Take-home message: The Two-pot retirement system came into effect in September. From now on 1/3 of your retirement contribution will go into a savings pot and 2/3 into a retirement pot. Amidst all the changes one thing remains the same: The best thing to do for your future self is to save your full fund credit until you retire.
The government wants you to save all your retirement savings (fund credit) until you retire. They “reward” you with tax benefits if you do this.
So what is this “reward”? At retirement, all retirement fund members can withdraw a lump sum up to a maximum of a third of their fund credit. If you never withdrew before retirement up to R550 000 of this lump sum is tax-free.
The government also heavily taxes early withdrawals from your pots to incentivize you to wait until retirement.
How will I be taxed if I withdraw from my vested pot before retirement?
All your accumulated fund credit as on 31 August 2024 are now kept in the vested pot. You will still have full access to the vested pot upon resignation. Any lump sum cash amounts withdrawn from your vested pot before retirement will be combined and taxed according to Withdrawal Tax Table A. These withdrawals will gradually reduce the tax-free R550 000 amount.
How will I be taxed if I withdraw from my savings pot?
If you’re a South African taxpayer and contribute to a retirement, pension, provident, or annuity fund, the government gives you a tax break each year (up to certain limits). You can deduct up to 27.5% of your yearly taxable income or R350 000—whichever is lower—from your taxes.
However, if you withdraw money from your savings pot, the amount you take out will be taxed like your regular monthly salary, according to Tax Table C (shown below). This withdrawal will be added to your yearly income, and you’ll be taxed on it. Essentially, it cancels out the tax break you received for your retirement contributions.
Also, remember that your tax affairs must be in order. If you have any outstanding tax returns, SARS will instruct the administrator to deduct the tax debt from the two-pot withdrawal.
Ata wants to know…
I earn R15 000 a month. How much tax will I pay on my savings withdrawal benefit?
If you earn R15 000 a month, your annual taxable income is R180 000 which means you fall into the 18% tax rate category. For example, on a savings withdrawal benefit of R2500, you will only receive R2050 as R450 (18%) will go to SARS.
However, you will probably only receive about R1800 in your bank account as fund administrators will charge an average admin fee of R250 per withdrawal.
How much can I withdraw from my savings pot?
A minimum of R2 000 or more can be withdrawn from this pot once a tax year, from 1 March to 28 February. There is no limit on how much you can withdraw.
Nomnikelo explains….
Red alert! Depending on how much you withdraw from your savings pot you may end with a higher rate at the end of the tax year (28 February).
For example, Aliyah earns R19 000 a month. Her yearly salary is R228 000. So, she falls into the 18% category. However, she takes a savings withdrawal benefit from her savings pot of R20 000 which changes her yearly income to R248 000 and pushes her into the 26% category. That means she pays 18% on the R9 100 “under” the R237 100 threshold and 26% on the R10 900 “above” the threshold.
R1 638 (18%) + R2 834 (26%) = total tax of R4 472
So, she will only receive R15 528 – (R250 admin fee) in her bank account.
How will I be taxed if I withdraw at retirement?
All lump sum cash amounts taken from the vested pot will be added and taxed as per the Retirement Tax Table B. This applies to lump sum retirement, death, disability and retrenchment benefits taken in cash. If you never withdrew, you will receive the first R550 000 tax-free. (The below tax rates are a once-off over all the money paid out of your retirement fund).
The tax tables in this article are for the 2024/2025 tax year. They are usually adjusted each tax year. Visit Rates of Tax for Individuals for the latest tax tables.
Further reading
Retirement savings – Take a tax break!
Two-pot Retirement System: All your questions answered