Persons who intend to withdraw from the savings pot of the Two-Pot Retirement System from 1 September 2024 must be registered for tax. Those who are not registered must register before they apply to their relevant fund. If a person is not registered for tax, the request for a tax directive sent from the fund to Sars will be rejected.

Contributions to retirement funds are not taxed. Therefore, tax will be deducted from any amount withdrawn. Tax will be calculated at the tax rate applicable to the individual.

Taxpayers must also ensure that they have no outstanding returns and do not owe Sars. Debt owed to Sars will be deducted from the withdrawal amount.

Taxpayers are not required to go to a Sars office, as most applications are available on one of Sars’ digital or mobile channels.

Pension fund members can register for tax using the eFiling channel at www.sarsefiling.co.za or the Sars MobiApp. They can also use the Sars Online Query System (SOQS) on the Sars website (www.sars.gov.za) to register for Personal Income Tax. If they are already registered, they can use the SOQS to check their tax reference number. An application for a tax directive by a fund administrator can only be made once a member has made a final decision to make a withdrawal.

After a registered taxpayer has applied, the pension fund will apply to Sars for a tax directive. The successful directive informs the fund how much tax to deduct from a withdrawal. If a taxpayer is fully compliant, it will take up to 48 hours for Sars to issue the tax directive to the pension fund containing information about the tax liability of the pension fund member (how much tax should be deducted from the withdrawal).

Before a final amount is paid to the applicant, the pension fund will be informed to also deduct any outstanding debt on behalf of Sars before any payout is made to the member. If a person has a debt arrangement with Sars, the withdrawal will not be affected. If there is a debt owed to SARS, it will be deducted in terms of such arrangement.

The Fund Administrators are encouraged to trade test with Sars, so that the process can be seamless once everything starts. The opportunity is still available until 30 August 2024.

A tax calculator is available on eFiling and the Sars website (www.sars.gov.za) to assist pension fund members with an illustrative amount of what they can possibly expect as a payout. All relevant and accurate information must be provided to get a clear estimate of the payout.

The tax implications for pension fund members who earn below the tax threshold and then make a withdrawal from the savings pot will only be finalised during the annual Filing Season when taxable income will be determined, taxed at 18%.

A member making a two-pot withdrawal will typically be in employment and, therefore, earning employment income, which may or may not be above the tax threshold, depending on the outcome of the withdrawal — the sum to be added to the employment income.

The guiding principle on the amount of tax payable is that all amounts earned or withdrawn from the fund will determine the final tax rate. Any under or over deduction of tax from a two-pot withdrawal will be settled in favour of the taxpayer or Sars on assessment during the annual Filing Season.

If a member chooses not to withdraw from their savings pot before retirement, the remaining funds will be taxed as a lump sum benefit upon retirement. These tax rates are generally lower than the marginal tax rates applied to withdrawals before retirement.

PERSONAL FINANCE