By Phenyo Selinda
Johannesburg – As the much-anticipated Two-Pot Retirement System becomes operational on 1 September 2024, the South African Revenue Service (SARS) has issued a crucial reminder to all potential withdrawal applicants: tax compliance is non-negotiable. The new system, which allows pension fund members to access a portion of their retirement savings before reaching retirement age, has sparked significant interest. However, SARS warns that those looking to make early withdrawals must be registered for tax, or their requests will be denied.
The Two-Pot System Explained
The Two-Pot Retirement System, a reform introduced to offer South Africans greater flexibility in managing their retirement savings, divides contributions made after 1 March 2024 into two distinct “pots.” One-third of the contributions are allocated to the “savings pot,” which members can access annually under strict conditions, while the remaining two-thirds are preserved until retirement.
Under the new system, any withdrawal made before retirement will be taxed at the individual’s marginal tax rate. SARS has provided examples to illustrate the potential tax implications. For instance, a withdrawal of R25,000 for someone earning R360,000 annually would result in a post-tax amount of R17,275, while the same withdrawal for someone earning R380,000 would result in R16,750 after tax.
Registration and Compliance: A Prerequisite for Withdrawal
SARS has made it clear that all individuals intending to make withdrawals from their savings pot must be registered for tax. The tax authority has emphasized that any request for a tax directive sent from a fund to SARS will be rejected if the individual is not registered. Additionally, taxpayers must ensure that they have no outstanding tax returns or debts. Any existing debt will be deducted from the withdrawal amount before the funds are disbursed.
SARS has provided several digital and mobile channels for taxpayers to register or check their tax compliance status, including the SARS eFiling platform, the SARS MobiApp, and the SARS Online Query System (SOQS). For those already registered, these platforms can also be used to verify tax reference numbers and submit applications for tax directives.
Finance Deputy Minister’s Appeal for Responsible Use of Retirement Savings
In light of the new system, Finance Deputy Minister David Masondo has urged South Africans to exercise caution and responsibility when considering early withdrawals from their retirement savings. He highlighted the importance of preserving retirement funds to ensure financial security in later years, warning against the temptation to deplete savings prematurely.
The Deputy Minister’s appeal aligns with the broader government initiative to promote financial literacy and responsible financial planning among South Africans. He emphasized that while the Two-Pot System offers increased flexibility, it should not be viewed as an opportunity for unnecessary withdrawals that could jeopardize long-term financial well-being.
SARS’s Preparedness and Support for Pension Fund Members
SARS has assured the public that it is well-prepared for the implementation of the Two-Pot System. The tax authority has conducted extensive trade testing with fund administrators to ensure a seamless process once the system goes live. Fund administrators are encouraged to utilize the remaining time before the system’s launch to finalize any necessary preparations.
Moreover, SARS has made a tax calculator available on its website to help pension fund members estimate the potential payout from a withdrawal, taking into account the tax implications. The calculator is designed to provide an illustrative amount based on accurate information provided by the user.
Digital Channels and Support for Taxpayers
To avoid unnecessary visits to SARS branches, the tax authority has bolstered its digital and mobile support channels. These include WhatsApp, SMS, and USSD options that allow taxpayers to resolve queries and manage their tax affairs remotely. SARS has reiterated that these channels are efficient and user-friendly, enabling pension fund members to manage their tax compliance without the need for in-person assistance.
As the countdown to the Two-Pot Retirement System’s launch continues, both SARS and the National Treasury are committed to ensuring that South Africans are well-informed and prepared to navigate the new landscape of retirement savings. The success of this system, they emphasize, hinges on the public’s adherence to tax regulations and a responsible approach to financial planning.
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