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Dr Cecile Duvenhage
Dr Cecile Duvenhage is a lecturer in Personal Finance and Microeconomics, Department of Economics and Finance, University of the Free State (UFS), and the Editor and Co-Author: Personal Finance (Van Schaik Publishers).

Opinion article by Dr Cecile Duvenhage, Lecturer: Personal Finance and Microeconomics, Department of Economics and Finance, University of the Free State, Editor and Co-Author: Personal Finance (Van Schaik Publishers).


On 29 July 2022, the National Treasury released the 2022 Draft Revenue Laws Amendment Bill for public comment until 29 August 2022 to introduce the “two-pot” system for retirement savings that was flagged in the National Budget. The Revenue Laws Amendment Act was the first law approved by Parliament in 2023 and signed into law, giving effect to the new system and setting the implementation date. The Pension Funds Amendment Bill was approved by Parliament in May 2024. It introduces changes to the Pension Funds Act and includes funds not regulated by the Pension Funds Act in the new system. President Cyril Ramaphosa officially signed the Pension Funds Amendment Bill into law on July 21, 2024

The two-pot retirement system in South Africa (to be implemented on 1 September 2024) divides retirement savings into two distinct components: 1) the savings and 2) the retirement pot:

1) Savings Pot: About one-third of the contributions go into this pot that is designed for short-term financial goals and emergencies. Members will be able to access a portion of these savings before retirement if necessary, and can withdraw from it once a year (minimum withdrawal amount of R2 000) under specific conditions. 

However, according to the Citizen (22 July 2024) 30% of pension fund members in the Old Mutual Stable fund will have less than R2 000 in their savings pot and will not be able to claim. Informal sector workers often lack coverage, and traditional family-based care for the elderly is breaking down as urbanisation increases. Therefore, this system seems to benefit the middle-income group and (again) fail the poorest of the poor.

Keep in mind that access to the savings pot’s money has implications on both the tax that the individual pays and legal requirements during divorce proceedings. More specifically:

• Withdrawals are subject to taxation at the individual’s marginal tax rate
• Retirement fund administrators must be notified when divorce proceedings are initiated to ensure that no payments are made from the savings pot during the legal process. This ensures that the division of assets is handled correctly according to the legal requirements.

2) Retirement Pot: The retirement component ensures that the bulk of retirement savings – two-thirds – remain untouched until retirement age as stipulated by the fund. This preservation is crucial for securing long-term financial stability post-career. These funds are strictly preserved until retirement age, ensuring long-term financial security. Upon retirement, members can access these funds as a regular income stream, like a pension annuity.

Is it wise to take a portion of your pension?

There are also two sides to the Pension Funds Amendment Bill. Individuals and Financial Companies welcome this new law, as it allows the Financial Sector Conduct Authority (FSCA) to start approving rule amendments – submitted by various funds before 31 July 2024 – once gazetted.

Discovery was the fund to react the quickest with its proposed amendment rules. Some of the other retirement funds and administrators still have a substantial amount of work to do before they will be able to pay claims, including ensuring administration readiness and integration with SARS. SARS anticipates a R5 billion revenue windfall from taxing two-pot retirement system withdrawals in the next financial year. Thus, the government expects many hundreds of thousands of South Africans to access the savings component of their retirement funds as soon as the two-pot retirement system goes live.

Making use of the government’s lifeline – to protect the dignity of those in need and overcome financial stress – can be understood given the economic constraints facing individuals such as high unemployment, excessive debt, and inflation.

However, a wiser approach by the government should be to address the consequences and not the causes of citizens’ financial dignity. Given that less than 6% of individuals in South Africa can retire “without worries”, individuals should also have a good understanding that this “lifeline” is no quick fix for financial stress.

Hidden costs and other implications

Members of South African pension funds may generally access their pension pot from the age of 55. If you withdraw before the age of 55, there will be tax implications. This means that the withdrawal will be taxed similarly to your salary or other income. Any withdrawal is included in your gross income for the year, potentially pushing you into a higher tax bracket.

There will also be hidden costs in the form of penalties as stipulated by the member’s fund. The Institute of Retirement Funds Southern Africa has indicated an administration fee ranging from R300 to R600 on each withdrawal.

South Africa has a progressive tax system, where tax rates increase as taxable income rises. It is designed to be fairer by imposing a lower tax rate on low-income earners and a higher rate on those with higher incomes. Therefore, the amount that a member will get out depends on his/her marginal rate. Should a member be paying 45% tax on his/her taxable income (when earning more than R512 801 per year), a member might end up only getting slightly more than half of the withdrawal amount – once your tax-free benefit at retirement is exhausted.

Some further long-term benefits can be jeopardised when a member withdraws from the retirement savings. These are:

1) Tax-Free Benefit at Retirement: Keep in mind that withdrawals may reduce the tax-free benefit you enjoy at retirement. Up to R550 000 of the lump sum you take in cash at retirement may be tax-free, but this benefit can be eroded if you frequently withdraw from your savings pot before retirement.

2) Lost Tax-Free Growth: Additionally, withdrawing from your savings pot means losing out on tax-free growth. Savings in your retirement fund grow free of tax on interest income, dividends, and capital gains.

Apart from the tax implications, some pension providers will charge fees for withdrawals. Therefore, it is advisable to check with your pension administrator to understand any costs involved. In addition, withdrawing from your savings pot will reduce the remaining balance.

Early withdrawals can significantly affect your retirement savings. Every R1 withdrawn at age 35 could equate to as much as R30 less at retirement 30 years later.

“Two pots” may spoil the broth

Statistics from the Nedfin Health Monitor (2023) reveal that 90% of South Africans have inadequate savings for retirement, and a significant 67% of people in the country have no retirement savings beyond what they are putting into their employer-provided pension funds – which is often too little to be able to retire comfortably. The general rule of thumb is that individuals start saving as soon as possible, as much as possible, for as long as possible.

There is a saying that “too many cooks spoil the broth”. My personal view is that individuals need to be careful that “two pots” do not spoil the broth.

Although the system aims to balance immediate financial needs with long-term security, there is simply no way that individuals can eat their cake and have it. If the two-pot system is regarded as a bailing-out system, worry-free retirement remains a challenge for many. There is still a lot of thought needed for the two-pot system. Policymakers should consult the pension systems of the Netherlands, Iceland, Denmark, and Israel – which are regarded as having the best pension systems globally – to get an understanding of how adequacy, sustainability, and integrity are prioritised.

News Archive

SA universities are becoming the battlegrounds for political gain
2010-11-02

Prof. Kalie Strydom.

No worthwhile contribution can be made to higher education excellence if you do not understand and acknowledge the devastating, but unfortunately unavoidable role of party politics in the system and universities of higher education and training (HET).

This statement was made by Prof. Kalie Strydom during his valedictory lecture made on the Main Campus of the University of the Free State (UFS) in Bloemfontein recently.

Prof. Strydom, who was awarded an Honorary Doctorate by the UFS in 2010, presented a lecture on the theme: The Long Walk to Higher Education and Training Excellence: The Struggle of Comrades and Racists. He provided perspectives on politics in higher education and training (HET) and shared different examples explaining the meaning of excellence in HET in relation to politics.

“At the HET systems level I was fortunate to participate in the deliberations in the early nineties to prepare policy perspectives that could be used by the ANC in HET policy making after the 1994 elections.  At these deliberations one of the important issues discussed was the typical educational and training pyramid recognised in many countries, to establish and maintain successful education and training. The educational pyramid in successful countries was compared to the SA “inverted” pyramid that had already originated during apartheid for all races, but unfortunately exploded during the 16 years of democracy to a dangerous situation of 3 million out-of school and post-school youth with very few education and training opportunities,” he said.

In his lecture, Prof. Strydom answered questions like: Why could we as higher educationists not persuade the new democratically elected government to create a successful education and training pyramid with a strong intermediate college sector in the nineties?  What was the politics like in the early and late nineties about disallowing the acceptance of the successful pyramid of education and training?  Why do we only now in the latest DHET strategic planning 2010–2015 have this successful pyramid as a basis for policymaking and planning?

At an institutional level he explained the role of politics by referring to the Reitz incident at the UFS and the infamous Soudien report on racism in higher education in South Africa highlighting explosive racial situations in our universities and the country.  “To understand this situation we need to acknowledge that we are battling with complex biases influencing the racial situation,” he said.

“White and black, staff and students at our universities are constantly battling with the legacy of the past which is being used, abused and conveniently forgotten, as well as critical events that white and black experience every day of their lives, feeding polarisation of extreme views while eroding common ground.  Examples vary from the indoctrination and prejudice that is continued within most homes, churches and schools; mass media full of murder, rape, corruption; political parties skewing difficult issues for indiscrete political gain; to frustrating non-delivery in almost all spheres of life which frustrates and irritates everyone, all feeding racial stereo typing and prejudice,” said Prof. Strydom.

A South African philosopher, Prof. Willie Esterhuyse, recently used the metaphor of an “Elephant in our lounge” to describe the syndrome of racism that is part of the lives of white and black South Africans in very different ways. He indicated that all of us are aware of the elephant, but we choose not to talk about it, an attitude described by Ruth Frankenberg as ‘colour evasiveness’, which denies the nature and scope of the problem.

Constructs related to race are so contentious that most stakeholders and role-players are unwilling to confront the meanings that they assign to very prominent dimensions of their experience; neither does management at the institutions have enough staff (higher educationists?) with the competencies to interrogate these meanings, or generate shared meanings amongst staff and students (common ground).  A good example that could be compared with “the elephant in our lounge” remark is the recent paper of Prof. Jonathan Jansen, Rector and Vice-Chancellor of the UFS on race categorisation in education and training.

According to Prof. Strydom, universities in South Africa are increasingly becoming the battlegrounds for political gain which creates a polarised atmosphere on campuses and crowds out the moderate middle ground, thereby subverting the role and function of the university as an institution within a specific context, interpreted globally and locally. 

Striving for excellence, mostly free from the negative influences of politics, in HET, from the point of view of the higher educationist, is that we should, through comparative literature review and research, re-conceptualise the university as an institution in a specific context.  This entails carefully considering environment and the positioning of the university leading to a specific institutional culture and recognising the fact that institutional cultures are complicated by many subcultures in academe (faculties) and student life (residences/new generations of commuter students).

Another way forward in striving for excellence, mostly free from politics, is to ensure that we understand the complexities of governing a university better.  D.W. Leslie (2003) mentions formidable tasks related to governance influenced by politics:

  • Balancing legitimacy and effectiveness.
  • Leading along two dimensions: getting work done and engaging people.
  • Differentiating between formal university structures and the functions of universities as they adapt and evolve.
  • Bridging the divergence between cultural and operational imperatives of the bureaucratic and professional sides of the university.

Prof. Strydom concluded by stating that it is possible to continue with an almost never ending list of important themes in HE studies adding perspectives on why it is so easy to misuse universities for politics instead of recognising our responsibility to carefully consider contributions to transformation in such an immensely complicated institution as the university within a higher education and training system. 

Media Release
Issued by: Lacea Loader
Director: Strategic Communication (acting)
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl@ufs.ac.za
29 October 2010

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