What happens to my retirement pot when I resign?

Leaving a job can be both an exciting, daunting, and overwhelming experience. However, no matter which road you find yourself on, it is important not to lose sight of one crucial asset - your retirement savings.

At 10X Investments, we are often asked “What happens to my retirement pot when I resign?” Unfortunately, the answer isn’t one-size-fits-all, therefore it is imperative to understand the options available to you and their long-term impact to protect your financial future.

What is your retirement pot?

The retirement pot refers to the savings accumulated in your pension fund, provident fund, or retirement annuity fund while working. These contributions are often made both by you and your employer and are designed to grow over time through investment returns.

In South Africa, retirement fund contributions are tax-deductible of up to 27.5% of your taxable income, subject to an annual cap of R350,000.

This is a significant tax incentive, as it effectively reduces your taxable income, potentially moving you into a lower tax bracket and decreasing your overall tax liability for the year.

Furthermore, the growth within these funds (including interest, dividends, and capital gains) is generally exempt from tax while the money remains invested. This tax-free growth allows your money to compound more effectively over the long term, accelerating the accumulation of your retirement savings.

What options are available if you resign?

When you resign, your employer will inform the fund administrator that you are no longer employed. At this point, you typically have four options:

1. Transfer to a preservation fund

This is a popular option that allows you to preserve your savings and defer tax.

• Your money continues to grow tax-free.
• You are allowed one withdrawal before retirement age.
• You are not tied to your previous employer or their fund administrator.

A great option to consider if you’re between jobs or you’re not yet ready to commit to your new employer’s retirement fund.

Risks:

• Limited access: You’re generally allowed only one withdrawal (before retirement), so if you need funds later, you’re locked in.
• Fees and costs: Preservation funds can have higher admin or investment fees than your employer fund, eating into long-term growth if not carefully chosen.
• Investment risk: Returns depend on the fund’s performance. If you choose an inappropriate risk profile, you could erode savings or miss growth.
• Regulatory changes: Future tax or legislation changes could affect withdrawal rules or tax treatment.

2. Transfer to a retirement annuity (RA)

You can also transfer your pot to a retirement annuity, which is a flexible, personal retirement product.

• This is ideal for freelancers, entrepreneurs, or if your new employer doesn’t offer a fund.
• Funds will remain locked in until age 55, but no tax is incurred on transfers.

Risks:

• Liquidity risk (no access until you turn 55): You cannot access funds until age 55 (except in very specific circumstances like emigration or disability).
• Regulatory risk: Potential future rules around withdrawals or tax treatment could impact flexibility.

3. Transfer to your new employer’s retirement fund

If your new employer offers a pension or provident fund, you can transfer your savings directly into it.

• It keeps your retirement savings consolidated.
• You maintain continuous compounding growth.
• You avoid withdrawal tax altogether.

Risks:

• Investment choice limitations: The new fund may offer fewer investment choices or higher fees compared to your old one or an independent provider.
• Portability risk: If you move jobs again, you repeat the process, which can lead to admin delays or extra fees.
• Performance risk: The new fund’s investment strategy might not align with your goals (e.g., too conservative/aggressive).
• Administrative delays: Transferring can take time, during which your money may sit out of the market, losing growth opportunities.

4. Take it in cash

While possible, withdrawing cash from your retirement savings has significant financial downsides. There are two ways you might access funds:

• From your 'Vested Pot': This includes all savings accumulated before September 1, 2024. You can typically access these funds as a lump sum when you resign.
• From your 'Savings Pot' (two-pot system): For contributions made from September 1, 2024, a portion goes into a 'savings pot'. You can make one withdrawal per tax year from this pot, even if you don't resign.

Important note on taxation: Both types of withdrawals are subject to tax. The significant drawback is that you will be taxed heavily.

According to SARS’ retirement withdrawal tax tables (for lump sums taken before retirement, such as on resignation or from the savings pot): The first R27,500 of your cumulative withdrawal lump sums (from all funds combined) is tax-free. This is a lifetime allowance – once used, all future pre-retirement withdrawals will be taxed. Any amount above that is taxed using SARS’ lump sum withdrawal table, with rates climbing up to 36% for larger amounts.

For the current tax year (1 March 2025 - 28 February 2026), these rates are:

Beyond the immediate tax implications, you also stand to lose out on long-term investment growth and the power of compounding over decades.

Cashing out may offer short-term relief for immediate financial needs, but compromise your financial security in later life.

You may want to consider exploring other options before resorting to a cash withdrawal. Remember that the R27,500 tax-free amount on withdrawal reduces the R550,000 tax-free amount you could receive at retirement, meaning cashing out early diminishes your future tax benefits.

Risks:

• Tax penalties apply: Lump sums are taxed per SARS’ withdrawal tables; most of your savings could be taxed at a high rate.
• Loss of compounding: Removing funds destroys future growth potential and may leave you unable to rebuild your retirement pot.
• Spending risk: Easy access may lead to impulsive spending, undermining your retirement security.
• Future contribution limits: While you can restart retirement savings later, you can’t “buy back” lost tax-free growth.

How 10X Investments can help

At 10X, we’re here to guide you through these critical decisions. Our preservation funds and retirement annuities are:

• Simple to understand
• Low-cost
• Performance-focused

We don’t charge upfront commissions or complicated layers of fees that eat into your returns. Our goal is to help you maximise your retirement so you can retire comfortably and with dignity and not derail your financial future when you hit a career crossroads.

Something to think about

Resigning from your job doesn’t have to mean starting over financially. If you make the right move with your retirement pot, you’ll keep your savings on track and even accelerate your journey toward financial freedom.

Chat to 10X today about the best way to protect your pot.

Disclaimers: Visit the 10X website for more information on how our funds can work for you. 10X Investments may offer retirement solutions such as preservation funds or retirement annuities, but members are encouraged to consult a licensed financial advisor before making a decision.