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How do pension products differ and what are my options for remittance?

By August 15, 2022July 3rd, 2023FinGlobal

How do pension products differ and what are my options for remittance?

August 15, 2022

The phrase South African pension fund is often used interchangeably to describe any investment earmarked for retirement savings. But did you know that there are, in actual fact, a few options out there. Understanding South African pension fund rules can feel a bit overwhelming, but we’re here to help in explaining the differences between pension policies in South Africa, including retirement annuities, pension and provident funds, enabling you to make smarter and better decisions with regard to your retirement funds, especially if you are considering emigrating or have already settled abroad.

Pension products

Retirement annuities

Retirement Annuities (RA’s) are tax-efficient products for individuals who want to save for retirement independently of their current employer. You choose which funds you want to invest in, within the limits set out by the retirement funds regulatory framework and the contributions are tax deductible up to a certain limit.

Can I withdraw my retirement annuity before retirement?

The short answer is “No”. RA’s are, by design, meant for retirement spending and therefore the rules dictate that you cannot access these funds before the retirement age of 55.

However, as with many things in life there are some exceptions to the rule, the most relevant being that if you are a South African expat, who has completed a tax emigration and you retain this status for at least three years, you’re allowed to withdraw the funds prior to retirement age. The three-year waiting period has changed emigration planning significantly as many expats relied on these funds to assist in relocation costs.

What happens to my RA when I retire?

If the total value of your RA is less than R247,500 at retirement, you are eligible to receive the full cash value (subject to tax). However, if the fund value is more than this threshold, you’re only allowed to take a maximum of one third as a cash lump sum (also subject to tax) and the balance must be annuitized in either a living- or life annuity. However, you can withdraw the funds, if you meet the tax emigration requirements.

Pension funds

A South African pension fund is a retirement investment linked to an employer. You can only invest in the fund if you are an employee at the company. Your money is managed by appointed trustees who will decide which assets are included in the fund. Generally, contributions are split between a company portion and your own, and they are tax deductible up to certain limits.

Can I withdraw my pension fund before retirement?

Pension fund withdrawal rules in South Africa state that you can make one full or partial withdrawal on the fund before retirement if you leave your employer. If you choose to only take a portion in cash, the remainder will not be accessible until the age of 55. However, once again the exception to the rule is that a withdrawal will be allowed in the event that you are an expat that has fully tax emigrated and have maintained this status for a three-year consecutive period.

What happens to my pension fund when I retire?

Pension funds are subject to the same threshold and annuitisation rules of retirement annuities. Therefore, your options will depend on whether the value of the fund is more or less than R247,500 at retirement.

Provident funds

A provident fund in South Africa is similar to a pension fund, in that it is also an investment for retirement managed by your employer, and you have one withdrawal at your disposal before retirement if you are no longer with the company. However, prior to 1 March 2021, provident fund retirement rules were different, in that when you retired from the fund after 55, it was not subject to any annuitisation rules, regardless of the value of the fund.

What happens to my provident fund when I retire?

With the change in legislation with regards to the annuitisation of provident funds in South Africa from 1 March 2021, the following now applies at retirement:

  • Contributions and growth on the fund prior to 1 March 2021 are not subject to annuitisation, regardless of the value of the fund.
  • Any contributions and growth on the fund after 1 March 2021, will be subject to annuitisation rules. Therefore if the value exceeds R247,500, you are only allowed a maximum of one-third as a cash value and the remainder must be invested in an income annuity, except if you meet the tax emigration withdrawal requirements.

Preservation funds

A preservation fund is specifically designed to receive lump sum benefits from a provident or pension fund when you leave your employer before retirement and you don’t wish to receive the cash. Since you are not divesting the funds, the transfer is tax-free.

What happens to my preservation fund when I retire?

At retirement, a preservation fund’s options will always link back to your original investment. For instance, if you originally invested in an employer pension fund, the annuitisation rules of pension funds will apply to your preservation fund.

Government and Eskom pension funds

The Government Pension Fund of South Africa (or GEPF) and the Eskom pension fund deserve special mention when delving into the pension fund subject, due to their size. Although both these funds are classified as pension funds, they have different rules than those described above.


Members of the GEPF are allowed to cash in their funds if they leave the employ of the State. They also have the option to transfer it to a preservation fund, and pension fund withdrawal and retirement rules will apply. The retirement date of the fund is 60, however, and upon retirement, you cannot choose where your funds are invested, rather you will receive a one third maximum cash payment (regardless of the fund value) and you will receive a guaranteed income annuity managed by the GEPF for the remainder of your life.

Eskom (EPPF)

If you leave the employment of Eskom, you have the option to transfer your pension fund balance to EPPF’s deferred pension scheme or to take a cash lump sum. If the funds are parked in the deferred pension scheme, however, you can only withdraw the cash value before the age of 55, regardless of whether you have tax emigrated or not. Once you turn 55, you can only opt for the retirement option of one third in cash and a monthly pension will be provided by Eskom from the balance of the funds.

FinGlobal – your retirement and emigration specialists

When planning a lifestyle change as significant as an emigration, the pension products you hold have a large impact on financial planning decisions. Some funds are immediately accessible, while others come with a waiting period or aren’t accessible at all. At FinGlobal, as retirement and emigration experts, we are always in the know on the latest information on pension funds in South Africa and perfectly positioned to assist with these decisions.

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