What are the differences between a provident and a pension fund?

Please note: As of 1 September 2024, the rules for withdrawals have changed with the implementation of the two-pot retirement system. Read more about the two-pot retirement system changes here.

In the past, pension and provident funds differed significantly in their retirement payout rules and tax treatment. Pension funds required members to annuitise most of their balance, while provident funds allowed full cash withdrawals.

But as of March 1, 2021, the two are more closely aligned. New legislation requires provident fund members under 55 to annuitise at least two-thirds of their post-March 2021 contributions at retirement, similar to pension funds.

Some key differences remain though:

• Members who are 55+ as of March 1, 2021 can still cash out their full provident fund balance at retirement.
• Provident fund balances under R247,500 can be fully withdrawn as cash.
• Provident funds still offer slightly more flexibility in terms of estate distribution.

But, in general, pension and provident funds are now structured more similarly to help members secure a stable retirement income. It's a shift that may take some getting used to, but one that ultimately promotes better retirement outcomes.

As always, we at 10X are committed to simplifying this complexity for our members. Whether you have a pension or provident fund (or both!), we're here to help you make sense of the rules and maximise your retirement provisions.