Double tax warning for anyone with a retirement fund in South Africa
More than 100,000 South Africans have already accessed their savings pots for the 2026/27 tax year, with the first withdrawal submitted one minute into the new financial year.
However, South Africans are reminded of the high cost and additional tax risk associated with withdrawing these funds.
According to Vickie Lange, Head of Solutions Enhancement at Alexforbes, the firm recorded a sharp increase in members accessing their savings pot during the first week of the new tax year under South Africa’s two-pot retirement system.
“More than 140,000 claims were received during the first week of March, with approximately 84,000 already paid,” said Lange.
“The first claim was submitted at 00:01 on 1 March, underscoring the immediate demand for access to savings,” she added.
She noted that most of the activity was driven through the company’s digital systems.
“Activity has been driven largely through the AF Connect digital platform, which recorded more than 1.3 million logins during the same period,” she said.
Lange noted that the early response to the new tax year highlighted the need for many members to gain access to their savings.
The system, which came into effect on 1 September 2024, was designed to give retirement fund members some access to their savings while making sure that most of the money stays preserved for retirement.
Under the system, one-third of a worker’s monthly retirement contributions are allocated to a savings pot, which can be accessed in emergencies.
The remaining two-thirds go into a retirement pot that cannot be accessed until retirement.
The system was intended to prevent people from completely cashing out their retirement savings when changing jobs, while still giving them limited access to funds when they need it most.
However, Lange wanted at the end of last year that withdrawals from the savings pot are not without consequences.
Members are taxed on any withdrawals, and accessing the funds permanently reduces the amount available at retirement.
The risks
Over the past year, South Africans have withdrawn more than R9.5 billion from their savings pots, with many using the funds to settle debt or cover basic living costs as households battle rising expenses.
While this provides short-term financial relief, Lange warned that the impact is twofold. “At a high level, it reduces the retirement income that someone would get in the future,” she explained.
“Anyone who has depleted their savings pot by the time they get to retirement can’t access any cash from their retirement pot.”
However, she said the bigger concern is that many South Africans do not fully understand the tax implications when they withdraw funds.
Savings pot withdrawals are taxed at an individual’s normal income tax rate rather than at the preferential retirement withdrawal tax rates.
This means the amount withdrawn is added to a person’s annual income, which could push them into a higher tax bracket.
“Withdrawals from retirement funds can push people into higher tax brackets,” Lange warned. “That could come as a bit of a nasty surprise for someone doing their tax assessment at the end of the year.”
In practical terms, someone who withdraws money from their savings pot could end up owing additional tax when their assessment is finalised.
“For someone struggling financially, that could mean less relief than anticipated, and a shock when SARS issues assessments,” Lange said.
Despite the risks, Lange acknowledged that the strong demand for withdrawals shows many South Africans are under severe financial strain.
She added that Alexforbes will continue working with members, employers and other stakeholders to provide guidance on how to use the system responsibly.
“Alexforbes will continue to engage with members, employers and stakeholders throughout the year, providing information and guidance to help South Africans navigate the two-pot system responsibly,” Lange said.
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