Can I make a withdrawal from my preservation fund before retirement?

Yes, you can access portions of your Preservation Fund before retirement, but the rules depend on which component of your fund you're looking to access under the current two-pot system.

Understanding your Preservation Fund components

Your Preservation Fund is divided into three components:

The Savings Component You can make one withdrawal per tax year from this portion. The minimum withdrawal amount is R2,000, and withdrawals are taxed at your marginal income tax rate (the same rate as your salary).

The Retirement Component This portion must remain invested until retirement age (usually 55, depending on your fund rules). You cannot access these funds earlier.

The Vested Component This contains your pre-September 2024 savings. If you haven't made any previous withdrawals from this portion, you can make one withdrawal before retirement. After that, you'll need to wait until retirement age to access the remaining funds.

Tax implications of withdrawals

The tax you'll pay depends on which component you're withdrawing from:

From the Savings Component: Withdrawals are taxed at your marginal income tax rate. For example, if you're in the 30% tax bracket, your withdrawal will be taxed at 30%.

From the Vested Component: Withdrawals are taxed according to the retirement fund lump sum withdrawal tax table. The first R22,500 is tax-free (if you haven't had any previous withdrawals from retirement funds), with higher amounts taxed at increasing rates.

At retirement

When you reach retirement age (typically 55 or older):

• Your retirement component must be used to purchase an annuity
• You can take up to one-third of your vested component as a cash lump sum
• Your savings component can either be taken as cash or used to purchase an annuity

Important considerations

Before making any withdrawals, consider these factors:

• Early withdrawals significantly reduce your retirement savings
• You lose out on compound growth over time
• Tax implications can be substantial
• Previous withdrawals from any retirement funds affect your tax-free allowances

Our Two-Pot Calculator can help you understand the impact of different withdrawal decisions on your retirement savings.