There is a significant cost implication in the implementation of the two-pot retirement system.
This week, Liberty held a webinar to clarify various aspects of the two-pot retirement system. This included how administrators will most likely manage any withdrawals after 1 September 2024.
James Coutinho, senior tax manager at Liberty, explains that tax will be levied on any savings withdrawal benefit taken from the savings pot. Any withdrawal from the savings pot component of your retirement will be considered as part of a member’s remuneration.
This means that the withdrawal benefit is added to the member’s annual taxable income and the administrator will be required to deduct PAYE before making the payment.
To take a savings withdrawal benefit, members must be registered for tax and will be required to provide the administrator with their estimated annual salary or taxable income.
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The administrator will need to obtain a tax directive from the SA Revenue Service (Sars) before making the net payment to members.
Coutinho says that Sars will also be entitled to withhold funds from the member’s savings withdrawal benefit if they have outstanding taxes or penalties.
Most administrators will also be charging an administrative fee for the withdrawals. There is a significant cost implication in the implementation of the two-pot retirement system as well as increased administration to manage the withdrawals.
Rather than increasing the fund fees for all the members, Liberty has decided to charge only those who make a withdrawal.
Prabashani Naidoo, chief legal specialist, says Liberty members who intend to withdraw their seed capital need to be realistic about how soon the funds will be available.
First, a member will need to complete a withdrawal form, including an estimation of their annual salary or taxable income. Then a directive has to be received from Sars before the funds can be paid out.
Coutinho says Liberty expects the withdrawal claims to skyrocket from an average of 10% of members to 90% as a result of the initial savings withdrawals from their seed capital.
This will require a significant increase in administrative capacity. While administrators and Sars are working on improving capacity, members should expect the withdrawals to take some time.
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Coutinho says Sars is creating a simulation tax calculation that members can use to work out how much tax they will pay on a withdrawal. However, this will not include possible administration fees or any penalties that Sars may apply for outstanding taxes.
Liberty is working on calculators for the advisers which will assist them in calculating the potential impact of the two-pot system on members’ net payout after tax and fees.
It is worth remembering that you do not have to rush to withdraw the seeding capital from your savings pot. You can make a withdrawal – plus growth – at any time in the future.
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