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The two-pot retirement system has now been in effect for two weeks, and pension fund administrators are inundated with claims from fund members who want to withdraw money from their savings pots.
According to the Financial Sector Conduct Authority (FSCA), it approved 794 rule amendments from pension funds by Wednesday 11 September, while 62 rule amendments must still be processed. This includes rule amendments where the FSCA is still waiting for funds to respond to queries. Only three funds have not yet submitted their rule amendments.
The FSCA says it noticed that retirement funds with electronic means of registering claims have been quicker to process claims. Another trend was that members with tax issues still submitted claims that cannot be processed until the tax issues have been resolved.
There are also thousands of pension fund members who will not be able to access their saving pots because their employers did not pay over their pension fund contributions. The FSCA says the latest updated list was published on 26 March, and it is preparing a list of employers who were defaulting by 31 December 2023 for publication by the end of the month.
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The FSCA again emphasised that it is a criminal offense if employers deduct pension fund contributions from employees’ salaries and not pay them over to the pension fund.
In terms of section 37(1)(a) of the Pension Funds Act, anyone who contravenes or fails to comply with section 13A is guilty of an offence and liable on conviction to a fine not exceeding R10 million or to imprisonment for a period not exceeding 10 years, or to both.
Boards of pension funds are required to lay criminal charges against employers who fail to pay over pension fund contributions, but the FSCA says it received reports from retirement funds that there are challenges when reporting cases to the police for investigation.
“We have held engagements with the relevant authorities and will continue to do so as we believe the prosecution of these cases will serve as a major deterrent to defaulting employers and safeguard the retirement fund contributions of members,” the FSCA says.
Meanwhile, Sars also reported that it received 161 607 tax directive applications for pension fund members who want to withdraw funds from their savings pots under the two-pot retirement system totalling R4.1 billion by Wednesday.
The number of applications includes cancelled directives, while 159 853 relate to savings withdrawal benefits, which is 98.9% of the total number of applications received between 1 and 10 September.
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Kelopile Wessie, tax expert at Deloitte Africa, says there are undoubtedly tax consequences associated with withdrawing from any of the pots. “Withdrawals from the savings pot are subject to tax at an individual’s marginal tax rate.
“As a basic example, if your monthly income is R20 000 and you withdraw R30 000 from your savings pot, your income will be deemed to be R50 000 during the month when the withdrawal is paid out and taxed according to the rates of a R50 000 monthly earner.”
On the other hand, Wessie says, withdrawals from the old pot are taxed according to the withdrawal tax table, while taxation of a lump sum withdrawal when you retire is taxed according to the retirement tax table.
These tax tables show how much tax you will pay
Individual tax rates
Withdrawal benefit tax table
Retirement fund lump sum
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Wessie says members of retirement funds are encouraged to exercise good judgment when they consider withdrawals from their retirement funds. “Your unique circumstances and personal retirement goals should influence whether you opt to withdraw from the savings pot or not, as there is no one size fits all application.”
In the case of one member, withdrawing from the savings pot might have detrimental long-term financial consequences regarding retirement, but another member’s decision to withdraw from the savings pot might have minimal effects on their financial goals, he says.
“It is, therefore, advisable for members to seek professional financial advice to make an informed decision.”
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