Two-Pot Retirement Withdrawals: Avoiding the Tax Shock

Luan van Rhyn
May 11, 2026

Since the Two-Pot Retirement System went live on 1 September 2024, South Africans have pulled out staggering sums from their Savings Pots. In the first two months alone, SARS processed over R21 billion in withdrawals from more than one million members. By 2026, with the third withdrawal cycle now in full swing, one painful pattern has emerged: most people get far less cash than they expected.

The reason is simple but widely misunderstood. A Savings Pot withdrawal is not taxed at the friendly retirement lump sum rates you may have heard about. It is taxed at your marginal income tax rate. Combine that with any SARS debt you forgot about, the fund’s admin fee, and the sneaky bracket-creep effect, and a R50 000 withdrawal can land in your account as R30 000 or less.

This guide breaks down exactly how SARS calculates the tax, walks through three real-rand worked examples for the 2026/2027 tax year, and gives you a pre-flight checklist to run before you click submit on your fund’s portal.

A Quick Refresher: Savings Pot, Retirement Pot, and Vested Component

Since 1 September 2024, every rand that goes into your pension fund, provident fund, retirement annuity, or preservation fund is split into three “pots.” Knowing which pot you are touching is the first line of defence against a tax shock.

Pot / Component	What goes in	When you can access it	How it is taxed on withdrawal
Vested Component	Everything you saved before 1 September 2024, plus growth on that balance	Only on resignation, retirement, or under the old rules that applied before September 2024	Pre-retirement withdrawal tax tables (the punishing ones) or retirement tables on retirement
Savings Component (the “Savings Pot”)	One third of every contribution from 1 September 2024 onwards, plus the once-off seed of up to R30 000	One withdrawal per tax year, minimum R2 000, no maximum within the available balance	At your marginal income tax rate (18% to 45%)
Retirement Component (the “Retirement Pot”)	Two thirds of every contribution from 1 September 2024 onwards	Locked until you actually retire. Must be used to buy an annuity	As pension income at retirement, taxed at your marginal rate then

For the rest of this article, we are only talking about the Savings Pot. It is the only one you can dip into mid-career, and it is the one creating the tax surprises.

Why Savings Pot Withdrawals Are Taxed at Marginal Rates (Not Lump Sum Tables)

This is the single biggest misconception we encounter at ThriveCFO. When you eventually retire, the first R550 000 of your retirement lump sum is tax-free, and the rest is taxed at preferential rates that top out at 36%. Many people assume the same applies when they tap their Savings Pot.

It does not. Every rand you withdraw from your Savings Pot is added to your other taxable income for the year and taxed at your marginal rate, exactly like a bonus or a 13th cheque. SARS confirmed this approach in its media release when the system launched.

For the 2026/2027 tax year, the SARS individual tax brackets are:

Taxable income (R)	Rate
0 – 245 100	18%
245 101 – 383 100	R44 118 + 26% of the amount above R245 100
383 101 – 530 200	R79 998 + 31% of the amount above R383 100
530 201 – 695 800	R125 599 + 36% of the amount above R530 200
695 801 – 887 000	R185 215 + 39% of the amount above R695 800
887 001 – 1 878 600	R259 783 + 41% of the amount above R887 000
1 878 601 and above	R666 339 + 45% of the amount above R1 878 600

Primary rebate for taxpayers under 65: R17 820. Tax threshold under 65: R99 000. Source: SARS: Rates of Tax for Individuals.

How the deduction actually happens is the second piece of the puzzle. When you submit a withdrawal request, the fund administrator applies to SARS for a tax directive. SARS looks up your most recent IRP5 income, adds the proposed withdrawal, calculates the tax, and tells the fund exactly how much to withhold. The fund then pays you the net amount.

The catch is that this calculation is based on a snapshot, not your actual full-year income. If you earn more than your last IRP5 suggested, or you take a second job, you might still owe SARS at year-end. We deal with this in the auto-assessment section near the end.

The Bracket-Creep Trap (Worked Example)

Marginal tax rates step up in chunks. Withdraw the wrong amount and a portion of your withdrawal can suddenly be taxed at the next bracket up. This is bracket creep, and it bites harder than most people expect.

Scenario: Thandi earns R240 000 a year. She wants to withdraw R10 000 from her Savings Pot to cover a car repair.

Her annual income (R240 000) sits comfortably in the 18% bracket, since the 26% bracket only kicks in above R245 100. But the moment we add the R10 000 withdrawal, her total income rises to R250 000, which crosses into the 26% bracket.

Portion of the R10 000	Falls in bracket	Tax rate	Tax
First R5 100 (takes her from R240 000 to R245 100)	18% bracket	18%	R918
Next R4 900 (takes her from R245 100 to R250 000)	26% bracket	26%	R1 274
Total tax on the withdrawal		21.9% effective	R2 192

Thandi expected to pay 18% on her withdrawal. She actually paid almost 22%, because the last R4 900 was taxed at 26%. After admin fees, she will see closer to R7 500 of her R10 000 hit her bank account.

💡 ThriveCFO Tip: If your total income is sitting just below a bracket threshold (R245 100, R383 100, R530 200, R695 800, R887 000, or R1 878 600), even a modest withdrawal can push you into the next bracket. Run the numbers before you click withdraw.

SARS Debt Offset: The IT88 Surprise

Here is the part that has caused the most outrage in WhatsApp groups since 2024. If you owe SARS money, whether on outstanding personal tax, an old assessment, or admin penalties, SARS instructs your fund to deduct that debt directly from your withdrawal before paying you a cent.

The mechanism is the IT88 (sometimes called an “agent appointment” notice). SARS attaches the fund as a third party, much like a garnishee order on a salary. The order of deductions on a Savings Pot withdrawal is usually:

Fund administration fee
PAYE tax based on the tax directive
Any outstanding SARS debt via the IT88
The remainder gets paid into your bank account

Old Mutual’s guidance on the Two-Pot system confirms that “any outstanding taxes owed to SARS may be deducted prior to the claim being paid.” There have been widely reported cases of members receiving less than R1 000 on substantial withdrawals because of accumulated SARS debt they had forgotten about.

⚠️ Action point: Before you withdraw, log in to SARS eFiling and check your Statement of Account (SOA). If there is a balance owing, settle it or arrange a payment plan first. You do not want a surprise IT88 swallowing your emergency funds.

Worked Example 1: R20 000 Withdrawal, No Other Income

Scenario: Sipho is between jobs and has no other taxable income for the 2026/2027 tax year. He wants to withdraw R20 000 from his Savings Pot to bridge a gap.

Because R20 000 is well below the R99 000 tax threshold, the tax calculation looks like this:

Gross withdrawal: R20 000
Tax on R20 000 at 18%: R3 600
Less primary rebate: R17 820
PAYE owing: R0

So far so good. But this is where the fund’s administration fee, and sometimes a financial advisor fee, start to bite. Different funds charge differently, but R300 to R600 per withdrawal is common. On a R20 000 withdrawal, a R500 fee is 2.5% of the gross amount. That is your “effective rate,” even though no tax was paid.

Item	Amount
Gross withdrawal	R20 000
Less fund admin fee (illustrative)	(R500)
Less PAYE per tax directive	(R0)
Net cash to Sipho	R19 500
Effective cost	2.5%

Sipho is in the best-case scenario. The lesson, though, is that on small withdrawals fixed fees dominate. Pulling R3 000 instead of R20 000 with the same R500 fee gives you an effective cost of 16.7%, which is brutal. If you must withdraw, withdraw less frequently and slightly larger amounts.

Worked Example 2: R50 000 Withdrawal, Mid-Tier Salary

Scenario: Lerato earns a salary of R450 000 a year (TCTC roughly R37 500 a month). She withdraws R50 000 from her Savings Pot to fund school fees.

R450 000 puts Lerato firmly in the 31% bracket, which runs from R383 101 to R530 200. The full R50 000 withdrawal stays within this bracket, so the calculation is clean:

Step	Calculation	Amount
Salary (annual)		R450 000
Tax on salary alone	R79 998 + 31% × (R450 000 − R383 100) − R17 820 rebate	R82 917
Salary + withdrawal		R500 000
Tax on salary + withdrawal	R79 998 + 31% × (R500 000 − R383 100) − R17 820 rebate	R98 417
Tax on the R50 000 withdrawal	R98 417 − R82 917	R15 500
Less fund admin fee (illustrative)		(R500)
Net cash to Lerato		R34 000

Effective rate on the withdrawal: 32%. Lerato thought she was withdrawing R50 000. She is actually receiving R34 000, or about 68 cents in the rand. If SARS had an outstanding debt against her, that R34 000 could shrink further.

Worked Example 3: R100 000 Withdrawal, Top-Bracket Earner

Scenario: Pieter is a business owner drawing a salary plus dividends totalling R2 000 000 a year. He withdraws R100 000 from his Savings Pot to deal with a cashflow squeeze at his business.

Pieter is already above R1 878 600, meaning every additional rand is taxed at 45%. There is no bracket-creep to worry about, because he is already in the top bracket.

Item	Amount
Gross withdrawal	R100 000
Tax on the withdrawal at 45%	(R45 000)
Less fund admin fee (illustrative)	(R500)
Net cash to Pieter	R54 500
Effective rate	45.5%

For a high earner like Pieter, a Savings Pot withdrawal is almost the worst possible source of liquidity. He keeps 55 cents in the rand. A short-term overdraft, a working capital facility, or a director’s loan would almost certainly cost less in interest than the R45 000 tax hit. This is exactly the kind of scenario where speaking to your accountant before withdrawing pays for itself many times over.

The Three-Example Snapshot

Profile	Annual income	Gross withdrawal	PAYE	Net cash	Effective rate
No other income	R0	R20 000	R0	R19 500	2.5%
Mid-tier salary	R450 000	R50 000	R15 500	R34 000	32%
Top-bracket earner	R2 000 000	R100 000	R45 000	R54 500	45.5%

The pattern is unmissable. The more you earn, the more it costs you to access your own savings.

The Real Cost: Compounding You Will Never Recover

Tax is only half the story. The other half is opportunity cost, and on a 20 or 30 year horizon it is the larger number.

Take Lerato’s R50 000 withdrawal. Assume her retirement fund averages a real return of 6% a year (after inflation, after fees). If she had left that R50 000 invested for the 25 years until her retirement at 65:

After 10 years it would be worth roughly R89 500 (in today’s rand)
After 20 years, roughly R160 400
After 25 years, roughly R214 600

Lerato gave up R214 600 of future spending power for R34 000 today. That is a ratio of more than 6 to 1.

For a younger employee in their 30s with a 30-plus year horizon, the trade is even worse. Compounding does its real work in the final decade, and small withdrawals taken in your 30s have an outsized impact on what you can draw from your pension at 65.

💡 ThriveCFO Tip: Before any withdrawal, ask yourself one question: “If a friend offered me R34 000 today in exchange for me handing them R214 000 in 25 years’ time, would I take that deal?” Phrased that way, the answer is usually no.

Pre-Flight Checklist: Run This Before You Click Submit

If you have decided that a Savings Pot withdrawal is genuinely necessary, work through this checklist first. It will take you under an hour and could save you thousands.

#	Check	Why it matters
1	Are you tax-registered, and is your number active?	SARS will decline the directive if you are not. Register on eFiling first.
2	Log in to eFiling and pull your Statement of Account	Settle any outstanding tax debt or arrange a payment plan before you withdraw. Avoid the IT88 shock.
3	Estimate your total taxable income for the year	Include bonuses, side income, and rental income. The withdrawal stacks on top.
4	Check whether the withdrawal pushes you into the next tax bracket	If yes, consider splitting the withdrawal across two tax years (March is the year cut-off).
5	Confirm the fund’s admin fee and any advisor fee	Smaller withdrawals are disproportionately hit by fixed fees.
6	Check that the gross is above R2 000	R2 000 is the legal minimum withdrawal under the Two-Pot rules.
7	Compare against alternative sources of cash	Personal loan, overdraft, family loan, selling a non-essential asset. Often cheaper than 31% to 45% tax plus lost growth.
8	Confirm your banking details on the fund’s portal	Pay-outs to incorrect accounts cause weeks of delay and FICA headaches.
9	Save the tax directive number	You will need it when you file your tax return or check your auto-assessment.
10	Speak to your accountant if the withdrawal is over R50 000 or if you have multiple income streams	The cost of the conversation is almost always less than the cost of getting it wrong.

How the Withdrawal Will Show Up on Your Auto-Assessment (Around 21 July 2026)

From the 2025 filing season onwards, SARS confirmed that anyone who made a Two-Pot withdrawal is automatically included in the auto-assessment population, even if they would not normally have to file a return.

Here is what to expect for the 2026/2027 tax year:

Late February 2027: Your fund administrator generates an IRP5/IT3(a) certificate reflecting the withdrawal under source code 3926, along with the tax that was deducted and the tax directive number.
Around 7 to 20 July 2027: SARS issues the auto-assessment. The withdrawal will appear as a separate line item on your ITR12, with the PAYE you already paid pre-populated.
Two outcomes:
- You owe SARS more. This happens when the fund’s tax directive was based on an outdated income figure (a recent salary increase, a bonus, or a second job not reflected on your latest IRP5). You will need to pay the shortfall by the deadline shown on your notice of assessment, or arrange a deferment.
- SARS owes you. Less common, but it happens when your full-year taxable income is lower than the figure the directive assumed (you lost your job, or you had unclaimed deductions like retirement annuity contributions or medical expenses).
40 business days: If you disagree with the auto-assessment, you have 40 business days from issue date to amend and file your own ITR12 on eFiling or the SARS MobiApp. Do not let this lapse, because the auto-assessment becomes final.

💡 ThriveCFO Tip: If you took a salary increase or bonus after your withdrawal, mentally set aside roughly 5% to 10% of the gross withdrawal in a separate savings account. There is a real chance SARS will come looking for it at year-end.

So Should You Withdraw or Not?

The Two-Pot system was designed to give South Africans a release valve for genuine emergencies without forcing them to resign just to access their pensions. Used sparingly and strategically, it does exactly that.

Used carelessly, it is one of the most expensive sources of cash you can tap. You lose money on tax, you lose money on fees, you lose money on future growth, and you may still owe SARS more at year-end.

The Savings Pot should be the last resort, not the first. Before you withdraw, exhaust the alternatives, run the numbers using the worked examples above, and if the amount is meaningful, speak to your accountant or tax practitioner.

Need Help Modelling Your Specific Numbers?

At ThriveCFO, we work with employees, business owners, and consultancies across South Africa to optimise tax outcomes before they happen, not after. If you are weighing up a Savings Pot withdrawal, especially one over R50 000, a 30-minute call can save you tens of thousands of rand in tax and lost compounding.

Book a free discovery call →