Government’s R5 billion retirement tax boost

The government is set to get a R5 billion boost in tax revenue when the country’s new two-pot retirement system kicks in, as many South Africans are expected to access their retirement savings.

At the start of June this year, President Cyril Ramaphosa signed the Revenue Laws Amendment Bill into law.

This legislation establishes the “two-pot” retirement system, which allows members of retirement funds to access a portion of their retirement savings while keeping the rest locked away for retirement.

Simply put, the new two-pot retirement system changes how your retirement savings are managed – instead of one big pot, your contributions will be split into two. 

One-third goes into a more accessible savings pot you can tap into once a year for emergencies. This pot gets an initial boost from a portion of your existing savings. 

The remaining two-thirds go into a retirement pot locked away until you retire, ensuring you have a bigger nest egg for your golden years. 

This system is designed to promote long-term savings while offering some flexibility to handle unexpected situations.

However, many asset managers have warned that South Africans should consider the tax implications of withdrawing from their savings pot.

Allan Gray’s Jaya Leibowitz explained that, under the new legislation, a savings withdrawal benefit will be included in the member’s gross income for the tax year in which it was accessed. 

This means that the amount withdrawn will be taxed at the member’s marginal tax rate. 

If you are unemployed and have no income in the year of the withdrawal, you would be able to withdraw up to R95,750 from your savings component tax-free.

The maximum amount available for a savings withdrawal benefit will be the amount accumulated in the savings component at the withdrawal date. 

However, if you are earning, it is important to understand that because the withdrawal amount is included in gross income, it could push you into a higher tax bracket. 

“This tax treatment aims to discourage individuals from accessing a savings withdrawal benefit when they have other sources of income and don’t really need to dip into their retirement fund savings,” Leibowitz explained.

Source: Allan Gray

For example, Sally is a 35-year-old full-time employee with a taxable income of R370,000. Based on the 2024/2025 income tax table, her tax liability will amount to R59,997. 

If Sally decides to access a savings withdrawal benefit of R25,000, she will be pushed into a higher tax bracket and liable for a tax of R67,722. 

Therefore, depending on how many people decide to cash in on their retirement savings, the South African Revenue Service could see a significant boost in tax revenue when the new system kicks in.

Sanlam’s Benchmark research has shown that almost 60% of South Africans said they would access funds from their two-pot savings component when the new system kicks in in September this year.

Research indicates that rising financial pressures on consumers have led 50% of respondents to cash in all their retirement funds. This marks a regression from the 35% who did so in 2023. 

Investec chief economist Annabel Bishop has also said that the release of retirement savings under the two-pot retirement reform could add around R40 billion to consumer income if fully utilised and taxed similarly.

In the February 2024 Budget, the National Treasury said that South Africans withdrawing funds from their retirement savings under the new system would lead to an estimated R5 billion in tax revenue in 2024/25 due to tax collected as fund members access once-off withdrawals. 

“The two-pot system ensures that we strike a balance between preserving contributions to safeguard a better retirement for members while addressing the plight of the people to access some of their retirement funds to help ease their financial burdens in times of distress,” Finance Minister Enoch Godongwana said.


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