By Phenyo Selinda
The South African Revenue Service (SARS) has announced that it received over 161,607 tax directive applications, amounting to R4.1 billion in savings withdrawal requests from the new two-pot retirement system. This marks a significant response to the system, which came into effect in early September 2024. The system allows pension fund members to access a portion of their retirement savings before reaching retirement age, offering financial flexibility for those facing emergencies.
According to SARS, the bulk of the applications—98.9%, or 159,853—related to savings withdrawal benefits, with an average of 17,964 tax directive applications being processed daily. The surge in demand reflects the eagerness of South Africans to make use of the system, which allows them to withdraw up to 10% of their savings, capped at R30,000, for urgent financial needs. These withdrawals, however, come with a tax liability at the individual’s marginal tax rate, unlike retirement fund contributions which are taxed at a reduced rate upon retirement.
Efficient Processing and Quick Turn-Around Time
SARS Commissioner Edward Kieswetter highlighted that the organisation is processing these tax directives with a turnaround time of less than 24 hours, without the need for human intervention. This is a significant improvement in efficiency, given the large volume of applications. Tax directives are submitted by fund administrators through eFiling, which calculates the tax to be withheld before the savings are paid out.
Applicants can access various channels for assistance, including SARS’s online query system and WhatsApp services. These tools also offer simulated tax calculations, helping taxpayers better understand the tax implications of their withdrawals.
Tax Considerations and Debt Settlement
Kieswetter explained that individuals with existing tax debts must account for this when withdrawing from the two-pot system. Any outstanding tax debt will be added to the amount payable from the withdrawal unless an arrangement is already in place for settling the debt. The tax directive process ensures that taxpayers are not caught off guard by additional tax obligations upon withdrawal.
While the two-pot system provides much-needed financial relief, Kieswetter advised taxpayers to carefully consider the tax implications before withdrawing funds. He also assured the public that SARS would continue to update taxpayers on the number of applications processed and the total amount withdrawn as the system evolves.
Applications Driving the Two-Pot Frenzy
SARS’s announcement follows a week of significant interest in the two-pot system. Retirement fund administrators, such as Alexander Forbes, have processed over 78,000 withdrawals worth more than R1.5 billion, with a substantial portion of the amount going directly to SARS as tax revenue. The system is proving popular among South Africans who are keen to access their savings in times of financial strain.
In addition to personal withdrawals, the system has been used for transfers related to divorce settlements and retirement fund relocations, further driving the high application volume. SARS is closely monitoring these trends and will provide regular updates as more applications are processed.
A New Era of Retirement Flexibility
The two-pot retirement system was introduced as a way to offer more flexibility to pension fund members, allowing them to access a portion of their savings without waiting until retirement. This approach is designed to offer a safety net for those experiencing financial challenges while keeping the bulk of retirement savings intact for later years.
With the system just over a week old, SARS expects the number of applications and withdrawals to continue growing. As more South Africans become familiar with the system, tax administrators and financial service providers are gearing up to handle the increased demand.
Future Updates from SARS
SARS has committed to providing periodic updates on the number of applications and the total amounts withdrawn. In addition, ongoing communication with taxpayers via multiple channels will ensure that the public stays informed about any changes or developments in the system.
The new two-pot retirement system represents a shift in how South Africans interact with their retirement savings, giving them more control while still ensuring the long-term sustainability of their funds. As more applications are processed and SARS continues its efficient handling of tax directives, it is clear that the system is set to become an integral part of the country’s financial landscape.
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