Tax Directives enhancements and tax implications of the two-pot retirement system

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2 September 2024 – From 1 September 2024, members of pension funds, provident funds, pension preservation funds, provident preservation funds, and retirement annuity funds (collectively referred to as ‘the Funds’) will be able to access a portion of their retirement savings in the member’s retirement fund as a cash payment while still a member of that fund. Retirement funds will now be split into the following:

Vested Component:
- This is the total value of the member’s interest as at 31 August 2024, less 10% of that value, capped at R30 000 to be allocated to the Savings Component as seed capital.
- The payment of the remaining balance in the Vested Component as a lump sum benefit, before retirement, will not be impacted by the two-pot retirement system.

Savings Component:
- One-third of the members retirement fund contributions, will be allocated to the Savings Component. This is in addition to the seed capital amount, which is 10% of the Vested Component, capped at R30,000, whichever is lower.
- The member can withdraw a minimum of R2000, up to the maximum value available in the member’s Savings Component once every tax year. These withdrawals from the Savings Component are called Savings Withdrawal Benefits.
- At retirement, the remaining balance in the Savings Component (if applicable) the member can elect to add this to their retirement fund lump sum to be taken in cash.
Retirement Component:
- Two-thirds of the members retirement fund contributions will be allocated to the Retirement Component. This component will be used to pay the member a pension or purchase an annuity upon retirement, subject to certain exceptions.
- This amount cannot be taken as a lump sum if the member terminates membership in the fund before retirement as a result of resignation, dismissal, withdrawal or retrenchment and must be transferred to another fund.

A member, who has already reached the normal retirement age but has not elected to retire, may transfer their retirement fund to another approved pension fund / provident fund when the employer, for example, establishes a new approved pension or provident fund without incurring any tax liability.

The tax directive system and application forms have been enhanced to accommodate requests for the Savings Withdrawal Benefit and for transfers of the Vested Component, Savings Component, and Retirement Component to another fund.

For an overall view, see the new Two-pot retirement system webpage, with FAQs for taxpayers and the Funds, as well as:

A two-pot retirement system calculator is now available on the SARS website. The calculator will assist pension fund members with an illustrative amount of what they can possibly expect as a payout. All relevant and accurate information must be provided to get a clear estimate of the payout. The same calculator is also available on eFiling, the MobiApp and WhatsApp.
Request My Tax Number
Request My Tax Compliance Status
Verify My Tax Compliance Status
Tutorial video:Understanding the Two-Pot Retirement system and its tax implications
Register for Income Tax via:
- SARS Online Query System (SOQS) –Register for Income Tax
- WhatsApp on 0800 11 7277

Updated forms for the enhanced Tax Directives process:

Application for tax directive Gratuities and Two Pot Savings Withdrawal Benefit (IRP3a) Form:
1. Will now allow for the Savings Withdrawal Benefit to be paid out to a member of the Fund
2. The Savings Withdrawal Benefit will be taxed using the annual payment/bonus tax calculation based on the taxpayer’s marginal rate of tax. No retirement rates, allowable deductions, exemptions or tax-free amounts will be used in this calculation. Therefore, it is mandatory for the taxpayer to be registered for income tax and can provide the fund with a Tax Reference number (TRN).
3. The IT88L stop order will be attached to the tax directive where the taxpayer has outstanding taxes to be paid over to SARS. The types of outstanding taxes can include Assessed Tax, Provisional Tax and Administrative Penalties.
:
1. A new Reason ‘Involuntary transfer before Retirement [Par 2(1)(c)]’ has been introduced on Form A&D for involuntary transfers to pension or provident funds in addition to the existing reason ‘Voluntary transfer before Retirement [Par 2(1)(c)]’.
2. The Vested Component, Savings Component and the Retirement Component fields have been added to the form to allow for transfers to another fund when these two reasons are selected.
Request for Tax Deduction Directive Pension and Provident Funds (Form B):

The following three new tax directive reasons have been added for transfers on or after 1 September 2024:

1. Two Pot-Transfer: All Components Inter-Fund Transfer
2. Two Pot-Divorce Transfer: All Components (Inter-Fund Transfer)
3. Two Pot-Par (eA) Transfer/ Payment: All Components (Inter-Fund Transfer).

4. Request for Tax Deduction Directive Retirement Annuity Funds (Form C):

The following two new tax directive reasons have been added for transfers on or after 1 September 2024:

1. Two Pot-Transfer Prior to Retirement: All Components (Inter-Fund Transfer); and
2. Two Pot-Divorce Transfer: All Components (Inter-Fund Transfer).

5. Recognition of Transfer between Approval Funds (Form ROT01):

1. The ROT01 form has been updated to accommodate the new two-pot transfer reasons. The receiving fund will now be able to confirm the receipt of the different components that have been transferred.
2. Handling Discrepancies in Transferred Amounts: If the amount transferred to the receiving fund differs from the amount received for all the components transferred, and the reason for the discrepancy is the same for all components, the fund can provide a single reason for the variance and indicate that it applies to all components.

6. Application by Non-Residents for a Directive for Relief from SA Tax for Pension and SWB (RST01Form):

1. An interim process has been introduced to accommodate non-residents wishing to confirm the application of a Double Taxation Agreement (DTA) on the Savings Withdrawal Benefit income.
2. An individual who is not a tax resident of South Africa and receives income from a South African source may apply for a directive for relief from South African tax on the Savings Withdrawal Benefit. The request should be made under the DTA in place between South Africa and the non-resident’s country of residence.
3. The RST01 – ‘Application by Non-Resident for a Directive for Relief from South African Tax for Pension, Annuities and ‘Savings Withdrawal Benefit’ form has been enhanced to allow non-residents to request relief from South African tax on the payment of the Savings withdrawal Benefit.
4. Once the DTA tax directive has been issued and it is determined that the Savings Withdrawal Benefit is either subject to tax in South Africa or partially subject to tax:
  1. The taxpayer must provide the DTA tax directive to their Retirement Fund.
  2. The fund administrator must submit a manual IRP3(a) form requesting SARS to issue a manual tax directive (IRP3(e)) giving effect to the DTA tax directive issued.
5. SARS must issue a manual IRP3(e) showing a nil tax amount if the income is not subject to tax in South Africa or a manual IRP3(e) showing the tax amount to be withheld where the income is partially taxable in South Africa.
6. A non-resident who does not qualify for relief from South African tax must follow the standard process, where the Retirement Fund applies for the Savings Withdrawal Benefit on their behalf using the electronic IRP3(a) form available on eFiling or via Independent Software Vendors (ISV).

Updated Guides for the enhanced process:

Completion Guide for IRP3(a) and IRP3(s) Forms
Guide to Complete the lump sum Tax Directive Application Forms
Guide to the Tax Directive functionality on eFiling
Guide to Complete Submit and Cancel a Recognition of Transfer
Guide to the SARS Online Query System
Guide to submit your Individual Income Tax return via eFiling
Services offered via the SARS MobiApp
Guide to SARS Mobile Tax Services
Guide to submit your Individual Income Tax Return via eFiling

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Tax Directives enhancements and tax implications of the two-pot retirement system | South African Revenue Service (2024)