Preserve and grow tax-free, or cash out now and pay withdrawal tax.
Preserved value at retirement
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Cash now (after tax)
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Withdrawal tax now
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Preserving gains
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The decision this tool forces you to confront
When you resign or change jobs in South Africa, your retirement fund does not have to follow you to the next employer. You can preserve it, moving it into a preservation fund where it keeps growing untouched, or you can cash it out and walk away with the money today. The cash feels good. The catch is that SARS taxes pre-retirement withdrawals on a separate table, and the money you take out is money that will never compound again. This calculator puts both paths side by side so the trade is visible in rands, not vibes.
How the withdrawal tax bites
Cashing out a fund is taxed on the SARS retirement withdrawal benefits table, which is steeper than the table you face if you wait until retirement. The structure is a set of bands: the first slice is tax free, then each higher slice is taxed at a rising rate. The figures this calculator applies are a tax free first R27,500, then 18 percent, then 27 percent above R726,000, then 36 percent above R1,089,000. Those band edges are the kind of number you should confirm with SARS before relying on them, but the shape of the table, free slice then climbing rates, is stable.
Why the calculation subtracts prior withdrawals
Lump sums aggregate over your lifetime, so the tax is worked out as the tax on all your withdrawals to date minus the tax on the earlier ones. If you have never taken a withdrawal, the prior figure is zero and the maths collapses to a single table lookup. But if you cashed out R200,000 years ago, that earlier amount has already used up part of your tax free band, so a new withdrawal starts higher up the scale. That is why the prior withdrawals field exists, and forgetting it is a common way people underestimate the tax.
A R500,000 fund, two futures
Take a R500,000 fund with no prior withdrawals, 20 years to retirement, and 9 percent annual growth. Cashing out runs the R500,000 through the withdrawal table, while preserving simply lets the full pre-tax amount compound. Here is what the engine returns, using the rates this calculator applies.
| Step | Cash out now | Preserve and grow |
|---|---|---|
| Starting fund | R500,000 | R500,000 |
| Withdrawal tax now | R85,050 | R0 |
| In your hand today | R414,950 | nothing drawn |
| Value at retirement | R414,950 (spent or saved) | R2,802,205 |
The withdrawal tax of R85,050 comes from the first R27,500 being free and the remaining R472,500 taxed at 18 percent. Preserving keeps about R2,387,255 more than cashing out, before any lump sum tax you might pay at retirement. The gap is mostly compounding: that untaxed R500,000 doubling roughly every eight years for two decades.
The edge case where cashing out can make sense
Preserving wins over long horizons almost every time, but not always. If you are genuinely months from retirement, the compounding runway is short and the gap shrinks. And in a real emergency, no growth projection helps you if you cannot pay rent next month. The tool does not judge that, it just shows the cost. A practical tip: even if you need some cash, you can usually preserve part of the fund and withdraw only what you truly need, rather than emptying the whole pot and triggering tax on the lot.
Who this is for, and the two-pot wrinkle
This is for anyone resigning, retrenched, or switching employers who has a pension or provident fund balance to deal with. Since the two-pot system started in September 2024, new contributions split into a savings pot you can dip into once a year and a retirement pot that is locked until retirement, which changes the resignation picture for newer balances. The headline lesson holds regardless: money left invested and untaxed is doing work that cash in your account is not.
Is a preservation fund taxed while the money sits there?
No. Growth inside a preservation fund is not taxed year by year, so dividends, interest and capital gains roll up untouched. Tax only arises when you eventually take money out, either the one allowed withdrawal before retirement or the lump sum and annuity at retirement. That tax shelter is exactly what makes preserving so powerful over twenty years.
Can I make one withdrawal from a preservation fund before retirement?
Yes, the rules allow one withdrawal from a preservation fund before retirement, taxed on the same withdrawal table modelled here. After that single bite the balance is locked until you retire. This is why the calculator frames cashing out as a one shot decision: spend the right to that withdrawal carelessly and you cannot get it back.