As the 1 September deadline (when the two-pot retirement reform goes live) draws closer, much consumer education needs to be done.
A lot of the focus has been on how much you will be able to withdraw and how often, how much tax you will pay and how it will all work practically.
However, a more pressing point that many are missing is the ultimate effect any withdrawals will have on your retirement savings.
Although it has widely been reported that it will affect your retirement, seeing the actual numbers is far more impactful.
Jaya Leibowitz, manager of retail legal at Allan Gray, points out that any withdrawals you make are included in your gross income for that year, which means it could push you into a higher tax bracket. She provided the following example:
Sally is a 35-year-old full-time employee with a taxable income of R370,000. Based on the 2024/25 income tax table, her tax liability will amount to R59,997 (R42,678 + 26% of the amount above R237,100 – primary rebate of R17,235).
If Sally decides to access a savings withdrawal benefit of R25,000, she will be pushed into a higher tax bracket and will be liable for tax of R67,722 (R77,362 + 31% of the amount above R370,500 – primary rebate of R17,235).
Pieter Koekemoer, head of personal investments at Coronation, says every R1 you withdraw early at the age of 35 could equate to as much as R30 at retirement 30 years later.
Leibowitz spells this out with another clear example of the withdrawal impact:
Sally plans to retire at 65, but withdraws R50,000 at the age of 35. If you assume her retirement savings were earning returns of 10% a year for 30 years, she would be losing up to R870,000 that could have been used to provide her with an income in retirement.
Fund members who have more than one retirement savings product will be able to make withdrawals from each product. For example, if you have a pension fund via your employer and a retirement annuity, you could withdraw up to R30,000 from each fund on 2 September – provided you have at least R300,000 in each fund. While this might seem like a bonus to cash-strapped fund members looking to access money, Guy Chennells, chief commercial officer at Discovery Corporate & Employee Benefits, cautions that this means you will pay marginal tax and administration costs on each withdrawal.
Fiona Rollason, group head of legal and insurance at Alexforbes, adds that there is no “use it or lose it” provision, so members should not feel compelled to make annual withdrawals. “In the first year, with the seeding amount, there is a maximum withdrawal of R30,000 provided you have at least R300,000 in your retirement savings. However, this amount will roll over and as you contribute, the money in your savings pot will accrue,” she says. After the first year, there is no maximum limit to what you can withdraw from your savings pot – you will be able to withdraw the full amount in your savings pot if you want to.
Tax implications
Retirement funds have to apply to the South African Revenue Service (SARS) for a tax directive when a withdrawal is about to be made under the two-pot reforms. In addition to being taxed on the withdrawal at your marginal rate of tax, SARS has indicated that it will issue IT88 notices for arrears tax. So, if a fund member owes SARS money and attempts to make a withdrawal from their savings pot, they will pay the following costs:
- the arrears they owe SARS will be deducted;
- they will be taxed at their marginal rate; and
- the administration fee, which the Institute of Retirement Funds Southern Africa has indicated can range from R300 to R600.
Two-pot withdrawal calculators
There are at least two calculators you can use to calculate the financial implications of any withdrawals you make – from tax costs to the implications for your long-term retirement savings.
Discovery Corporate and Employee Benefits has this nifty calculator which allows you to enter your own annual remuneration figures, including what your monthly contribution to your retirement fund is … and then it calculates your personal taxation should you wish to make a withdrawal once the new two-pot system kicks in on 1 September.
Inn8, which is part of Liberty, has a similar calculator here, which also shows you the impact of a withdrawal on your retirement savings and how much longer you would have to work to make up the difference. DM