Some Clarity on the Recent Retirement Reforms

Some Clarity on the Recent Retirement Reforms

• 09 June 2025
• Individuals Tax
• Adv Christel van Wyk

The retirement reforms effective from 1 September 2024 have introduced notable changes—and, understandably, some confusion—regarding how retirement funds may be accessed and taxed. The tax implications depend on several factors, including the individual’s age, residency status, and the component of the retirement fund being accessed.

Understanding the Three Components

1. Vested Component

This includes all retirement fund contributions and growth prior to 1 September 2024, minus a once-off seeding capital transfer (10% of the member’s interest, capped at R30,000) to the savings component.

2. Savings Component

From 1 September 2024, new contributions are split: one-third to the savings component and two-thirds to the retirement component.

• Withdrawals from this component are allowed once per year, for amounts of R2,000 or more.
• If a person has multiple retirement products, one annual withdrawal per product is permitted.
• Withdrawals are subject to a directive process, and the taxpayer must be fully tax compliant and registered on eFiling.

3. Retirement Component

This may not be accessed before retirement, except under specific non-resident provisions.

• At retirement, one-third of the vested component may be taken as a taxable lump sum, and the remaining two-thirds, along with the full retirement component, must be used to purchase an annuity (or annuities).
• Non-residents may access the full value before retirement, but only if they have been non-resident for an uninterrupted three-year period and have completed the formal tax emigration process.

Resignation vs. Retirement

• Upon resignation, individuals may access the full vested and savings components as a lump sum, taxed at withdrawal tax rates:
  • The first R27,500 (lifetime aggregate) is tax-free.
  • The balance is taxed progressively up to 36%.
  • The retirement component remains inaccessible until retirement.
• At retirement, lump sum withdrawals are taxed under the lump sum benefit table, which is more favourable:
  • A tax-free threshold of R550,000 (lifetime aggregate) applies.
  • The remaining amount is taxed progressively, up to 36%.

The Consequences of Early Withdrawal

Early access to retirement funds can carry significant tax and long-term financial implications:

• A full withdrawal of the vested and savings components at resignation may result in:
  • High tax rates, especially if the R27,500 exemption has been previously used.
  • A reduced retirement fund balance, potentially compromising future financial security.
• Alternative options to consider:
  • Tax-free transfers to another retirement fund to defer tax and preserve long-term savings.
  • Voluntary transfers from the savings or vested components to the retirement component:
    • This may prevent early access and boost annuity income at retirement.
    • However, this decision is irreversible and reduces future liquidity—critical in emergencies.

Think Carefully and Plan Ahead

Although the new reforms offer more flexibility, individuals are strongly advised to avoid unnecessary early withdrawals. While accessing funds for a holiday or personal purchases might seem attractive, doing so could undermine long-term retirement planning.

Before making any decisions, consult with a tax practitioner or financial advisor to fully understand the tax consequences and impact on your retirement security.

Staying informed, compliant, and disciplined will ensure you make the most of the new system—both now and in the years to come.

To better understand how these retirement reforms may affect you and get practical guidance, join our upcoming webinar—click here to register and secure your spot.

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