THINK BEFORE YOU TAP
A plain-language guide to withdrawals, the two-pot system, and the real cost of cashing out early
In our last article we followed your monthly pension contribution from payslip to fund and learned that your money is quietly being invested and compounded on your behalf. Now life intervenes - a job change, an unexpected bill, or the new two-pot system has you wondering whether to tap your retirement savings early. Before you do anything, read this.
WHEN YOU RESIGN OR ARE RETRENCHED
Until the two-pot system arrived, the most common reason members touched their retirement savings early was leaving employment. From 1 September 2024, those rules tightened. On resignation or retrenchment, only your vested component and your savings component can be paid out in cash; your retirement component must be preserved. For the portion you can still cash out, the temptation is real and so is the cost, for three reasons:
Tax
Withdrawal benefits are taxed under the less generous lump sum withdrawal table. The first R27,500.00 is tax-free compared to R550,000.00 tax-free under the retirement lump sum table. The thresholds are cumulative across your lifetime, so every rand withdrawn early reduces what is available to you at retirement.
Lost compounding
Money that leaves the fund stops growing. A rand withdrawn at thirty-five could be worth several rand more by sixty-five - an invisible cost that never appears on the tax certificate.
The preservation trap
Once you withdraw, the money is gone. You cannot repay it to the fund.
The better path, where possible, is to transfer your benefit to a preservation fund or your new employer’s fund. The transfer is tax-free, your money keeps growing, and you protect your future self.
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THE VESTED POT: WHAT HAPPENS TO YOUR OLD SAVINGS?
Your pre-September 2024 savings were not moved or restructured. They sit in your vested pot, governed by the rules that existed before the two-pot system. In practice:
The vested pot is not the same as the savings pot.
You cannot make a savings pot withdrawal from your vested pot. The two are separate. Your vested pot is preserved until you leave your employer or retire, at which point it is treated under the old rules. On resignation, you may take a cash payout (subject to tax in the same way described in section 1 above). On retirement, it forms part of your total retirement benefit.
There is one limited exception
The law allowed a once-off “seed” amount of up to 10% of your vested pot balance (capped at R30,000.00) to be transferred into your savings pot at implementation. This was a transitional measure to give members with existing savings an immediate savings pot balance to draw from. If your fund applied this seed amount, it will have been reflected in your benefit statement from September 2024 onwards. The Revenue Laws Amendment Act 6 of 2025, subsequently clarified that funds may use either 31 August 2024 or the last day of the month in which the opt-in election was made as the seeding valuation date, depending on what was set out in their fund rules and communicated to members.
The vested pot is often the most valuable part of your retirement savings - years, sometimes decades, of accumulated contributions and growth. It is also the part most at risk if your employer has not been paying contributions properly.
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WHEN YOUR SAVINGS POT BALANCE IS LOWER THAN IT SHOULD BE
The two-pot system has exposed something previously much harder to detect: employer non-compliance. Historically, members only discovered shortfalls years later - by which point the employer might no longer exist. Now, because members can see their savings pot balance and attempt withdrawals in real time, non-payment surfaces immediately. The gap between what your payslip shows and what your fund account reflects is the evidence.
Section 13A of the Pension Funds Act 24 of 1956, read with section 37(1), makes the failure to pay over contributions on time a criminal offence, punishable by a fine of up to R10 million, imprisonment for up to ten years, or both. Directors regularly involved in the financial affairs of the employer can be held personally liable. The money was deducted from your salary. It belongs to you.
WHAT SHOULD YOU DO?
Before you submit a savings pot withdrawal claim, ask yourself:
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Is this a genuine emergency, or a want dressed up as a need?
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Have I explored all other options - existing savings, a short-term loan, a payment arrangement?
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Do I understand the tax I will pay, and have I spoken to a financial adviser or attorney?
The savings pot is yours. It is working for your future self. Every rand you withdraw today is a rand your retired self will not have. Every rand your employer fails to pay over is a rand worth fighting for.
COMING UP NEXT
Our next article tackles employer non-compliance head-on: what it means legally when contributions deducted from your salary are never paid over to the fund, what rights you have, and what practical steps to take - including when to involve the Pension Funds Adjudicator, the FSCA, or an attorney.
Call: 010 001 2002
