Business
Retirement Tax Warning: Why South Africans Risk Paying More Than They Expect
One year into the two-pot system
When South Africa’s two-pot retirement system launched in September 2024, it was hailed as a way to give workers flexibility without putting their futures at risk. A year later, the reality is more complicated.
Since its rollout, South Africans have withdrawn more than R9.5 billion from their savings pots, often to cover debt or household expenses. That figure shows the economic pressure many families are under, but it also reveals a growing problem: the hidden tax traps built into the system.
How the pots work
Under the system, one-third of monthly retirement contributions go into a “savings pot,” which can be tapped in emergencies. The other two-thirds are locked away in a “retirement pot” that can only be accessed at retirement age.
This design aims to preserve most of a worker’s retirement savings while offering short-term relief. In practice, though, many are draining their savings pots within months, leaving little safety net for later.
The tax sting
Financial experts like Alexforbes’ Vickie Lange warn that withdrawals come with more than one cost. Every withdrawal reduces future retirement income, but more immediately, it can create tax headaches.
Withdrawals are taxed at a person’s normal income rate and added to their annual earnings. This means even small withdrawals can push people into higher tax brackets. For someone already under financial strain, the relief gained can quickly vanish once SARS issues its annual assessment.
SARS, in fact, has been a surprising winner. It is expected to collect around R5 billion in additional taxes from the two-pot withdrawals during the 2024/25 financial year. Instead, by February 2025, collections had reached R12.9 billion, more than double the forecast.
Living for now, losing later
According to Lange, most people are withdrawing not by choice, but because they feel they have no other option. A recent Alexforbes survey found that 80% of members dipped into their pots to pay off debts or cover essential living costs.
This cycle creates a double bind. In the short term, the money disappears faster than expected because of tax. In the long term, retirees will have less income waiting for them when they finally stop working.
“Anyone who has depleted their savings pot can’t access any cash from their retirement pot when the time comes,” Lange explained. Without backup plans, many South Africans may reach retirement age with little to fall back on.
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Source: Business Tech
Featured Image: The South African
