By: Natasha Archary
On the first day that the two-pot retirement system came into play, there were just under 2,500 withdrawal requests.
The South African Revenue Service (SARS) has already processed 2,424 tax directives, the amount of which totalled R103 million from retirement funds and delivering R6.7 million of tax to the fiscus.
Siphithi Sibeko, SARS spokesperson joins Refilwe Moloto on Kaya Biz to talk about how the implementation of the two-pot retirement system.
Since the two-pot system was opened, two pension-fund administrators’ systems crashed from the high demand of people trying to make withdrawals from their retirement fund savings.
Sibeko says that despite some glitches, SARS is equipped as more requests for withdrawals are coming through.
“We are currently sitting on 5,000 directives, and of those 3, 600 have been finalized and about 1,400 had to be cancelled by the fund managers because the directives exceeded the required threshold which was R30 000.
For now, so far so good, in the context of the flood that we expected. So, we are still in a manageable position.”
How the two-pot system works
- Under the Two-Pot system, withdrawals from the Savings Pot before retirement will be taxed at marginal rates, like other forms of income. A marginal tax rate is the amount of tax you pay on an additional unit of income. For example, if you earn more money and enter a higher income bracket, the new income will be taxed at a higher rate. Think of it as climbing a set of stairs, as you earn more, you move up to the next step and the money you earn on that step is taxed at a higher percentage but the income you earned on the lower steps remain taxed at lower rates.
- It is important to understand how withdrawals have a tax impact, on both the withdrawn amount and on the remaining funds.
- Only one withdrawal per tax year is allowed (minimum R2 000).
- Early withdrawals: Cashing out your pension savings when you change jobs can significantly hurt your retirement security in the long run. The Two-Pot System discourages this by limiting access to most retirement funds when you change jobs, promoting long-term savings habits.
- Lack of emergency funds: The National Treasury in partnership with all key stakeholders designed the Two-Pot System to allow early access to a portion of your retirement savings for emergencies. This provides financial security in unexpected situations, while still encouraging you to preserve the majority of your savings for a comfortable retirement.
Listen to the conversation on Kaya Biz:
Also read: Abantu Bazothini! Taking financial advice from friends and family
