Two-pot retirement system: You must be registered for tax to withdraw – Sars

Pension fund members who want to withdraw funds from their savings pot under the two-pot retirement system will have to be registered for tax. If you are not registered for tax, you will have to register with Sars first.

Sars says in a statement that people who intend to withdraw from the savings pot of the two-pot retirement system from 1 September must be registered for tax. If you are not registered for tax, Sars will reject the request for a tax directive from your pension fund.

“Your contributions to your retirement fund are not taxed. Therefore, the tax will be deducted from any amount you withdraw under the two-pot retirement system. Tax will be calculated at the tax rate applicable to you as an individual,” Sars says.

In addition, Sars warns that taxpayers must also ensure that they have no outstanding returns and do not owe the tax man any money, as any debt owed to Sars will first be deducted from the withdrawal amount.

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This is how you can register with Sars

Taxpayers are not required to go to a Sars office, as most applications are available on one of Sars’s digital or mobile channels.

You can register for tax using the eFiling channel at www.sarsefiling.co.za or the Sars MobiApp. You can also use the Sars Online Query System (SOQS) on the Sars website (www.sars.gov.za) to register for Personal Income Tax.

Sars also set up these mobile phone channels to help pension fund members:

• WhatsApp: save the Sars WhatsApp number, 0800 11 7277, on your contact list. To begin your query, type in “Hi” or “Hello”.
• SMS number 47277 or USSD code *134*7277#

Sars says if you are already registered, you can use the SOQS to check your tax reference number. A fund administrator can only apply for a tax directive once a member has made a final decision to make a withdrawal.

“After a registered taxpayer has applied, 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).”

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Sars will tell your fund how much tax to deduct

 Sars points out that before a final amount is paid to you, the pension fund will be informed to also deduct any outstanding debt on behalf of Sars before any payout is made. However, if you have a debt arrangement with Sars, the withdrawal will not be affected. If there is a debt owed to Sars, it will be deducted in terms of this arrangement.

Sars is encouraging fund administrators to trade tests with it to ensure that the process is seamless once everything starts. The opportunity to do this is still available until 30 August 2024.

A tax calculator is available on eFiling and the Sars website to assist pension fund members with an illustrative amount of what they can possibly expect as a payout. All relevant and accurate information must be provided to get a clear estimate of the payout, Sars says.

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Tax implications for people earning less than the tax threshold

The tax implications for pension fund members who earn below the tax threshold and then make a withdrawal from the savings pot will only be finalised during the annual filing season when taxable income will be determined, taxed at 18%.

“A member making a two-pot withdrawal will typically be employed and therefore earning employment income, which may or may not be above the tax threshold, depending on the outcome of the withdrawal. The sum you withdraw is added to your employment income.”

Sars says 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 retirement system withdrawal will be settled in favour of the taxpayer or Sars on assessment during the annual filing season.

“If you choose not to withdraw from your savings pot before retirement, the remaining funds will be taxed as a lump sum benefit upon retirement. These tax rates are generally lower than the marginal tax rates applied to withdrawals before retirement.”