Outstanding tax will not be deducted from withdrawals from the savings component if a taxpayer has reached a payment arrangement or a suspension-of-payment arrangement with the South African Revenue Service (SARS).
This is one of the issues clarified by SARS in its communication on withdrawals from the savings component. The savings component is one of the two new components to which retirement fund members’ contributions will be allocated from 1 September.
One-third of a member’s contributions will be allocated to the savings component, and two-thirds to the retirement component, which can be accessed only once a member reaches retirement age. The entire benefit in the retirement component must be used to buy an annuity.
A member can withdraw whatever is in the savings component once during the tax year, provided at least R2 000 is available to withdraw.
The savings component will be seeded with the lower of 10% or R30 000 of the value of a member’s accumulated retirement benefit as of 31 August. The seeding of the saving component is once-off. The member’s accumulated retirement benefit will be allocated to the vested component.
Members who want to make a withdrawal from their savings component must submit an application to their retirement fund. The fund’s administrator will verify that the member’s details on the application match those it has on record. If the information does not match, the application will be rejected.
Once the member has been successfully verified, and if he or she has at least R2 000 available in the savings component for withdrawal, the administrator will apply for a tax directive from SARS.
SARS will automatically reject applications for a tax directive if the member is not registered as a taxpayer, the revenue authority said in a webinar on 22 August.
SARS advises people who have not yet registered to pay tax to do so before they submit claims to withdraw money under the two-pot system. Retirement fund members can register for tax using the eFiling platform.
When a directive will not be issued
In addition to being registered taxpayers, members’ tax affairs must be in order, which means they must not have any outstanding tax returns, and they must not owe SARS any money.
To check whether your tax affairs are in order, log on to eFiling and click on the “statement of account” icon (the third of the five icons near the top right of the page). On the screen that comes up, opt to select a statement of account.
The statement of account will indicate whether there any outstanding returns, and if so, for which periods.
SARS will decline a fund’s request for a tax directive if a member has any outstanding returns.
The statement of account will also show whether any debt is owed to SARS. If SARS is owed money, the savings withdrawal may be used to settle that debt.
However, if a member has entered a payment arrangement with SARS, the withdrawal will not be affected; the debt will still be settled in terms of the arrangement. This is also the case if the member has entered a suspension-of-payment arrangement while negotiating with SARS to defer the payment of a debt.
Marginal tax rate
If a taxpayer is fully compliant, it will take up to 48 hours for SARS to issue the tax directive to the fund containing information about the member’s tax liability (how much tax should be deducted from the withdrawal), SARS said in a statement issued on Friday.
Pre-retirement withdrawals from the savings component – known as savings benefit withdrawals – will be taxed at the member’s marginal tax rate (the personal income tax brackets will apply).
In addition to tax, the fund administrator will deduct a fee for processing the withdrawal.
A member who makes a savings benefit withdrawal will typically be employed and, therefore, earning employment income. The withdrawal amount will be added to the employment income. The final tax rate will be determined by all income earned plus the amount withdrawn from the fund. There may be an under- or an over-deduction of tax. This will be settled in favour of SARS or the taxpayer when the member’s tax is assessed during tax filing season.
It is only savings benefit withdrawals that are taxed at a member’s marginal tax rate.
Members of pension or provident funds can make pre-retirement withdrawals from their vested component if they resign from their jobs. These withdrawals are taxed according to the withdrawal benefit table, where only the first R27 500 is tax-free.
Lump sums withdrawn from the savings component at retirement will be taxed using the retirement lump-sum benefits or severance benefits table. In this case, not only are the tax rates lower but up to R550 000 is tax-free.
The eFiling website has a lump-sum calculator (the first icon on the landing page) that calculates the tax on all lump sums, including the savings withdrawal benefit. All relevant and accurate information must be provided to obtain an estimate of the payout. SARS will be adding a calculator that will be specifically for the savings withdrawal benefit.
More information about the two-pot system
Moonstone has produced an animated video that explains the two-pot system in simple terms. The video provides a basic overview of why the two-pot system is being introduced, the purpose of the “pots”, and what the new system means for withdrawals before and at retirement.
The video is supported by three brochures that provide more in-depth information about the two-pot system.
The first brochure provides an overview of who will be affected by the new system.
The second brochure provides details about the three components or pots, the conditions attached to making withdrawals from each of these components before and at retirement, and transfers between components and funds.
The third brochure looks at how the two-pot system affects members of provident funds, particularly those who were 55 years or older on 1 March 2021 and have remained a member of the same provident fund.
I would like to do withdrawal from my two pots
I would like to withdraw from my vested poy
I would like to withdraw from my vested pot