Two Pots: What Should You Do with Your Retirement Fund if You Change Jobs?

“One mustn’t dream of one’s future; one must earn it.” (Carlos Ruiz Zafón)

In the past, it was not uncommon for someone to work for the same company for their whole career. That is extremely rare today. In the modern working world, you may move to a new employer every two or three years.

This is great for flexibility and career progression, but it requires you to be highly proactive about your pension savings. If you have been paying into a pension or provident fund through your employer, you need to make a decision about what to do with that money every time you leave.

The old rules vs. the new reality

Before September 2024, the choice was relatively straightforward: you either took your entire fund as a cash payment or you kept it invested. However, the implementation of the “two-pot” retirement system has changed how resignation withdrawals work. 

Under this legislation your retirement savings are divided into three components, each with different rules:

1. The vested component: This is any money you saved up until 31 August 2024, and the old rules still apply here. You can withdraw this money in full when you resign, but it will be taxed aggressively.
2. The savings component: This contains one-third of your retirement contributions made since 1 September 2024. You can withdraw from this pot when you resign (even if you’ve used your annual withdrawal limit, provided you close the account), but it will be heavily taxed.
3. The retirement component: This holds two-thirds of your contributions made since 1 September 2024. By law, you cannot cash this out when you change jobs. This money must be preserved to buy an annuity income when you retire.

Think twice before cashing out

While you can access your vested and savings components when you resign, that doesn’t mean you should. In fact, taking the cash is rarely the right choice.

Firstly, SARS taxes these withdrawals heavily to discourage you from raiding your nest egg. Secondly, if you take out your available savings, that portion of your retirement fund effectively goes back to zero. You might think you can always make this up, but remember that any investor’s most powerful ally is time.

The longer your money stays invested, the more it benefits from compound interest. Time is not something you ever get back.

2025 data from Sanlam Corporate indicates that to afford a comfortable retirement, the average South African may need to work until they are 80 years old. And the primary driver of this shortfall is people cashing out their pension savings when changing jobs.

When you do this, you are effectively taking money from your future self.

Four ways to keep your money invested

To secure your future, it is therefore almost always better to preserve your savings when changing jobs. You have four tax-free ways to do this:

1. Keep it in your current fund
   If you do not explicitly instruct your HR department otherwise, your savings will automatically be left exactly where they are. You will earn the same growth as other members, although you will no longer be able to make monthly contributions.
2. Transfer it to your new employer’s fund
   If your new employer offers a company pension or provident fund, you can transfer your balance across to the new fund. This allows you to keep all your savings in one place, making them easier to manage and monitor. However, you may want to work with a financial advisor (that’s us) to compare the fees and historical performance of the two funds to see which serves you better.
3. Transfer it to a retirement annuity (RA)
   In an RA you get to choose your underlying investment funds and you can easily make additional contributions over time. Just be aware that you cannot access the funds in your vested or retirement components until you turn 55.
4. Transfer it to a preservation fund
   If you transfer to a preservation fund, you retain the right to make one pre-retirement withdrawal from your vested component before the age of 55. This can act as a vital safety net if you ever face a severe financial crisis. The drawback is that you cannot make any additional contributions.

Each of these options has pros and cons, and it’s often best to get advice when making a decision. After all, this money is your future. Changing jobs? Speak to us before you make any decisions.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.

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