Momentum, which offers retirement solutions at its five businesses, says most people are opting not to cash out their “two-pot” system payout after they realise the tax implications.
“Many enquiring applicants decided to not apply following the use of calculators and advisers, which indicated a large personal income tax amount they would have had to pay,” said Anneke Hanekom, head of reputation management and group CEO of projects at Momentum.
“We have reminded clients that before they withdraw money from their savings, they should consider the costs, tax implications and long-term impact on their retirement savings,” she said.
“The 40 to 49-year age group still dominates the applications (just more than 40% by 9 September). However, the 30 to 39-year age group is increasing in comparative terms. Note, the change in trend as more and more people apply — the 30 to 39-year age group is increasing compared to the 40 to 49-year age group.”
Momentum, which owns Metropolitan, said applications approached 31,000 by the close of business on Monday. The two-pot system went live on September 1.
Metropolitan said clients’ SA Revenue Service directives had revealed that the average tax rate for withdrawals was 36%, indicating that those applying for access to their funds fell into the R40,000 middle-income category, “rather than the lower income bracket as predicted”.
SA’s largest retirement fund administrator, Alexforbes, said the first week of the new retirement regime attracted 78,000 claims — equivalent to the number of claims the company processed over six months before the new legislation.
It said the total value of claims being processed stands at R1.5bn, and of this about R270m would be paid in taxes.
“The initial number and value of claims have far exceeded expectations, landing at the upper end of our forecasts,” Alexforbes said.
“We anticipate that at this rate we can expect a positive impact of between 0.3% and 0.7% in GDP this year as set out in recent research published by the South African Reserve Bank.”
President Cyril Ramaphosa signed the Revenue Laws Amendment Bill of 2023 into law in June, establishing a two-pot system that gives retirement fund members access to retirement savings without having to resign or cash out their entire pension funds.
The Bank’s moderate withdrawal scenario assumes withdrawals of R40bn this year. In this scenario, the Bank expects tax-adjusted household disposable income to be boosted by R31.5bn in the fourth quarter, R15.8bn in 2025 and by R16.6bn in 2026.
The Bank also expects the government tax revenue will benefit from these withdrawals, with revenues rising by 0.3% of GDP in 2025 and by 0.2% in 2026.
From this month, all amounts saved in a retirement fund will be split into a savings component and a retirement component, with a third automatically going into the savings component.
The initial amount in the savings component will be 10% of the amount saved in the vested component, up to a maximum of R30,000, while the minimum withdrawal amount is R2,000.
Sars said it had to date received more than 161,607 tax directive applications, with gross amount of the lump sums for the applications received totalling R4.1bn so far.
Sars commissioner Edward Kieswetter said when individuals withdrew funds they would be taxed at their marginal tax rate.
“Taxpayers who owe Sars money must realise that this tax debt will be added to the tax on withdrawal from the savings benefit. But if there are payment arrangements in place to settle the debt with Sars, this debt will be deducted as per agreement between Sars and the taxpayer. A tax debt that has been deferred will also not be deducted,” he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.