It has been almost a week since President Cyril Ramaphosa signed into law the Revenue Laws Amendment Bill of 2023, which establishes a two-pot retirement system.
This means that from September 1, 2024 South Africans will be allowed to start withdrawing from their savings pot under the new system.
Tax Consulting SA shares five key considerations that fund members must be aware of before they withdraw from their savings pot.
Seed capital and withdrawal limits
According to John Paul Fraser, tax attorney, Tax Consulting SA, on August 31, 2024 10% of the value of a person’s existing retirement fund, or R30,000, whichever is lower, will be allocated to their savings pot.
“This initial allocation of funds has been termed seeding capital. The seeding capital allocation is a once-off transfer at the commencement of the two-pot system and will not be repeated in the following years,” Fraser said.
People will have access to the savings pot at any time but they are only permitted to make a withdrawal once a year.
While there is no maximum withdrawal amount that people can take out, they must withdraw a minimum of R2,000.
Sars has the first right to your savings pot withdrawal
If you are thinking abut withdrawing from your savings pot, you need to know about the tax implications first.
Fraser said that people need to be aware that before any funds are released, the fund administrator will need to apply to South African Revenue Services (Sars) for a tax directive.
“Where the taxpayer has an outstanding tax debt with Sars, the fund administrator will be issued with a notice to pay this debt from the withdrawal amount first and only pay the taxpayer the balance,” Fraser said.
Annual withdrawals are not limited to a single policy per tax year
People need to take note that they are allowed to make one annual withdrawal per policy, which according to Fraser incentivises the concept of having a more diverse policy portfolio.
“An example of this scenario is where an individual is contributing to three policies, the fund member would be eligible to make an annual withdrawal from each respective policy. Needless to say, a fund member will be limited to the actual amount that is held within their savings pot at the time of withdrawal,” Fraser said.
Tax on savings
According to Fraser, a withdrawal from the savings pot will be subject to tax at the fund member’s marginal tax rate which means that any withdrawal will be taxed in the same way as a salary or other similar income.
The tax on the withdrawals will be withheld by the fund administrator and paid directly over to Sars.
No resignation required
According Fraser, people need be aware that the new system has limited their right to withdraw from their 2/3 retirement pot.
Before, people would able to access their total lump sum amount under their retirement policy upon a resignation, while the new two-pot retirement system locks in the retirement pot until a fund member reaches retirement.
Fraser urges people to consider the practical implications relating to their withdrawals from their savings pot and most importantly the tax implications.
An impulsive withdrawal without understanding the ramifications could do to far more harm than the relief it offers.
For more information on the two-pot system people should visit the National Treasury’s information portal.
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