The hidden costs of withdrawing from your Savings Pot

DURING a recent speech, Edward Kieswetter, the Commissioner of the South African Revenue Service (Sars), stated that the total amount of tax collected from retirement fund members who made Savings Pot withdrawals amounted to around R15 billion.

- BRETT LADOUCE

Put differently, Sars on average received about R25 of each R100 withdrawn, and members only received R75 or less of their own money.

Our collective retirement savings pool has been robbed of RS7 billion that will never grow tax-free to provide a future tax-free lump sum benefit or a higher monthly pension amount after retirement. In the whole Two Pots debate, the negative effect that income tax has on early withdrawals from our Savings Pots does not seem to be high on the agenda.

As a result, fund members make ill-informed decisions by not taking the tax effect of their withdrawals into account and then complaining about how they were robbed when they received much less than they anticipated.

Firstly, any withdrawals from your Savings Pot will immediately reverse part of the tax deduction that you received when you contributed to your fund. If you contributed R3 000 to your fund, of which R1 000 went into your Savings Pot, you received a tax deduction on the full R3 000 contribution to the fund.