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07 August 2024 Photo Supplied
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

Research contributes to improving quality of life for cancer patients
2016-11-21

Description: Inorganic Chemistry supervisors  Tags: Inorganic Chemistry supervisors

Inorganic Chemistry supervisors in the Radiopharmacy
Laboratory during the preparation of a typical complex
mixture to see how fast it reacts. Here are, from the left,
front: Dr Marietjie Schutte-Smith, Dr Alice Brink
(both scholars from the UFS Prestige
Scholar Programme), and Dr Truidie Venter (all three
are Thuthuka-funded researchers).
Back: Prof André Roodt and Dr Johan Venter.
Photo: Supplied

Imagine that you have been diagnosed with bone cancer and only have six months to live. You are in a wheelchair because the pain in your legs is so immense that you can’t walk anymore – similar to a mechanism eating your bones from the inside.

You are lucky though, since you could be injected with a drug to control the pain so effective that you will be able to get out of the wheelchair within a day-and-a-half and be able to walk again. Real-life incidents like these provide intense job satisfaction to Prof André Roodt, Head of Inorganic Chemistry at the University of the Free State (UFS). The research, which is conducted by the Inorganic Group at the UFS, contributes greatly to the availability of pain therapy that does not involve drugs, but improves the quality of life for cancer patients.

The research conducted by the Inorganic Group under the leadership of Prof Roodt, plays a major role in the clever design of model medicines to better detect and treat cancer.

The Department of Chemistry is one of approximately 10 institutions worldwide that conducts research on chemical mechanisms to identify and control cancer. “The fact that we are able to cooperate with the Departments of Nuclear Medicine and Medical Physics at the UFS, the Animal Research Centre, and other collaborators in South Africa and abroad, but especially the methodology we utilise to conduct research (studying the chemical manner in which drugs are absorbed in cancer as well as the time involved), enhances the possibility of making a contribution to cancer research,” says Prof Roodt.

Technique to detect cancer spots on bone
According to the professor, there are various ways of detecting cancer in the body. Cancer can, inter alia, be identified by analysing blood, X-rays (external) or through an internal technique where the patient is injected with a radioactive isotope.

Prof Roodt explains: “The doctor suspects that the patient has bone cancer and injects the person with a drug consisting of an isotope (only emits X-rays and does no damage to tissue) that is connected to a phosphonate (similar to those used for osteoporosis). Once the drug is injected, the isotope (Technetium-99m) moves to the spot on the bone where the cancer is located. The gamma rays in the isotope illuminate the area and the doctor can see exactly where treatment should be applied. The Technetium-99m has the same intensity gamma rays as normal X-rays and therefore operates the same as an internal X-ray supply.” With this technique, the doctor can see where the cancer spots are within a few hours.

The same technique can be used to identify inactive parts of the brain in Alzheimer patients, as well as areas of the heart where there is no blood supply or where the heart muscle is dead.

Therapeutic irradiation of cancer
For the treatment of pain connected with cancer, the isotope Rhenium-186 is injected. Similar to the manner in which the Technetium-99m phosphonate compound is ingested into the body, the Rhenium-186 phosphonate travels to the cancer spots. Patients thus receive therapeutic irradiation – a technique known as palliative therapy, which is excellent for treating pain. A dosage of this therapy usually lasts for about two months.

The therapy is, however, patient specific. The dosages should correspond with the occurrence and size of cancer spots in the patient’s body. First, the location of the cancer will be determined by means of a technetium scan. After that, the size of the area where the cancer occurs has to be determined. The dosage for addressing total pain distribution will be calculated according to these results.

Technique to detect cancer spots on soft tissue
Another technique to detect cancer as spots on bone or in soft tissue and organs throughout the body is by utilising a different type of irradiation, a so-called PET isotope. The Fluor-18 isotope is currently used widely, and in Pretoria a machine called a cyclotron was produced by Dr Gerdus Kemp, who is a former PhD graduate from the Inorganic Research Group. The F-18 is then hidden within a glucose molecule and a patient will be injected with the drug after being tranquillised and after the metabolism has been lowered considerably. The glucose, which is the ‘food' that cancer needs to grow, will then travel directly to the cancer area and the specific area where the cancer is located will thus be traced and ‘illuminated’ by the Fluor-18, which emits its own 'X-rays'.

In the late 80s, Prof Roodt did his own postdoctoral study on this research in the US. He started collaborating with the Department of Nuclear Medicine at the UFS in the early 90s, when he initiated testing for this research.

Through their research of more than 15 years, the Inorganic Group in the Department of Chemistry has made a major contribution to cancer research. Research on mechanisms for the detection of cancer, by designing new clever chemical agents, and the chemical ways in which these agents are taken up in the body, especially contributes to the development in terms of cancer therapy and imaging, and has been used by a number of hospitals in South Africa.

The future holds great promise
Prof Roodt and his team are already working on a bilateral study between the UFS and Kenya. It involves the linking of radio isotopes, as mentioned above, to known natural products (such as rooibos tea), which possess anti-cancer qualities.

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