Two-pot withdrawals? Make sure you don’t owe Sars any money

Are you planning to withdraw some of your pension fund savings when the two-pot system comes into effect next month?

Be sure you have no outstanding tax returns and that you don’t owe Sars any money.

This is according to the revenue service, which has warned pension and retirement fund members who want to withdraw from their savings to ensure they have their tax matters in order.

“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),” said Sars in a statement.

Before a final amount is paid to the applicant, the pension fund will be informed to deduct any outstanding debt on behalf of Sars.

“If a person has 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 such arrangement.”

Those not registered for tax are urged to register before 30 August or their request for a tax directive sent from the fund to Sars will be rejected.

How tax will be deducted

While there has been conflicting information relating to the amount of tax individuals will have to pay for making withdrawals, Sars says tax will be calculated at the rate applicable to the individual.

“Contributions to retirement funds are not taxed. Therefore, the tax will be deducted from any amount withdrawn.

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

For those who choose not to make withdrawals, 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,” said the revenue service.

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