SARS warning for two-pot retirement withdrawals – more rules to watch out for
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 will be coming into effect from 1 September 2024.
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 31 August 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 Therefore, tax will be deducted from any amount withdrawn.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.
Additional rules
But the revenue service 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.
Debt owed to SARS will be deducted from the withdrawal amount.
It 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.
Registering for tax
Taxpayers are not required to go to a SARS office, as most applications are available on one of SARS’s digital or mobile channels.
Pension fund members can register for tax using the eFiling channel at www.sarsefiling.co.za or the SARS MobiApp.
They can also use the SARS Online Query System (SOQS) on the SARS website (www.sars.gov.za) to register for Personal Income Tax.
If they are already registered, they can use the SOQS to check their tax reference number.
An application for a tax directive by a fund administrator can only be made once a member has made a final decision to make a withdrawal.
After a registered taxpayer has applied, the pension fund will apply to SARS for a tax directive. The successful directive informs the fund how much tax to deduct from a withdrawal.
“If a taxpayer is fully compliant, it will take up to 48 hours for SARS to issue the tax directive to the pension fund containing information about the tax liability of the pension fund member—ie, how much tax should be deducted from the withdrawal,” SARS said.
Before a final amount is paid, the pension fund will be informed to also deduct any outstanding debt on behalf of SARS before any payout is made to the member.
If a person has a debt arrangement with SARS, the withdrawal will not be affected. If there is a debt owed to SARS, it will be deducted in terms of such arrangement.
SARS said it will make a tax calculator available on its website to assist any pension fund members with an illustrative amount of what they can possibly expect as a payout.
Read: Tax warning for anyone withdrawing from the two-pot system
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