
From age 65 you get the secondary rebate as well as the primary one, so in 2026/2027 you pay no tax until your income passes R153,250 a year (R171,300 from age 75).
If you have more than one annuity, each provider deducts PAYE as if it is your only income, and you may owe extra when you file. You can ask the providers to apply a fixed higher PAYE rate to avoid a bill.
7. Questions to Answer Before You Decide
- Do you need the cash? Taking the full one-third is not compulsory. Every rand left in the fund buys a bigger annuity and is only taxed as you draw it.
- Will a lump sum push you into a higher band? On Grace's numbers, taking R700,000 instead of R1,000,000 would cut the tax on her lump sum from R195,750 to R101,700. The R300,000 left in the fund is only taxed as she draws it as income, at her marginal rate.
- Have you taken lump sums before? Ask SARS or your fund for your lump sum history so you know how much of the R550,000 is left.
- Living or life annuity? A living annuity is flexible but can run out if you draw too much. A life annuity cannot run out but cannot be changed.
- Get the tax directive figure first. The fund applies to SARS for a directive before paying you; ask for the net amount before you commit.
Use our retirement calculator to see how long your savings last at different drawdown rates.
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Open Retirement Calculator →Frequently Asked Questions
How much of my pension can I take in cash at retirement in South Africa?
Usually up to one-third of the vested component, plus all of the two-pot savings component. The rest must buy an annuity, unless the amount that would buy the annuity is R360,000 or less, in which case you may take it all in cash.
Is the first R550,000 of a retirement lump sum tax-free?
Yes, but it is a lifetime amount. Lump sums you took from retirement funds or as severance pay since October 2007 use up part of it.
What is the de minimis amount for retirement in 2026?
R360,000 from 1 March 2026, up from R247,500. If the amount that must buy an annuity is at or below this, you can take it in cash.
How is a living annuity taxed?
Each payment is taxed as normal income at your marginal rate, with PAYE deducted by the provider. From 65 you pay no tax until your income passes R153,250 a year for 2026/2027.
Did the retirement lump sum tax table change in Budget 2026?
No. SARS lists the table as unchanged for the 2026/2027 tax year: 0% up to R550,000, then 18%, 27% and 36%.
Sources
Every figure on this page was checked against these official sources on 1 November 2026:
- SARS: Retirement lump sum benefits tables
- SARS: Rates of tax for individuals (2027 tax year)
- SARS: Two-pot retirement system and tax directives
- Sanlam: Key retirement fund values and changes from 1 March 2026
- Moonstone: Budget retirement threshold changes in effect