Why Are Half of South Africans Cashing Out Retirement Savings When Changing Jobs?

1. The scale of this shift

Sanlam Corporate data, reported by the Sunday Times, indicates that about 50% of South Africans are cashing out their retirement savings in full when changing jobs, a meaningful increase from 37% just two years earlier. This represents a genuinely large behavioural shift over a relatively short period, worth understanding both for its immediate tax cost and its longer-term impact on retirement outcomes.

This trend sits alongside rising Two-Pot Savings Pot withdrawal activity and may compound the longer-term erosion of South African retirement savings more broadly.

2. Not the same as Two-Pot withdrawals

It's worth being precise about the distinction here, this job-change cashout behaviour is different from Two-Pot Savings Pot withdrawals. Two-Pot withdrawals are the newer, annual, in-service withdrawals introduced under the Two-Pot system since September 2024.

This job-change cashout instead refers to the older, longstanding option members have always had, to withdraw their ENTIRE retirement fund balance as a lump sum when resigning or being retrenched, rather than preserving it in a new employer's fund or a dedicated preservation fund. This option predates the Two-Pot system entirely and operates under separate rules.

3. Why people choose to cash out fully

Industry data links this behaviour closely to financial strain, echoing the broader picture covered in our look at South Africa's household debt levels. One relevant statistic found that nearly half of South African households would struggle to cover an unexpected expense without borrowing or accessing savings, a genuinely widespread vulnerability that shapes how people respond when a job change presents an opportunity to access a lump sum.

For many members facing this kind of financial pressure at precisely the point of a job transition, often itself a period of income uncertainty, the retirement fund balance represents the most accessible, immediately available source of funds, even when preservation would clearly serve their longer-term interests better.

4. The tax and long-term growth cost

A full withdrawal on resignation or retrenchment is taxed according to the retirement lump sum tax table, which does offer some tax-free allowance, but withdrawing the full amount at this specific point permanently forfeits considerably more than the immediate tax owed, a genuine opportunity cost worth weighing carefully.

5. The alternative: preservation

The standard alternative to a full cashout is preservation, transferring the full fund balance into a dedicated preservation fund or directly into your new employer's retirement fund, keeping the capital invested and growing tax-efficiently rather than accessing it immediately at the point of transition.

Preservation funds specifically do still allow one withdrawal before retirement if genuinely needed later, offering a meaningful middle ground between full immediate access and full preservation, worth understanding as a real option rather than assuming the choice is strictly binary between cashing out everything or locking it away completely.

6. Fitting this into the bigger retirement savings picture

This job-change cashout trend is related to, but distinct from, the broader pattern of repeat Two-Pot Savings Pot withdrawals covered separately. Both trends point toward similar underlying financial strain across South African retirement savers, even though they operate through entirely different mechanisms.

Worth understanding together as part of a broader, honest picture of how retirement savings are actually being used in practice by many South Africans, rather than how the system's rules and incentive structure originally intended them to be used, a genuinely important distinction for anyone assessing their own retirement planning decisions realistically.