Multiple claimants state that the Two-Pot System caused them to lose everything due to Sars.
A significant number of retirement fund members in South Africa who chose to withdraw funds from their savings under the two-pot retirement system were surprised by the tax consequences, as revealed by a survey conducted by the personal finance platform JustMoney.
The respondents expressed that the taxes imposed felt “unjust” because the South African Revenue Service (Sars) appeared to “take everything.”
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Read: No tax registration, no two-pot withdrawal – Sars
Despite widespread awareness efforts through media and communications from retirement funds, many members seemed to lack a full understanding of the taxes they would incur upon withdrawing their funds.
Prior to the introduction of the two-pot system on 1 September 2024, members were cautioned that withdrawing from the savings pot would be “an expensive way” to access money, as these withdrawals would be taxed at a significantly higher marginal tax rate.
Read:
Two-pot payouts top R21bn – Sars
Two-pot: Retirement withdrawals explained
Eye-watering taxes await those who withdraw funds under two-pot
There is a notable contrast between the marginal tax rate applied to the two-pot system and the earlier tax rate associated with early withdrawals of retirement funds.
The marginal tax rate is ‘progressive’
During discussions in parliament and among stakeholders before the two-pot system was enacted, the higher marginal tax rate was criticized, particularly by the Congress of South African Trade Unions (Cosatu), which argued for the continuation of the previous tax tables.
However, the National Treasury defended its choice to adopt the marginal tax rate, asserting it was not intended as a “revenue raising” initiative for the government but rather “progressive,” as it benefits low or no-income fund members.
For example, under the old system, withdrawals from retirement savings exceeding R27,500 were taxed at a minimum rate of 18%, irrespective of the fund member’s income.
In contrast, under the two-pot system, the withdrawal amount from a member’s savings component becomes part of their overall income.
This structure means that individuals with little or no income face no tax on their withdrawals, while those with higher incomes incur higher tax rates due to their earnings.
The tax revenue generated from the two-pot system is expected to surpass earlier projections of R5 billion. In October, during the Medium-Term Budget Policy Statement, Sars confirmed that R7.2 billion had already been collected in tax payments. This represents a beneficial gain for the government.
In addition to this influx, Sars is also recouping outstanding taxes from two-pot claimants, leading to situations where fund members receive very little, or nothing, after making withdrawal requests.
Withdrawal process
Nearly 80% of South Africans who took part in the JustMoney survey indicated they withdrew funds from their savings components to pay off debt.
The survey results released at the beginning of December highlighted distressed consumers: 24% rated their financial situation as “poor,” 43% as “average,” and only 11% as “excellent.”
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