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SARS Is Loving the Two Pot Retirement System

Consumers are rushing to access millions of Rand from retirement funds as the new two pot system has come into effect.

As a result, South African Revenue Service (SARS) is going to bring in a lot of extra tax.

SARS Collects Millions In Tax

SARS has quickly started collecting millions in tax following the launch of the new two-pot retirement system on 1 September.

Almost immediately the submissions began pouring in. For example, by only Tuesday the 3rd, SARS had already processed 2,424 tax directives, which will result in an extra R6.7 million in tax revenue from R103 million in requested withdrawals from retirement funds.

What is the Two Pot System?

The two pot system allows individuals to access a portion of their retirement savings early, while preserving the remaining funds for retirement.

The two pot system was introduced to help consumers balance their immediate financial needs with long-term retirement planning. Under this system, contributions are sort of divided into two “pots”—one for savings that can be accessed during an individual’s working life and another that is exclusively reserved for retirement. While this aims to provide more flexibility for individuals facing financial difficulties, any withdrawals are still subject to tax, which SARS has efficiently begun collecting.

Not everyone has been a fan of the idea saying it will result in those who formerly were forced to save for retirement now reducing their future financial security in favour of current costs. Others say that this is exactly what is needed to reduce current financial burdens which will then allow for additional future wealth building. Regardless, it is now in effect.

A Flood of Applications

Despite lots of warning and many months of preparation, pension fund administrators have faced challenges in dealing with the flood of withdrawal requests this week.

Websites and call centres were overwhelmed, with some, like Alexforbes, now extending their response times. Others, like Old Mutual, managed the surge through online channels such as WhatsApp (they had 93 000 people reach out over the channel in just a few hours). Even the Financial Sector Conduct Authority has been hit with tons of requests for more info and additional applications.

Across the industry administrators are asking for patience from clients as they try handle the high volumes, with consumers due to get payouts within a few days.