Two-pot retirement system: People taken aback by amount of tax – survey
Some pension fund members received R0 under the two-pot retirement system after their pension funds first repaid the tax they owed Sars.
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Pension fund members were taken aback by the amount of tax they had to pay when they accessed their retirement savings under the two-pot retirement system, calling the system unfair because the South African Revenue Service (Sars) took it all while they just got poorer.
They could access the savings pot of their retirement savings under the two-pot retirement system since it was implemented in September last year if they unexpectedly needed cash for financial relief due to emergencies or unplanned expenses, such as medical costs or education fees.
Various funds and fund managers, as well as Sars, warned pension fund members in advance that they would pay tax on their withdrawals. Sars also warned them in a statement in August that people who intend to withdraw from the savings pot of the two-pot retirement system must be registered for tax.
If you are not registered for tax, Sars rejects the request for a tax directive from your pension fund. Before a final amount is paid out, Sars informs the pension fund to also deduct any outstanding debt on behalf of Sars. If you have a debt arrangement with Sars, the withdrawal will not be affected. If you do owe Sars money for tax, it is deducted and paid over to Sars.
Once an application is sent to Sars to request a tax directive, it cannot be withdrawn when the applicant finds that there is an amount owing to Sars.
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Paying tax on two-pot retirement system withdrawals deterrent for withdrawals
The two-pot retirement system provides tax incentives for members to keep their savings in the retirement fund until the date of retirement, and tax disincentives for taking savings out of the retirement fund before retirement.
Vickie Lange, head of best practice at Alexforbes, warned last year that members who withdraw an amount from their savings pot before retirement will pay the marginal tax rate. However, if people wait until retirement to withdraw from the savings pot, the retirement tax table applies and the first R550 000 is taxed at 0% making it tax-free.
She pointed out that it would only be worthwhile for most members to withdraw from their savings pot in the event of an emergency and if they do not have access to savings elsewhere.
After the two-pot retirement system was implemented, various pension fund managers said that some pension fund members received R0 after tax was deducted. This happened to pension fund members after they applied for a withdrawal under the two-pot retirement system.
By 18 November Sanlam received 130 398 claims of which 1 731 were not paid out at all because Sars took the whole amount for arrears taxes. Members’ who withdrew at Sanlam had to pay a tax debt of R54.7 million.
ALSO READ: Two-pot retirement system: Billions paid out, but some get R0 after tax
Survey on two-pot retirement system shows members not happy with tax
In a recent survey conducted by JustMoney among consumers about the two-pot retirement system, several respondents said they were taken aback by the tax implications. Some noted that the process was “stressful as Sars took it all” and “this two-pot system is unfair… Sars takes most of it and we, the poor, get poorer”.
Johann van Tonder, economist and researcher at the Momentum Group, said in November that Sars changed its system to process tax differently at the end of September. From 1 September to the end of September Sars used the taxable income specified by the client to calculate the tax deduction and in many cases the claimants specified that it was R0.
“Consequently, no tax was deducted from the claim, but these claimants now have a tax debt at Sars which will have to be paid when they file their tax returns. Sars changed its process at the end of September to use the higher taxable income specified by the client in the claim process or the taxable income on Sars’ own records.”
Up to 7 November 2 973 (1.5% of all valid claims) of the 206 761 claimants at Momentum received R0 because they owed Sars money.
ALSO READ: Two-pot retirement system: You must be registered for tax to withdraw – Sars
Unions also not happy with workers having to pay tax on two-pot retirement system withdrawals
South African pension fund members and unions are not happy with the fact that pension fund members have to pay tax on their withdrawals under the two-pot retirement system.
The Congress of South African Trade Unions (Cosatu) said in a statement in September that it has now proposed to the National Treasury to reduce the tax burden on low- and middle-income workers, in particular when they access the savings component of the two-pot retirement system.
“Cosatu is deeply concerned that Sars is moving to deduct any tax arrears owed by workers from their pension funds. Workers are drowning in debt and should not be frustrated or disappointed by Sars raiding their long-sought relief to address the state’s fiscal pressures. “
Therefore, Cosatu wanted an urgent meeting with Treasury and Sars on a more sensitive and sympathetic approach for Sars to engage workers on the tax they may owe, its verification and a more humane payment plan that considers workers’ individual financial pressures as provided for under the law.
Sars said in November that it received a total of 2 153 942 tax directive applications under the two-pot retirement system with a total gross value of R35 052 572 876.62.
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