Changes to the retirement contribution and commutation thresholds announced in this year’s Budget are effective despite not appearing in the final legislation.
Nancy Andrews, the chairperson of the Institute of Retirement Funds Africa’s Legal and Technical Committee, told a recent webinar that National Treasury and the South African Revenue Service have confirmed that the changes can be implemented.
The Minister of Finance announced the following amendments to the thresholds:
- Retirement fund contribution deduction cap. Members may receive a tax deduction for contributions made to a retirement fund of up to 27.5% on the greater remuneration or taxable income, subject to an overall annual limit. This cap was increased from R350 000 to R430 000 effective 1 March 2026.
- Annuitization threshold. At retirement, everything in a member’s retirement component must be used to purchase an annuity. This requirement is subject to the de minimis amounts, which are calculated cumulatively across the retirement component and the non-vested portion of the vested component. The de minimis was increased from R247 500 to R360 000 effective 1 March 2026.
- Living annuity commutation. The full remaining value of a living annuity may be paid in a cash lump sum when the value at any time becomes less than the prescribed amount. This amount was increased from R125 000 to R150 000.
These changes were proposed in the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, which was published on the same day of the Budget.
Andrews said that when the Rates and Monetary Amounts and Amendment of Revenue Laws Act was gazetted on 1 April 2026, the changes were not included, triggering “some dispute or difference of opinion in the industry” as to whether they can be implemented.
IRFA sought clarity from National Treasury and SARS. Both stated that the Income Tax Act permits the Minister of Finance to make changes of this nature in the Budget, Andrews said. SARS has updated its systems to implement the changes, which it confirmed took effect on 1 March. Treasury indicated it has 12 months within which to amend the legislation. The changes will be applied retrospectively.
SARS indicated there will be no negative consequences for members if funds and administrators apply the new thresholds ahead of their appearance in the legislation, Andrews said.
The Budget also proposed a change to the definition of living annuity in the Income Tax Act to codify SARS’s approach to how it applies the commutation threshold, which, as previously mentioned, is now R150 000.
There have been differing opinions as to whether the limit applies per policy or cumulatively per insurer.
Andrews said the amendment will make it clear that the threshold applies to all living annuities with the same insurer. If a member has multiple living annuities with an insurer, the threshold must be tested by working out the aggregate of all those annuities.
Importantly, she said, aggregation at an insurer level was already SARS’s practice – in accordance with a directive it received from National Treasury.
Important two-pot changes
Andrews also highlighted changes pertaining to the two-pot retirement system that were published in the Taxation Laws Amendment Act, which was gazetted on 1 April 2026.
The amendments were designed to address anomalies in the two-pot legislation of which the industry became aware post-implementation on 1 September 2024.
A major practical change, Andrews said, concerns a member’s ability to access the savings component on resignation if the member has already made a savings withdrawal in that tax year.
Previously, the ability to withdraw depended on whether the balance was above or below the threshold of R2 000. (This is the minimum balance required to make a voluntary withdrawal from the savings component each tax year.)
If the member had less than R2 000 in their savings component, they could access the full amount on leaving the fund, even if they had already made the one withdrawal permitted in the same tax year. But if the member’s savings component exceeded R2 000, they could not take a further withdrawal on resignation in the same year. They had to wait for the next tax year to take it.
Andrews said the amendment removes that split: “The new position is that an exiting member now has full access to his savings balance, irrespective of what it is.”
She said the expanded access comes with a condition linked to fund membership rather than employment status. The additional same-year exit withdrawal is permitted on condition that membership in the fund is terminated. This means that if the member takes the second withdrawal, “he would have to move all his remaining components in the fund out of the fund to another fund. So, your membership in that fund is terminated. You become a member of another fund.”
Another significant change affects preservation fund members who cease to be South African tax residents.
Andrews said the amendment clarifies that a member who has not yet used the once-off pre-retirement withdrawal may first take that withdrawal from the vested component, after which the three-year non-residency requirement begins to run for the remaining balance.
Note that this applies only if the member has not yet made the one withdrawal permitted before retirement. Members who have already made a pre-retirement withdrawal must observe the three-year waiting period.
Read: Three years that matter: emigration and access to retirement funds
