By Liesl Peyper.

Members of pension funds who intend to withdraw money from their savings component once the two-pot system takes effect, must be registered to pay tax.

That’s the warning from the South African Revenue Service (Sars).

In a media statement issued on Friday afternoon, Sars advised people who have not yet registered to pay tax to do so before they submit claims to their pension funds to withdraw money under the two-pot system.

“If a person is not registered for tax, the request for a tax directive sent from the fund to Sars will be rejected,” it notes.

Claims process

The two-pot retirement reform takes effect on 1 September 2024 whereby retirement fund members’ contributions are divided into a savings component – accessible once a tax year; and a retirement component.

For existing retirement fund members, there is also a third component – the vested component – containing the fund member’s contributions up to 31 August 2024.

The savings component will be initially seeded with the lower of 10% of the value of the retirement fund or R30 000 as of 31 August. From there on, two thirds of any new retirement savings will be preserved in the retirement component, which can only be accessed once a member reaches retirement age.

Before a pension fund member can submit a withdrawal claim, the fund administrator needs to calculate the seeding amount in the savings pot. Only once the seeding calculation is done and the available amount in the savings pot is confirmed can retirement fund members start submitting claims.

After receiving the claim, the fund administrator then needs to validate the claimant’s identity and other details. After these verifications, the fund administrator can submit a request to Sars for a tax directive.

All withdrawals from the savings pot will be taxed at a fund member’s marginal tax rate, which is significantly higher than the existing tax rate for early retirement fund withdrawals.

Money owed to Sars

Pension fund members should take note that Sars could stipulate that additional money be deducted in cases where members have outstanding tax bills.

“Taxpayers must ensure that they have no outstanding returns and do not owe money to Sars. Debt owed to Sars will be deducted from the withdrawal amount,” it pointed out.

Sars advises pension fund members who have not yet registered for tax to do so through the eFiling channel or the Sars MobiApp.

After a registered taxpayer has applied for a withdrawal from the savings pot, 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],” noted Sars.

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.

If a person has a debt arrangement with Sars, the withdrawal will not be affected.

Pension fund administrators should “trade test” with Sars to make sure the claim and tax directive process are seamless. “The opportunity is still available until 30 August 2024, “says Sars.

In addition, a tax calculator is available on eFiling and the Sars website to assist pension fund members with an illustrative amount of what they can expect as a payout.

All relevant and accurate information must be provided to get a clear estimate of the payout.

According to Sars, 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.”