What happens to your pension when you change jobs — and what does cashing out cost?
Three of the four options are tax-free: transferring to the new employer’s fund, a preservation fund or a retirement annuity moves the money without a tax event — it keeps compounding, uninterrupted.
Cashing out is the taxed door: R500,000 of vested savings cashed out at resignation loses R85,050 to the SARS withdrawal table — and permanently uses up part of the R550,000 tax-free band meant for retirement.
The four doors at resignation
When you leave a job, the money in your employer’s pension or provident fund has to go somewhere. Three of the four doors are tax-neutral transfers: into the new employer’s fund, into a preservation fund, or into a retirement annuity. No tax event, nothing lost — the money simply keeps growing under a new roof.
The fourth door is cashing out. That is a taxable event, and the rest of this article is the price tag.
What two-pot lets you touch
Since 1 September 2024, resignation no longer unlocks everything. What you can actually reach depends on which pot the money sits in:
- Retirement pot (two-thirds of contributions since 1 September 2024): stays preserved until retirement — changing jobs does not open it
- Savings pot (one-third of contributions since 1 September 2024): withdrawable once per tax year, taxed at your marginal rate like salary — not on the table below
- Vested pot (everything built up before 1 September 2024): the old rules still apply — on resignation it can be taken in cash, taxed on the withdrawal table
So the classic “cash out the whole pension” move now applies mainly to the vested pot. The newer pots are covered in “How does the two-pot system work — and how much can you take out (and what tax)?”.
The withdrawal table — 2026/27
A pre-retirement cash-out is taxed on the SARS withdrawal lump-sum table:
- R0 – R27,500: 0%
- R27,501 – R726,000: 18% of the amount above R27,500
- R726,001 – R1,089,000: R125,730 + 27% of the amount above R726,000
- Above R1,089,000: R223,740 + 36% of the amount above R1,089,000
The worked example: cashing out R500,000
Take R500,000 of vested money in cash at resignation. The first R27,500 is tax-free; the rest is taxed at 18%: 18% × (R500,000 − R27,500) = R85,050. What lands in the bank is R414,950.
And the table has a memory: it is cumulative over your lifetime, so this R500,000 is added back the next time any lump sum of yours is taxed. That is the trap in the next section.
The trap: it spends your R550,000 retirement band
At retirement, lump sums are taxed on a friendlier table where the first R550,000 is tax-free — but SARS adds back every taxable lump sum you have ever taken before working that tax out.
Concretely: retire one day with a R550,000 lump sum having never withdrawn, and the tax is R0. Retire with the same R550,000 after today’s R500,000 cash-out, and SARS taxes the lifetime total of R1,050,000 on the retirement table — R39,600 + 27% × (R1,050,000 − R770,000) = R115,200 — then subtracts what the prior R500,000 alone would have attracted on that table, which is R0. Tax on the retirement lump sum: R115,200 instead of R0. Today’s cash-out quietly spent the tax-free band.
The bigger cost: the compounding you sold
The tax is the visible price. The invisible one is the growth. R500,000 left compounding at 10% a year is around R3.4 million after twenty years — cashing out swaps that future amount for R414,950 today. The mechanics of that gap are the whole subject of “What does starting 10 years earlier actually do? (compound growth)”.
The calculator on this page runs both doors on your own numbers: the tax on cashing out today, next to the value the same pot reaches at 65 if it stays preserved.
Terms used on this page
- preservation
- Keeping retirement savings invested when changing jobs — transferring to a preservation fund or the new employer’s fund instead of cashing out, which triggers tax and resets compounding.
- marginal rate
- The tax rate on your next rand of income — the bracket the top slice of your income falls into.
- vested pot
- Retirement savings built up before 1 September 2024. The old rules still apply to it — the two-pot withdrawal rules don't touch it.
- compounding
- Growth on growth: returns earn their own returns. It is why time in the market matters more than the size of any single deposit.
Reviewed July 2026 · 2026/27 tax year figures