Maximum cash you can take and the balance to annuitise.
Maximum cash lump sum
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Tax on lump sum
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Net cash
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Balance to annuitise
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The choice you make once, on the day you retire
At retirement, the rules let you take part of your pension or retirement annuity fund as cash, called commuting it, and the rest must buy an income stream. Get this split right and you have a comfortable lump sum plus a steady annuity. Get it wrong and you either trigger more tax than necessary or leave yourself short of monthly income for decades. This calculator works out the maximum cash you may take, the tax on it, and the balance that has to be annuitised, so the decision is grounded in numbers.
The one-third rule and the small-fund exception
The general rule the tool applies is that you may commute up to one third of the fund as cash, with the remaining two thirds compulsorily used to provide a pension. There is one important exception built in: if the total fund is small, at or below R247,500 in the figure this calculator uses, you may take the whole amount as cash because forcing a tiny annuity makes no sense. That de minimis threshold is a SARS figure worth confirming, but the one third cap and the full cash out for small pots are the stable structure.
Why the tax uses your lifetime history
Retirement lump sums are taxed on a special SARS table, and crucially the tax is cumulative across your lifetime. The first slice, R550,000 in the figures here, is tax free, but only once across all the retirement lump sums you ever take. The calculator handles this by taxing all your lump sums together and subtracting the tax on the earlier ones, which is why it asks for prior taxable lump sums. If you have already used part of that free slice, a new lump sum starts higher up the table.
A R3 million fund at retirement
Take a R3,000,000 fund with no prior lump sums. It is well above the de minimis, so the cash is capped at one third. Here is what the engine returns, using the rates this calculator applies.
| Step | Working | Amount |
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The R1 million lump sum is taxed in pieces: nothing on the first R550,000, then 18 percent on the R220,000 up to R770,000, which is R39,600, then 27 percent on the final R230,000, which is R62,100, totalling R101,700. You keep R898,300 in cash and R2 million goes to buy a pension. The free slice is doing real work here, shielding more than half the lump sum.
Taking the maximum is not always wise
The tool shows the maximum cash you may take, but maximum is not the same as optimal. Every rand you commute as cash is a rand no longer producing monthly income, and the tax on a large lump sum can be steep once you climb past the free slice into the 27 and 36 percent bands. A common mistake is grabbing the full one third reflexively. A practical tip: if you do not have an immediate use for the cash, such as settling a bond, taking less than the maximum can leave more capital to generate income and keep the lump sum tax lower. Provident fund members should also note that pre 2021 vested rights follow different commutation rules.
Does the two-thirds annuity get taxed too?
The money moving into the annuity is not taxed at the point of transfer, only the cash lump sum is taxed on the retirement table. The annuity is then taxed as income each year as you draw it, at your marginal rate, just like a salary. So you are not taxed twice on the same money, the timing of the tax simply differs between the cash portion and the income portion.
What if my whole fund is under R247,500?
Then the one third rule falls away and you may take the entire fund as cash, because the de minimis exception applies. The full amount still runs through the retirement lump sum table, so the first R550,000 free slice means a small fund often comes out with little or no tax. Enter your fund value and the tool switches automatically to full commutation when you are at or below the threshold.