Taxpayers who owe money to the revenue service must expect that these debts could be settled from the withdrawals, leading to a lower payout
Until now, the only way a person could dip into their retirement annuity fund was if they lost their job, got divorced or actually retired. However, from 1 September, investors will be able to draw up to R30 000 from their retirement savings, although they will incur taxes.
The Association for Savings and Investment South Africa held a briefing last week to explain the so-called “two-pot system” which will come into effect after President Cyril Ramaphosa signed the Pension Funds Amendment Bill into law, allowing members to withdraw a part of their pension savings before retirement.
From 1 September, contributions to retirement annuity funds will be divided into two “pots”,
one containing a third of the savings, which can be drawn before retirement, and a second preserving two-thirds of the money which can only be tapped into after retirement.
The first pot can be drawn on once every tax year and is liable for tax.
All retirement fund members will automatically become part of the two-pot system, with the exception of legacy retirement annuity members and members of provident or preservation funds who were 55 years or older on 1 March 2021.
Under the new system, 10%, and up to a maximum of R30 000, of the existing retirement savings will be moved into the new savings pot, the association’s senior policy adviser Adri Messerschmidt said.
“This is a once-off event aimed at giving retirement fund members the opportunity to withdraw some money, should they find themselves in great financial difficulty,” she said.
Withdrawing money from the first pot of the retirement fund is considered income and so tax will have to be paid to the South African Revenue Service (Sars), Messerschmidt said.
She warned taxpayers who owe money to Sars, penalties or interest on outstanding tax that these debts may be settled from such withdrawals from retirement funds and that this “may mean a much lower payout than expected”.
“You cannot change your mind once you see the tax implications of your withdrawal request. It is also important to note that savings-pot withdrawals may attract an administration fee to be determined by your fund’s administrator,” she added.
The balance in the savings pot must be R2 000 or more before a withdrawal can be made.
“This will not be an automatic process and retirement fund members will not receive an automatic deposit into their bank accounts. The fact that the money is available for withdrawal in the savings pot does not mean it will automatically be paid out. Qualifying retirement fund members must submit an application form,” Messerschmidt said.
“Any money withdrawn before retirement will not only cost you in taxes and fees but will also reduce the money available to you when you retire.”
The system aims to improve retirement outcomes while providing some access to a savings component in case of severe financial stress, Allan Gray’s head of assurance Richard Carter said in a statement.
But he cautioned: “It should not be viewed as a slush fund for consumption. Depleting it annually equates to using up one-third of your retirement investment. Not electing to withdraw, but rather choosing to stay the course for the long term, will result in better retirement outcomes.”
In the past, financially stressed people have gone as far as to resign from their jobs so they could access their pension funds, only to become a burden to the state, and reliant on social assistance, in their old age.
Finance Minister Enoch Godongwana announced in February that the grant for the elderly would increase by R100 to R2 180. A University of Cape Town report says this allowance is still not sufficient to meet the needs of this population group.