How much you’ll get when withdrawing from the new two-pot retirement system – after tax

The South African Revenue Service (SARS) has issued new directives and updated a host of tax documents relating to the new Two-Pot Retirement System, which went live this week.

The tax service has also gone live with its Two-Pot Retirement System Calculator, which will give taxpayers an idea of how much they will likely get out when withdrawing from their funds.

From 1 September 2024, members of pension funds, provident funds, pension preservation funds, provident preservation funds, and retirement annuity funds will be able to access a portion of their retirement savings in the member’s retirement fund as a cash payment while still a member of that fund.

Retirement funds will now be split into the following:

Vested Component

• This is the total value of the member’s interest as at 31 August 2024, less 10% of that value, capped at R30 000 to be allocated to the Savings Component as seed capital.
• The payment of the remaining balance in the Vested Component as a lump sum benefit, before retirement, will not be impacted by the two-pot retirement system.

Savings Component

• One-third of the member’s retirement fund contributions will be allocated to the Savings Component.
• This is in addition to the seed capital amount, which is 10% of the Vested Component, capped at R30,000, whichever is lower.
• The member can withdraw a minimum of R2,000, up to the maximum value available in the member’s Savings Component, once every tax year. These withdrawals from the Savings Component are called Savings Withdrawal Benefits.
• At retirement, the remaining balance in the Savings Component (if applicable), the member can elect to add to their retirement fund a lump sum to be taken in cash.

Retirement Component

• Two-thirds of the member’s retirement fund contributions will be allocated to the Retirement Component.
• This component will be used to pay the member a pension or purchase an annuity upon retirement, subject to certain exceptions.
• This amount cannot be taken as a lump sum if the member terminates membership in the fund before retirement as a result of resignation, dismissal, withdrawal or retrenchment and must be transferred to another fund.

SARS has made it clear that withdrawals from the vested component will be taxed at the individual’s marginal tax rate.

Each amount will be in line with a taxpayer’s own tax profile, but the Revenue Service previously gave two broad examples to illustrate the differences:

• Example 1: R25,000 withdrawal for someone earning R360,000 a year = R17,275 after tax (R7,725 paid in tax)
• Example 2: R25,000 withdrawal for someone earning R380,000 a year = R16,750 after tax (R8,250 paid in tax)

The tax calculator will be able to give a better indication of what a taxpayer will get out, using their own tax information.

SARS has warned taxpayers to bear in mind other restrictions on withdrawals, such as:

• Anyone intending to withdraw must be registered for tax.
• Taxpayers must ensure they have no outstanding returns and do not owe SARS.
• Debt owed to SARS will be deducted from the withdrawal amount.
• Pension fund members who earn below the tax threshold will only be finalised during the annual Filing Season when taxable income will be determined and taxed at 18%.
• 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.

In addition, the tax directive system and application forms have been changed to accommodate requests for the Savings Withdrawal Benefit and for transfers of the Vested, Savings, and Retirement Components to another fund.

These changes are as follows:

Updated forms for the enhanced Tax Directives process:

1. Application for tax directive Gratuities and Two Pot Savings Withdrawal Benefit (IRP3a) Form
2. Request for Tax Deduction Directive Pension and Provident Funds (Form A&D)
3. Request for Tax Deduction Directive Pension and Provident Funds (Form B)
4. Request for Tax Deduction Directive Retirement Annuity Funds (Form C)
5. Recognition of Transfer between Approval Funds (Form ROT01)
6. Application by Non-Residents for a Directive for Relief from SA Tax for Pension and SWB (RST01Form)

For a full review of changes to the various forms, taxpayers can read more on SARS’ dedicated page and FAQ about the system.

Read: SARS warning over eFiling fraud in South Africa