South Africa’s tax authority announced on Friday that 21.4 billion rand ($1.2 billion) had been paid out in just six weeks following the introduction of a new pension reform that allows partial withdrawals before retirement.
The recently implemented “two-pot” pension system, which took effect on September 1, aims to strike a balance between promoting long-term retirement savings and providing financial relief to individuals facing economic hardship.
Since the reform’s enactment, the South African Revenue Service (SARS) reported a surge in withdrawal requests, with approximately 1.2 million applications submitted. This marks a significant jump from the 160,000 applications received in the first 10 days of September, reflecting the strong demand for early access to pension funds.
Under the new system, pension contributions are split into two components: one-third allocated to a savings pot and two-thirds to a retirement pot. The savings portion can be accessed at any time, though withdrawals must exceed 2,000 rand and are limited to one per tax year. Withdrawn amounts are taxed at the individual’s marginal rate, adding to the government’s tax revenue.
The central bank has projected that withdrawals could range between 40 billion rand and 100 billion rand in the fourth quarter, potentially boosting domestic demand and economic growth as the year concludes.
The reform is seen as a move to offer greater financial flexibility to South Africans while ensuring adequate savings for retirement.
