“The two-pot system is meant to support long-term
retirement savings while offering flexibility to help fund
members in financial distress.” (National Treasury)

With two new pots added to what used to be the one-pot South African retirement system, fund members can now access a portion of their retirement savings before retirement, while still preserving savings for retirement. There are, however, immediate and long-term tax and other implications that should be carefully considered!

Tax and other issues

Withdrawing from any of the pots should be approached with caution. In addition to the fees that will be charged,
and the potentially devastating impact on your eventual retirement savings, there are also tax implications that
must be carefully considered.

• It’s significantly more expensive from a tax perspective to withdraw retirement funds before retirement
  age (normally 55), because the Withdrawal Benefit Tax Table or Individual’s Tax Table will apply. Instead,
  waiting until retirement to access savings – when the Retirement Fund Lump Sum Benefits or Severance
  Benefits Tax Table applies – is a far better tax option.
• Up to R550,000 drawn as a cash lump sum at retirement may be tax free. However, this R550,000 is acumulative withdrawal total over your lifetime. That means this tax benefit could be eroded by pre-retirement withdrawals.
• Transfers from the Vested and Savings pots into the Retirement pot are also tax-free.
• Employer contributions are still treated as taxable fringe benefits.
• Early withdrawals from your Savings pot are considered income and are subject to income tax as per the
  tax directive the fund manager will request from SARS. What’s more, any outstanding taxes you owe SARS will automatically be deducted if you make a withdrawal.
• Depending on your annual income and the amount withdrawn, a pre-retirement withdrawal from your
  Savings pot – taxed at your individual marginal tax rate – could also push you into a higher tax bracket. This would mean paying more tax on all your income for the year. Here’s an example of the potential impact of withdrawing R80,000 from your Savings pot. Waiting until retirement age to withdraw the same amount could be tax-free.

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