South African Revenue Service (SARS)

The South African Revenue Service (SARS) has collected R11.87 billion in taxes from the two-pot retirement withdrawals system since its launch on 1 September 2024. SARS Commissioner Edward Kieswetter announced this figure, noting that the revenue stems from 2,535,252 finalized withdrawal applications. He highlighted that the majority of these applications originated from middle-class families, underscoring the system’s significance for this demographic. The announcement was part of a broader reveal of preliminary revenue collection figures for the 2024-2025 financial year, presented during a media briefing at the Hilton House Brooklyn Bridge in Pretoria, attended by Deputy Finance Minister Arshor Sarupen, South African Reserve Bank Governor Lesetja Kganyago, and various SARS Deputy Commissioners.

What Is the Two-Pot Retirement System?

The two-pot retirement system is a transformative reform in South Africa’s retirement framework, designed to balance immediate financial relief with long-term retirement security. It splits retirement fund contributions into two distinct components:

•   Savings Pot: Members can withdraw funds from this pot once per tax year, providing a lifeline during financial distress without the need to resign from their jobs.
•   Retirement Pot: This portion is preserved exclusively for access at retirement, safeguarding future financial stability.

Introduced on 1 September 2024, the system aims to improve retirement outcomes by allowing partial withdrawals while preventing the complete depletion of retirement savings—a common issue when individuals previously resigned to access their funds.

Tax Revenue from Two-Pot Withdrawals

Since its inception, the two-pot system has generated R11.87 billion in tax revenue for SARS, derived from over 2.5 million finalized withdrawal applications. Kieswetter emphasized that middle-class families have been the primary users, reflecting their need for accessible financial support. Withdrawals are taxed at the individual’s marginal tax rate, which ranges from 18% to 45% based on income, ensuring a progressive tax structure. This tax haul highlights both the system’s popularity and its fiscal impact, though it has raised questions about the long-term effects on retirement savings.

2024-2025 Financial Year Revenue Overview

For the 2024-2025 financial year (1 April 2024 to 31 March 2025), SARS collected a net revenue of R1.855 trillion, surpassing Finance Minister Enoch Godongwana’s target of R1.846 trillion by R8.8 billion (0.5%). The gross revenue reached R2.302 trillion, with the net figure reflecting adjustments such as refunds. Key contributors included:

•   Personal Income Tax (PIT): R733.18 billion, making it the largest revenue source.
•   Financial Sector: Including intermediation, insurance, real estate, and business services, this sector contributed R686.568 billion.

Despite the strong performance, Kieswetter cautioned, “We are not declaring any victory. We have a long way to go. The funding challenges remain…” This reflects ongoing economic pressures, including load shedding and logistical constraints.

Historical Perspective and Economic Impact

The 2024-2025 financial year saw South Africa’s tax-to-GDP ratio rise to 24.8%, up from 20.2% in 1994-1995, signaling a significant improvement in tax collection relative to economic output over three decades. In comparison, SARS collected R1.7 trillion in net revenue during the 2023-2024 financial year, a 3.2% increase from the R54.2 billion recorded in 2022-2023. (Note: The query’s figure of R1.7 billion for 2023-2024 appears to be a typo; it is likely meant to be R1.7 trillion, aligning with annual revenue trends.) This steady growth underscores SARS’s efforts to enhance compliance and administration.

Implications and Debate

The R11.87 billion collected from two-pot withdrawals has sparked discussion about its broader implications. While the system offers immediate relief—particularly for middle-class families facing financial hardship—the high marginal tax rates on withdrawals (compared to lower rates on retirement lump sums) may reduce future retirement funds. Critics argue this could undermine long-term security, while supporters praise the system for preventing full cash-outs during crises, preserving a retirement nest egg. This tension between short-term benefits and long-term goals remains a focal point for tax and retirement policy debates.

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