5 things to know before withdrawing your savings under the two-pot system

In this article, we provide 5 key considerations fund members must be aware of before making a withdrawal. File photo.

In this article, we provide 5 key considerations fund members must be aware of before making a withdrawal. File photo.

Published Jun 11, 2024


By: John Paul Fraser

While experts continue to debate the merits of the two-pot system, it has been almost a week since it was signed into law. The reality is that as from September 1, 2024, many South Africans will start withdrawing from their savings pot under the new system.

In this article, we provide 5 key considerations fund members must be aware of before making a withdrawal.

1. Seed capital and withdrawal limits

On August 31, 10% of the value of your retirement fund, or R30 000, whichever is lower, will be allocated to your savings pot. The initial allocation of funds has been termed “seeding capital”. The seeding capital allocation is a one-off transfer at the commencement of the two-pot system and will not be repeated in the following years.

The savings pot will be accessible at any time to a fund member, with only one withdrawal permitted in a tax year. There is no maximum withdrawal amount set for fund members looking to withdraw from their savings pot but it must be a minimum of R2 000.

2. Sars has the first right to your savings pot withdrawals

Fund members need to be aware that before any payment will be released, the fund administrator will need to apply to the SA Revenue Service (Sars) for a tax directive. Where the taxpayer has an outstanding tax debt with Sars, the fund administrator will be issued with a notice to pay the debt from the withdrawal amount first and then pay the taxpayer the balance.

3. Annual withdrawals are not limited to a single policy per tax year

Another dimension of the savings pot is that a fund member is permitted to make one annual withdrawal per policy. This incentivises the concept of having a more diverse policy portfolio.

An example of this scenario is where an individual is contributing to three policies, the fund member will be eligible to make an annual withdrawal from each respective policy. A fund member will be limited to the amount held in their savings pot at the time of withdrawal.

4. Tax on savings

A withdrawal from a fund member’s savings pot will be subject to tax at the fund member’s marginal tax rate. This means that any withdrawal will be taxed in the same manner as a salary or other similar income.

The tax on the withdrawals will be withheld by the respective fund administrator and paid to Sars.

5. No resignation required

Fund members must be aware that the new system has limited their right to withdraw from their 2/3 retirement pot. Previously, fund members were permitted to access their total lump sum amount under their retirement policy upon a resignation. The new two-pot system thus implements a lock-in of the retirement pot until a fund member reaches retirement.

The takeaway for fund members

We can expect to see fund administrators send out communications to their members on how savings withdrawal claims will be processed.

We urge fund members to consider the practical implications relating to their withdrawals from their savings pot, most importantly, the tax implications. An impulsive withdrawal without understanding the implications could lead to far more harm than the relief afforded by accessing the funds.

* Fraser is a tax attorney at Tax Consulting SA.