Get Started

Tax Directive Enhancements and Tax Implications of the Two-pot Retirement System – Layman Version

Understanding South Africa’s New Two-Pot Retirement System

    • As of 1 September 2024, South Africa introduced a new ‘Two-Pot’ retirement system that significantly changes how you can access your retirement savings. This system applies to various retirement funds, including pension funds, provident funds, preservation funds, and retirement annuity funds. The main goal is to allow limited access to a portion of your retirement savings before you retire, while also preserving a larger portion for your actual retirement.
    • Your retirement fund will now be divided into three distinct components:

The Vested Component:

    • This component holds the total value of your retirement savings as they stood on 31 August 2024.
    • A small portion (10% of this value, capped at R30,000) will be taken from this component and used as ‘seed capital’ for your new Savings Component.
    • Important: If you decide to take a lump sum payment from this ‘Vested Component’ before you retire (e.g., if you resign), the rules for this type of withdrawal remain the same as they were before the Two-Pot system was introduced. This new system does not change how you access these existing funds.

The Savings Component:

    • This is your “accessible” pot. It will receive one-third (33.3%) of your new contributions made from 1 September 2024 onwards.
    • It also receives the ‘seed capital’ from your Vested Component (10% of its value, capped at R30,000).

Accessing Funds (Savings Withdrawal Benefit):

    • You can make one withdrawal per tax year from this component.
    • The minimum withdrawal amount is R2,000.
    • You can withdraw up to the maximum value available in your Savings Component at the time.
    • Tax on Withdrawals: Any money you withdraw from this component (called a ‘Savings Withdrawal Benefit’) will be taxed according to your normal income tax rate (your marginal rate). This is treated like an annual payment or bonus for tax purposes.
    • No Tax-Free Amounts: Unlike traditional retirement withdrawals, there are no special retirement tax rates, deductions, exemptions, or tax-free amounts applied to these withdrawals.
    • Tax Registration Required: To make a withdrawal, you must be registered for income tax and provide your Tax Reference Number (TRN) to your fund.
    • Outstanding Taxes: If you have outstanding taxes with SARS (like assessed tax, provisional tax, or administrative penalties), SARS can issue a ‘stop order’ (IT88L) to your fund to deduct these amounts directly from your withdrawal.
    • At Retirement: If you have any money left in your Savings Component when you retire, you can choose to add this amount to your retirement lump sum and take it as cash.

The Retirement Component:

    • This is your “preserved” pot. It will receive two-thirds (66.7%) of your new contributions made from 1 September 2024 onwards.
    • The primary purpose of this component is to provide you with a regular pension or to purchase an annuity when you retire.
    • No Early Lump Sums: You cannot take money from this component as a lump sum if you leave your job before retirement (e.g., due to resignation, dismissal, withdrawal, or retrenchment).
    • Transfers: If you leave your fund before retirement, the money in this component must be transferred to another approved retirement fund. This ensures the funds remain preserved for your retirement.
    • Transfers After Retirement Age: If you’ve reached your normal retirement age but haven’t officially retired, you can transfer your retirement fund to another approved pension or provident fund (for example, if your employer sets up a new fund) without incurring any tax.

How Transfers Between Funds Work Under the New System

    • The tax directive system and application forms have been updated to handle transfers between funds under the Two-Pot system. This means funds can confirm the receipt of the different components (Vested, Savings, and Retirement) when transfers occur.
    • Here are some key changes to the forms used for transfers:

Form A&D (for Pension and Provident Funds):

      • A new reason, ‘Involuntary transfer before Retirement,’ has been added.
      • The form now includes specific fields for the Vested, Savings, and Retirement Components to allow for accurate transfers.

Form B (for Pension and Provident Funds):

      • Three new reasons for transfers on or after 1 September 2024 have been added:
        • Two Pot-Transfer: All Components Inter-Fund Transfer
        • Two Pot-Divorce Transfer: All Components (Inter-Fund Transfer)
        • Two Pot-Par (eA) Transfer/ Payment: All Components (Inter-Fund Transfer)

Form C (for Retirement Annuity Funds):

      • Two new reasons for transfers on or after 1 September 2024 have been added:
        • Two Pot-Transfer Prior to Retirement: All Components (Inter-Fund Transfer)
        • Two Pot-Divorce Transfer: All Components (Inter-Fund Transfer)
      • ROT01 Form (Recognition of Transfer between Approval Funds): This form has been updated to accommodate the new two-pot transfer reasons, allowing the receiving fund to confirm the receipt of each component. If there’s a difference in the amount transferred, and the reason is the same for all components, the fund can provide a single reason for the discrepancy.
      • Special Considerations for South Africans Working Abroad (Non-Residents)
      • If you are a non-resident of South Africa and receive a Savings Withdrawal Benefit from a South African fund, there’s a specific process to determine if you can get relief from South African tax based on a Double Taxation Agreement (DTA).

Applying for Tax Relief:

      • An interim process has been put in place for non-residents who want to confirm if a DTA applies to their Savings Withdrawal Benefit income.
      • You can apply for a directive for relief from South African tax under the DTA between South Africa and your country of residence.
      • The RST01 form (‘Application by Non-Resident for a Directive for Relief from South African Tax for Pension, Annuities and Savings Withdrawal Benefit’) has been enhanced for this purpose.

If DTA Tax Relief is Granted (Fully or Partially):

      • You must provide the DTA tax directive issued by SARS to your Retirement Fund.
      • Your fund administrator will then submit a manual IRP3(a) form to SARS, requesting a manual IRP3(e) tax directive that reflects the DTA instructions.
      • SARS will issue this manual IRP3(e), showing nil tax if the income is not taxable in South Africa, or the amount of tax to be withheld if it’s partially taxable.

If No DTA Relief (or Not Applicable):

      • If you don’t qualify for tax relief under a DTA, your Retirement Fund will apply for your Savings Withdrawal Benefit using the standard electronic IRP3(a) form available on eFiling or via Independent Software Vendors (ISV).

Helpful SARS Resources

      • SARS provides several tools and resources to help you understand and navigate the Two-Pot system:
        • Two-pot retirement system webpage: This page offers FAQs for taxpayers and funds.
        • Two-pot retirement system calculator: Available on the SARS website, eFiling, the MobiApp, and WhatsApp, this calculator can help you estimate your potential payout. You’ll need to provide accurate information to get a clear estimate.
Scroll to Top

Disclaimer

The information provided on this website is intended for general guidance only and does not constitute tax, legal, or professional advice. Users access and use this site entirely at their own risk. My SA Tax Residency (hereafter referred to as “the Company”) accepts no liability for any loss, damage, or expense incurred from reliance on any information on this site.

If you require formal tax or legal advice, please consult one of our qualified professionals.

We, including our affiliates, shareholders, consultants, agents, or employees, are not liable for any loss or damages of any nature resulting from your use of this website or your inability to access it. This includes, without limitation, direct, indirect, incidental, consequential, or punitive damages arising in contract, statute, or delict—even if we have been advised of the possibility of such damages.

ACCEPTANCE OF TERMS

These Terms and Conditions become binding the moment you first access the website. They constitute a legal agreement between you and the Company and will remain in effect as long as you continue to use the site. Updated terms will govern your use of the site, and it is your responsibility to review them regularly.

NATURE OF INFORMATION

All content on this site is for general information purposes only. It does not represent an offer, professional recommendation, or proposal of any kind. Information is provided “as is” and does not substitute for professional advice. We advise that you consult our qualified team—comprising tax specialists, chartered accountants, and legal professionals—before making any decisions based on the information provided.

USER-PROVIDED CONTENT

You are responsible for ensuring all information you provide is accurate, complete, and current. By using this site, you grant the Company the right to use any data or content you submit for purposes aligned with our services and as detailed in our privacy policy.

COMMUNICATIONS FROM USERS

We may assume that electronic communications originating from your account or an authorized representative are genuine and unchanged unless proven otherwise.

EXTERNAL INFORMATION SOURCES

We may publish or link to content from third-party providers. We are not responsible for the accuracy or reliability of such content and disclaim any liability that may result from your reliance on it.

LINKED SITES

This site may include links to other websites. We do not control the content on external sites and accept no liability for their accuracy, completeness, or security. Your access to linked sites is entirely at your own risk.

PERMISSION FOR HYPERLINKS AND METATAGS

No one may link to this website or its subpages without our prior written consent. Requests must be directed to: privacy@mysataxresidency.co.za

If you do not receive a response within ten (10) business days, consider your request denied. Breach of this clause may result in legal action at your cost.

PRIVACY & COOKIES

Your personal information will be processed in line with our Privacy Policy and Cookies Policy, which form part of these terms. By using this website, you consent to such processing and the use of cookies.

INTELLECTUAL PROPERTY

All content on this site, including trademarks, logos, graphics, and text, is the intellectual property of the Company or its licensors. You may not use, copy, or distribute any material without prior written consent.

Requests must be submitted to:privacy@mysataxresidency.co.za

TRANSMISSION OF INFORMATION

While we implement best practices, we cannot guarantee the security of data transmissions. You accept that any loss or damage resulting from unauthorized or unlawful activities is not our responsibility.

SITE MODIFICATIONS & ACCESS LIMITATIONS

We reserve the right to modify, suspend, or discontinue any aspect of the site without notice. We may restrict access to certain features or sections at our discretion.

NO WARRANTIES

We do not guarantee the site will be error-free or meet any particular performance or reliability standards. Use of the site is at your own risk.

DISPUTE RESOLUTION

Any disputes will be resolved by arbitration in accordance with the rules of the Arbitration Foundation of Southern Africa, held in Sandton, Gauteng. The arbitration will be confidential, and the ruling may be made an order of court.

GOVERNING LAW

These terms are governed by the laws of the Republic of South Africa, excluding conflict-of-law provisions.