Deciding whether to retire or resign from Government service

By Pristine Wealth | Independent Advice. Tailored Wealth.

 

The Government Employees Pension Fund (GEPF) has again announced an inflationary increase with 3.5% annual pension increase effective from 1 April 2026 (2.9% increase in 2025). This adjustment aligns with the 3.5% inflation rate for the 12 months ending 30 November 2026 (compared to 2.9% inflation rate for the 12 months ending 30 November 2025), ensuring that pensioners maintain their purchasing power amidst rising living costs.

 

When contemplating leaving public service employment, it’s crucial to understand the differences between resignation and retirement, as each has distinct implications for your pension benefits.

 

Option 1: Normal Retirement

Retirement benefits typically include a monthly pension (annuity) and, depending on your years of service and final salary, may also offer a lump sum gratuity. For members with 10 or more years of pensionable service, GEPF provides both a gratuity and a monthly pension annuity. These benefits are designed to provide a steady income stream during retirement. Additionally, retirees often enjoy post-retirement medical aid subsidies and funeral benefits, which are not available to those who resign.

 

Pros and cons of “Option 1: Retirement”

• • The obvious advantage to staying within the fund and being a pensioner is that you are guaranteed a known income for life, and you don’t have to worry about things such as investment risk, market fluctuations and advice fees, although you do need to consider these when investing your lump sum. 

• • You also have the advantage of maintaining benefits, such as contributions to your medical scheme. This is quite significant, considering medical inflation rates in South Africa were between 10.2 percent and 11 percent in 2016.  

• • A distinct disadvantage of being a GEPF pensioner is that the purchasing power of your income may decline, because your pension is guaranteed to increase annually by only 75 percent of the inflation rate of the previous year. The decline may be significant, considering the likelihood of a rising inflation rate.

• • You also don’t have the flexibility to change the amount paid to you or to move out of the fund at a later stage. 

• • The most significant disadvantage to remaining a GEPF pensioner is that you may have accumulated a substantial pension, but if you and your spouse do not live long in retirement (more than 5 years) your wealth within the fund ceases, thus your hard-earned capital falls away.

• • According to GEPF Law a member’s pension is guaranteed for 5 years. If a member dies within a 5-year period after retirement, a lump sum benefit will also be payable. After 5 years into retirement, your wealth within the fund ceases and doesn’t pass on to any beneficiaries.

• • Another disadvantage is that upon death your spouse will receive a reduced monthly annuity income. The amount of the spouse’s pension would be either 50% or 75% of the pension you were receiving when you died. The percentage will depend on the option you chose when you retired.

Option 2: Resignation: Leaving the GEPF and transferring your full benefit to an approved fund.

The second option is to construct a retirement plan using different investment vehicles to provide for a tax efficient solution that can provide you with a pension as well as allowing for cash lump sums. This solution is flexible and could provide a legacy that you can pass on to your beneficiaries.

 

If you choose this option it means that you will part ways with the GEPF and take your full actuarial benefit / member’s “share” and transfer it tax-free to an approved retirement fund such as a Pension Preservation fund.

The GEPF rules only allow for transfers due to resignation, certain discharge benefits and divorce orders. However, you may transfer your GEPF benefit to a Pension Preservation Fund or a Retirement Annuity Fund before your retirement date, then retire into a compulsory annuity such as a Living Annuity or Life Annuity or a combination.

 

Upon resignation, GEPF members are entitled to their actuarial interest in the Fund, which can be taken as a cash lump sum or transferred to an approved pension preservation fund. Opting for the cash lump sum subjects the payout to immediate taxation, potentially reducing the amount received. Alternatively, transferring the benefit to a pension preservation fund defers taxation until withdrawal, potentially preserving more of your funds for future use.

 

	RETIREMENT	RESIGNATION (TRANSFER OUT)
At Retirement	A lumps sum (gratification) amount will be received. The first R550 000 will be tax free. A guaranteed monthly pension with an guaranteed annual increase of 75% of the current inflation rate (CPI).   No control of how the Pension Capital is invested. Forfeit your members share / capital in return for a guaranteed monthly income for member’s life. Guaranteed retirement benefits offered within fund until death.	Tax-free transfer. One withdrawal (max 1/3rd) before retirement    Access to another 1/3rd in cash at retirement, remaining 2/3rd to be transferred to retirement income solution.   The first R550 000 will be tax free. You have control over amount of income from private pension. More flexibility, as investors can choose drawdown rate between 2.5% – 17.5% p.a.   Benefits dependent on market returns and selected drawdown strategy out of fund option.
Death after Retirement	The member’s monthly income is only guaranteed for five years.   Reduced gratuity benefit payable to beneficiaries within 5 year guaranteed term GEPF offers an in fund joint life annuity with an inflation linked income escalation.  Spouse’s annuity is 50% * of member’s monthly income. The full capital value is forfeited after 5 years	The full income and/or capital can be left to beneficiaries of choice.   Full capital benefits returned for beneficiaries subject to longevity risk.
Bonus	Receive annual bonus 13th cheque pro rata.	Lose annual bonus
Funeral plan	Funeral benefits are paid on the death of the spouse, life partner or eligible child of a member or pensioner.	None
Capped leave	Capped leave will be paid in the form of a cash amount (subject to Income tax)	Capped leave won’t be paid out
GEMS	Medical subsidy (taxable) if you have 15 or more years of actual service the government will pay a portion of your monthly medical aid membership	No medical subsidy

*Spouse’s annuity can be increased to 75% by reducing your gratuity or annuity income at retirement.

Given these considerations, it’s imperative to seek unbiased, independent financial advice to navigate the complexities of GEPF benefits. Engaging with a financial advisor at least two months before your planned departure from government service allows for tailored guidance aligned with your long-term financial goals.

 

Conclusion

In conclusion, while the GEPF’s pension increase aims to support retirees against inflation, the decision to resign or retire should be made after careful consideration of the financial implications, tax consequences, and loss of ancillary benefits. Consulting with a financial advisor experienced in public sector pensions is highly recommended to make an informed choice that aligns with your long-term financial objectives.

 

“Should I retire or resign? Which option is best for me?”

If you ask the pension fund, they’ll encourage you to retire, confident that their fund is the best in South Africa.
But is it the right choice for everyone? Not necessarily.

For many GEPF members, retirement isn’t the most beneficial option.
In fact, resignation often provides a more financially rewarding and flexible exit.

However, this is not a decision to take lightly—your financial future depends on it.