Is a Section 14 transfer of a retirement fund taxed in South Africa?

A Section 14 transfer of your retirement savings from one approved fund to another is not taxed. SARS still issues a tax directive for it, but the directive reflects the move at nil tax, because the money is transferred fund to fund and never paid to you. The tax only appears if you take the other route and cash the benefit out, which is taxed on the SARS withdrawal table. So when you change jobs, the choice between transferring and withdrawing is often the single biggest tax decision in the whole move.

Section 14 of the Pension Funds Act is the mechanism that lets one fund transfer your benefit to another. What matters for tax is the parallel rule in the Income Tax Act that makes that transfer tax-neutral.

Why the transfer is tax-free

When your benefit is transferred from a pension or provident fund into a pension preservation fund, a provident preservation fund, or a retirement annuity, paragraph 6A of the Second Schedule to the Income Tax Act treats the full amount transferred as a deduction. The effect is that the transfer takes place on a tax-neutral basis: nothing is included in your income, and nothing is taxed.

The fund administrators still apply to SARS for a tax directive before moving the money, because a directive is required whenever a lump sum is dealt with. The point is that this directive comes back at nil tax. You will see it on record, but no rand leaves for SARS.

Two features make this work, and both matter:

• The money moves fund to fund. It is never paid to you, so there is no benefit in your hands to tax.
• The receiving fund is an approved retirement vehicle. The savings stay locked in the retirement system, which is the trade-off for the tax-free treatment.

Why cashing out is different

A withdrawal is the opposite event. When you resign and take the cash instead of preserving it, that is a pre-retirement withdrawal, and it is taxed on the withdrawal lump sum benefit table. On that table only the first R27,500 you have ever withdrawn is taxed at 0%, and it is a once-off lifetime figure, not a fresh allowance each time. Above it, the benefit is taxed at 18%, then 27%, then 36% in rising bands, aggregated with any earlier withdrawals.

So the same pot of money is either preserved at no tax cost, or cashed out and taxed immediately, and the gap between those two outcomes can be very large.

A worked example

You change jobs with R900,000 in your employer pension fund. Compare the two routes for the 2026 year of assessment.

Route A, cash it out. This is a pre-retirement withdrawal, taxed on the withdrawal table. R900,000 falls in the R726,001 to R1,089,000 band, where the tax is R125,730 plus 27% of the amount above R726,000.

• Amount above R726,000: R900,000 minus R726,000 is R174,000.
• 27% of R174,000 is R46,980.
• Tax: R125,730 plus R46,980 is R172,710.

You keep R727,290 in cash and R172,710 goes to SARS, assuming you have made no earlier withdrawals that used up the 0% band.

Route B, Section 14 transfer to a preservation fund or retirement annuity. Paragraph 6A makes the transfer tax-neutral, so the directive is issued at nil tax. The full R900,000 moves across and keeps compounding for retirement. Tax paid: R0.

The difference between the routes here is R172,710, the entire tax bill you avoid by preserving rather than cashing out.

The two-pot wrinkle when you change jobs

Since 1 September 2024 most funds run on the two-pot system, which splits new contributions into a savings component you can access once a tax year and a retirement component that is locked until retirement. When you change jobs under this system, the retirement component stays preserved, and a Section 14 transfer moves your benefit across without tax in the same way.

The savings component is where the temptation sits, because you can withdraw from it. A savings withdrawal is added to your income and taxed at your marginal rate through a directive, so taking it costs you tax that a transfer would have avoided. If your goal is to preserve, transferring the whole benefit keeps all of it working and untaxed. Your fund rules govern exactly what can be accessed, so confirm them with your administrator.

The decision in one line

Transferring keeps the whole benefit and costs no tax. Cashing out hands a slice to SARS immediately and permanently. Our guide to tax on a provident or pension fund withdrawal sets out the tables in full, and the retirement lump sum calculator shows the tax on any amount you might withdraw. See also tax on a preservation fund withdrawal and how a two-pot savings withdrawal is taxed.

SARS sources:

• https://www.sars.gov.za/latest-news/tax-directives-legislative-changes-implemented/
• https://www.sars.gov.za/tax-rates/income-tax/retirement-lump-sum-benefits/
• https://www.sars.gov.za/two-pot-retirement-system/