Sars says withdrawals from the savings pot have already injected over R11bn in taxes into the fiscus.

Members of retirement funds who lose their jobs may in the future be allowed to access funds from their retirement portion under the two-pot system.  This was proposed in National Treasury’s draft Budget Review 2025, which was made available to the media and economists on Wednesday morning, before the budget speech was cancelled.

Treasury notes that during the public comment process of the two-pot retirement reform, several areas were identified to be addressed later.  “This included the matter of withdrawals from the retirement portion if one is retrenched and has no alternative source of income.”

Under the two-pot system, which came into effect on 1 September last year, employees’ pension fund contributions are divided into a one-third savings pot and a two-thirds retirement pot. The two-thirds portion must be preserved until retirement and then annuitised.

Government received requests to allow access to the retirement component when an individual is retrenched, Treasury notes.

“The restructuring required for this proposed reform is complex and therefore forms part of the second phase of the two-pot reforms. Government is beginning work and discussions on measures that may allow access to the retirement component if an individual has been retrenched and is in financial distress.”

Treasury emphasises, though, that “strict conditions” will apply to this access, including proof that the individual has no alternative source of income after a period of time – such as payments from the Unemployment Insurance Fund (UIF) and limiting access to a percentage of income, rather than a cash lump sum.

Once the research on this matter is concluded, labour and other industry stakeholders will be engaged.

Meanwhile, National Treasury has confirmed that more than R11 billion has been collected in tax revenue for the fiscus as a result of the two-pot retirement system. This is more than double the amount initially estimated.

“Withdrawals are expected to continue into the medium term as fund members access their savings component,” Treasury said.

During a question-and-answer session early Wednesday morning, officials said tax revenue collections from two-pot withdrawals are expected to contribute between R4 billion and R5 billion in extra revenue to the fiscus.

South African Revenue Service (Sars) Commissioner Edward Kieswetter said during the media briefing that more than R43 billion has been “released into the economy” – that’s minus the R11.1 billion in tax.  “It’s a significant amount in the hands of consumers.”

Withdrawals under the two-pot system boosted household consumption and are expected to contribute to higher GDP growth figures in the fourth quarter of 2024.

The higher-than-expected revenue from the two-pot retirement reform has also alleviated near-term revenue pressure.

The total revenue shortfall compared to the February 2024 budget is R19.3 billion – lower than the updated R22 billion shortfall projected in the medium-term budget in October last year.

 

Article credit: https://www.moneyweb.co.za/in-depth/budget/two-pot-reform-retrenched-workers-could-be-allowed-to-dip-into-retirement-portion/