Lentswe, Klerksdorp - The South African Revenue Service (SARS) has warned any persons who intend to withdraw from the savings pot of the imminent Two-Pot Retirement system, the taxman will take his dues. The much-talked-about Two-Pot Retirement System came into effect on Sunday September 1.
While it’s called the ‘two-pot’ system, under the system, an individual’s retirement fund contributions will actually be split between three components (or ‘pots’): the vested, savings, and retirement components.
The vested component contains all accumulated retirement fund contributions made until August 31, 2024.
After the implementation date, a one-time seed capital transfer of 10% (capped at R30 000) of an individual’s vested funds will be made to their savings account.
The remaining funds will stay invested, and access to these funds will only be permitted after retirement or upon resignation, as per the current legislation.
An individual’s retirement savings “pot” will consist of one-third of their net annual contributions made after the implementation date, including the seed capital transfer and future capital growth.
However, SARS has made it clear - through a notice to all taxpayers - that accessing any of the funds allowed before retirement will be taxed.
The regulations allow one withdrawal permitted per tax year, taxed at the individual’s marginal tax rate.
Two examples the revenue service gave were:
Example 1: R25 000 withdrawal for someone earning R360 000 a year = R17 275 after tax.
Example 2: R25 000 withdrawal for someone earning R380 000 a year = R16 750 after tax.
“Contributions to retirement funds are not taxed. Therefore, tax will be deducted from any amount withdrawn. Tax will be calculated at the tax rate applicable to the individual,” SARS said.
SARS noted that there are even more conditions attached to accessing the funds.
Firstly, anyone intending to withdraw must be registered for tax. “Those who are not registered must register before they apply to their relevant fund. If a person is not registered for tax, the request for a tax directive sent from the fund to SARS will be rejected,” the group said.
Taxpayers must also ensure that they have no outstanding returns and do not owe SARS.
SARS added that the tax implications for pension fund members who earn below the tax threshold and then make a withdrawal from the savings pot will only be finalised during the annual Filing Season when taxable income will be determined, taxed at 18%.
“The guiding principle on the amount of tax payable is that all amounts earned or withdrawn from the fund will determine the final tax rate. Any under or over-deduction of tax from a two-pot withdrawal will be settled in favour of the taxpayer or SARS on assessment during the annual Filing Season,” SARS said.
If a member chooses not to withdraw from their savings pot before retirement, the remaining funds will be taxed as a lump sum benefit upon retirement.
“These tax rates are generally lower than the marginal tax rates applied to withdrawals before retirement,” it said.
