By Brett Ladouce
The undisputed winner of the Savings Pot Withdrawal race that started on September 1 is Sars. Millions, if not billions, of rands will flow into the state coffers in the next few months as we dip into our retirement savings at the speed of light thanks to the well-recorded, and declared, efficiency of retirement funds and fund administrators. The race is on to see which fund or administrator can pay out the most money to their members in the quickest time possible.
As the warning shots have been fired, and fund members have been informed of the pros and cons of accessing their Savings Pots before retirement, fund members are off to the races without a second thought about the tax implications of their decisions to make an early withdrawal from their retirement fund savings.
Firstly, all withdrawals from your Savings Pot will be taxed at your marginal income tax rate of between 18% and 45% and not on the progressive rate of the lump sum withdrawal benefit scale that taxes lump sum cash withdrawal benefits at a rate of between 0% and 36%. Put differently, if you withdraw R30 000 from your Savings Pot, you will pay income tax of between R5 400 and R13 500 leaving you with only between R16 500 and R24 600 in your bank account. If you take the R30 000 as a cash lump sum withdrawal benefit when you leave the fund, the tax liability will only be R450, and you will be left with R29 550 in your bank account as the first R27 500 of the withdrawal benefit will be paid out to you tax-free.
Secondly, Sars will deduct any outstanding tax debt that you have and in relation to which you have not made any payment arrangements with Sars. If you therefore owe Sars R20 000, they will take the R20 000 from the after-tax withdrawal amount to settle the outstanding tax debt. You can therefore easily join the group of fund members who end up with nothing being paid into their bank accounts after their interaction with Sars.
