SARS scores massive retirement fund payday

The South African Revenue Service (SARS) says it has received a total 161,607 tax directive applications related to the new two-pot retirement system, amounting to R4.1 billion.

However, the amount includes directives that have been cancelled, though SARS did not specify any numbers in this regard.

The revenue service noted this week that 159,853 of the directives relate to Savings Withdrawal Benefits, which is 98.9% of the total number of applications received from Sunday 1 to 10 September 2024.

SARS received an average of 17,964 tax directive applications a day.

Commissioner Edward Kieswetter said contributions made to a pension or retirement fund were not taxed at the time of payment to the fund but deferred to the time the person retires and then taxed at a reduced rate.

However, when an individual withdraws now, they will be taxed at their marginal tax rate – which means a massive payday for the revenue service, which will undoubtedly boost its collections for the year.

While the service didn’t reveal how much of the withdrawal amount will be taxed, even at a conservative average of 20%, this would amount to R800 million in additional tax revenue.

The numbers are expected to grow, with SARS noting that the situation “changes daily”.

South African Reserve Bank Deputy Governor Mampho Modise noted in August that the two-pot system could add 0.2% of GDP if the money goes into consumption rather than debt repayments.

The SARB said that the withdrawal impact will be sharp in 2025 and 2026, but it will die down as the ability to access funds will be limited to one yearly withdrawal.

Kieswetter warned that taxpayers who owe SARS money should note that any tax debt will be added to the tax on withdrawal from the savings benefit.

“But if there are payment arrangements in place to settle the debt with SARS, this debt will be deducted as per agreement between SARS and the Taxpayer. A tax debt that has been deferred will also not be deducted,” he said.

Not unexpected

While retirement funds have spent a good while trying to convince members to not withdraw their funds, the prevailing economic conditions in the country—and the severe financial strain on households—was a clear indicator that billions of rands were going to be taken out.

The new system has two main pots—a “savings” pot and a “retirement” pot.

The savings pot is one-third of retirement savings, effective 1 September, and will be accessible before retirement.

The retirement pot will hold the remaining two-thirds of retirement savings and only be accessible upon retirement age.

A third “vested” pot holds the retirement savings up until 31 August, except for a maximum of R30,000 used as seed capital in the savings pot, and follows existing legislation.

The system is designed to ensure South Africans can access some of their savings in an emergency while maintaining the majority of their funds for retirement.

However, fund managers have repeatedly warned that withdrawals should only be made if absolutely necessary, as taking money out of retirement funds not only carries and immediate tax impact, but may also reduce total savings by the time of retirement—leaving South Africans with even less.

Despite the warnings, various pension funds have noted that members have opted to withdraw at staggering rates, often going for maximum value.

In many cases, systems have become overwhelmed, and initial estimates have had to be adjusted.

SARS said the turnaround time for it to complete directive applications without human intervention is no more than 48 hours.

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