The South African Revenue Service (Sars) received a total of 2 153 942 applications for tax directives under the two-tier pension system up to Monday this week, with a total gross value of over R35 billion. While this is a one-off boost for consumer spending and consumption, it does not harm the pension fund’s capital reserves.

If consumers use that money to pay off debt, it could have a positive impact, but if it’s used to buy things during the holiday season, it would have a negative impact on those consumers’ long-term financial stability, an economist says.

Sars says it has observed an unprecedented and steady increase in tax directive enforcement since the introduction of the two-tier pension system, possibly reflecting the economic difficulties facing households.

So far Sars has issued 1,914,306 directives with a total gross value of R35,052,572,876.62. Unfortunately Sars did not say how much tax this would mean for state coffers.

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This is why some applications under the two-pot pension system are rejected

According to Sars:

• 169,509 applications were rejected for many reasons, ranging from system failures in fund management units to problems such as incorrect identification numbers and tax numbers
• 41,523 tax directives were rejected due to reasons such as insufficient funds and incorrect code
• 28 thousand 525 tax directives were canceled by taxpayers who changed their minds.

Sars says its simulated WhatsApp calculator has been used 53,693 times since its introduction, while the simulated calculator on the Sars website, which is part of the Sars Online Inquiry System, has been used 850,375 times.

Additionally, Sars received 102,839 inquiries via voice channel, 17,627 inquiries from its branches, and 66,048 inquiries via USSD channel.

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Sars received 1.2 million applications within the scope of the two-stage retirement system as of October 11

early october Sars said it had received 1 million 213 thousand 646 applications for tax directives by then but over 200,000 were rejected because some of the applicants lied about their taxable income. Sars approved only 1 148 729 tax directives for the funds to be released.

Sars later said a total gross payment of R21.4 billion had been made, but did not provide information on how much of this had been deducted from tax.

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Sars is helped first when you want to retreat

Before the final amount is paid, Sars informs the pension fund that any outstanding debts on Sars’ behalf will also be deducted. If you have a loan agreement with Sars, withdrawals will not be affected. If you owe tax to Sars, this amount will be deducted and paid to Sars.

Many people discovered they had unpaid Sars tax after applying for a withdrawal from their savings bank, and some received no payment at all because the entire amount was spent on repaying Sars.

Once an application has been submitted to Sars to request a tax directive, the application cannot be withdrawn if the applicant determines that Sars owes money.

To withdraw from the savings pot under the two-pot pension system, you must be registered as a taxpayer with Sars. If you are not tax registered, Sars will reject any request for a tax directive from your pension fund.

If you withdraw some money from your savings pot before retirement, your marginal tax rate will be applied to the amount withdrawn.

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What does R35 billion from the two-pot pension system mean for the economy?

What does the R35 million paid out under the two-pot pension system mean for the South African economy? George Herman, Citadel’s chief investment officer, said the R35-billion injection acted as a one-off stimulus to boost consumption spending.

“This will likely contribute around 0.2% to South Africa’s gross domestic product (GDP), a notable increase that complements the positive sentiment already established within the country under our Government of National Unity (GNU).”

He says this increased consumer confidence is a strong indicator of a healthier economic environment. “The stimulus is expected to primarily benefit the retail sector, which has already received a positive response, as evidenced by gains in banking and retail stocks in response to this development.”

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What do withdrawals in a two-pot pension system mean for the capital of pension funds?

What does this mean for pension funds’ capital reserves? Herman says the good news is that R35 billion is relatively insignificant in the context of South Africa’s pension fund assets.

“To put it into perspective, the Public Investment Corporation (PIC) alone manages R2 trillion on behalf of the state employee pension fund. When combined with other large funds such as Eskom and Transnet pension funds, the total amount rises to approximately R3 trillion.

“R35 billion represents a very small proportion in this context and does not meaningfully impact these large funds. While it may cause a small reduction in Assets Under Management (AUM) for asset managers, it remains relatively negligible in the larger scheme of things.”

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What does R35 billion withdrawn from the two-pot pension system mean for consumers?

What does R35 billion mean for consumers? Herman says it’s crucial to see this in context when evaluating implications for consumers. “Sars facilitated withdrawals totaling R35 billion from more than 1.9 million instructions. This means an average withdrawal of around R26 000 per consumer.

“For consumers, receiving these funds often brings a sense of relief. If used to pay off debt“It can have a positive impact as it involves converting a long-term investment to cover liabilities, thus strengthening their balance sheet.”

However, if these funds are spent on immediate consumption, he says, this repeats the old adage of ‘selling silverware to buy groceries’, which is never a sound long-term strategy.

“Unfortunately, given the realities of South African consumers, particularly consumers in certain income brackets, there is a high probability that much of this money will be spent during the holiday season.”

Herman warns that the shift from long-term retirement savings to short-term consumption poses a significant risk to the long-term financial stability of these consumers.