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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

Financial and registration information for UFS students (including international students)
2017-02-22


Update: 7 February 2017


The management of the University of the Free State (UFS)
is aware of a misleading post on social media this
past weekend.

The correct facts are:

1) In December 2016, the UFS received information of a
total allocation of R189 239 000 from the National Student
Financial Aid Scheme (NSFAS) for 2017.

2) NSFAS provisionally funded 453 first-time entering
students in January 2017.

3) During 2016, 3 868 students received NSFAS funding.
Should these students qualify according to the academic
requirements of NSFAS, they will qualify to receive the
same funding again in 2017. In the meantime, due to the
current backlog at NSFAS, the UFS assisted 2 573 of
these students who qualify for funding academically.
This will enable the students to register for 2017 while
waiting for NSFAS to make the necessary allocations.
Information as on 6 February 2017 indicated that 2 330
of these students already made use of the opportunity
and have registered for 2017.

4) On 6 February 2017, the UFS received communication
from NSFAS regarding an additional amount of
R66 513 252 which is available for first-time
entering students. Approximately 875 students
will benefit from this allocation. Financial Aid will soon
finalise this process and successful students will be
notified of the allocations.

5) The UFS is in the process of resolving the
classification of the quintile schools so that more
students could be assisted.

The above-mentioned is not final and will change
on a daily basis.

There is an understandable and shared concern among students of the University of the Free State (UFS) around the cost of higher education. This has been a topic of discussion not only on national level, but it has also been a priority for the university’s senior leadership in discussions with student leaders.

The following are ways in which students receive assistance to register for the 2017 academic year:

1.    Students receiving assistance from the National Student Financial Aid Scheme (NSFAS)

1.1    Senior students

1.    Senior students who received NSFAS assistance in 2016.

a.    This group of students will receive a NSFAS allocation in 2017, subject to the following terms and conditions:
i.    If they satisfied the 50% module pass requirement for the 2016 academic year.
ii.    If they satisfied the n+2 completion requirement.

b.    Students who conform to these requirements can register as from 31 January 2017.
c.    These students’ placement in residences can also be confirmed.
d.    These students will receive an allocation for books and meals subject to the prioritisation as prescribed by NSFAS.

2.    Senior students who received confirmation of a NSFAS allocation in 2017 with outstanding debt of not more than R20 000.

a.    These students must please visit the Student Finance desk in the different registration venues to make acceptable arrangements for payment of the outstanding monies.
b.    Acceptable arrangements refer to the payment of 50% of these outstanding monies by 30 June 2017 and the remainder by 31 October 2017.
c.    These students will be allowed to continue with their registration after the above process has been complied with.
d.    These students’ placement in residences can also be confirmed.
e.    These students will receive an allocation for books and meals subject to the prioritisation as prescribed by NSFAS.

3.    Senior students who applied for NSFAS assistance in 2017 for the first time or applied previously, but did not meet the qualifying criteria, may only register with the assistance of a NSFAS allocation once confirmed by NSFAS. In the absence thereof, these students may only register after payment of the required prepayments for full registration, or they may register provisionally.

1.2     First-time entering students
The university’s Department of Finance is dealing with this group collectively based on the confirmed financial assistance by NSFAS for the group as a whole.

1.    First-time entering students to whom an allocation have been confirmed by NSFAS will receive an allocation and will be able to continue with their registration. Their placement in residences can also be confirmed. They will receive an allocation for books and meals subject to the prioritisation as prescribed by NSFAS.

2.    First-time entering students who applied at NSFAS before the cut-off dates and matriculated at schools in the quintile 1 to 3 categories will be allowed to register on providing proof of submission of their application. Their placement in residences can also be confirmed. They will receive an allocation for books and meals subject to the prioritisation as prescribed by NSFAS. Confirmation of the students who matriculated at schools in the quintiles 1 to 3 (as per the data collected with the assistance of the university’s ICT Services) will serve as sufficient evidence of the NSFAS allocation still to be made to them.

3.    First-time entering students who can provide proof that the family income is dependent on a grant from the South African Social Security Agency (SASSA)  has also been confirmed to receive a NSFAS allocation.  Their placement in residences can also be confirmed. They will receive an allocation for books and meals subject to the prioritisation as prescribed by NSFAS.

4.    Please note that the above process only caters for applicants who applied in time and who are admitted in programmes for 2017.

1.3 NSFAS prescriptions towards the allocation of funds

NSFAS determined a priority order that must be used to distribute the NSFAS allocation. The priority order is as follows:

1.    Tuition fees
2.    Books
3.    Accommodation
4.    Meals
5.    Travel

The amount awarded must be allocated according to the above priority order until it is depleted. It thus means that all tuition fees must first be paid before an allocation may be made for books, accommodation, meals, and travel.

NSFAS also prescribes that no allowance may be paid until the student has signed his or her contract. Due to the backlog with allocations to students by NSFAS, contracts for these allocations are also not made available yet.

The UFS is fully aware of the predicament the above circumstances create for students with regard to the allocations for books and meals. To assist students as a transitional arrangement, the university took it upon itself to advance an amount of R750 for meals to all registered NSFAS recipients. This advancement will be paid by the students’ NSFAS allocation after they have signed the contract. All other payments, as per the priority order, can unfortunately only be made after students signed the NSFAS contracts. Signing of contracts will be done electronically.  

The advance for meals has been available since Monday 6 February 2017. Students  are reminded that they must be registered before the amount of R750 may be advanced. Students should visit the Financial Aid Offices for enquiries.

Students are requested to support the effort of the UFS by availing themselves to sign contracts as soon as it becomes available.

Students should also note that all universities were informed this week of the backlogs that has developed at NSFAS in the processing of financial aid applications made by first-time entering students and returning students. NSFAS is giving urgent attention to the matter. The UFS is monitoring the progress closely and will communicate with the affected students, if necessary.

2.    Senior students with outstanding debt who do not receive NSFAS funding

Students may register provisionally, subject to the following terms and conditions approved by the UFS Council on 2 December 2016.

1.    Students must be South African citizens. (International students may not register provisionally because of the Immigration Act.)
2.    Students must have been previously registered at the UFS.
3.    Students must be enrolled for full-time studies and must attend lectures on one of the three campuses (open-learning students, e-learning students, and students registered with Varsity College do not qualify for provisional registration).  
4.    Outstanding balances on an applicant’s tuition fees account for 2016 must be less than R20 000.

The minimum pre-payment to register provisionally in 2017 is:
R1 900 for non-residential students; and
R6 750 for residential students.

3.    Department of Higher Education Fees Adjustment Grant for 2017

The Department of Higher Education and Training will pay the fee increase capped at 8% for all qualifying registered students with a gross combined family income of up to R600 000 per annum in 2017. This is a grant and will not have to be repaid by qualifying students. The grant will only cover tuition fees and accommodation provided by universities. Students who are recipients of bursaries and scholarships that cover their full cost of study will have to pay the percentage fee adjustment.

The following students qualify:

1.    Only South African citizens and citizens with permanent South African residence studying towards an undergraduate or postgraduate qualification in 2017.
2.    The applicant and direct family (mother, father, spouse or legal guardians) must have a GROSS combined family income of R600 000 or less per annum before tax deductions.

The following students will not have to apply for the grant as they will automatically be considered:

1.    Applicants who applied for NSFAS funding.
2.    All students who attended quintile 1, 2, and 3 schools in Grade 12.

All other students will have to apply for the fee adjustment grant. The application form is available on www.ufs.ac.za. Incomplete applications will not be considered. More information can be obtained from the Financial Aid Office.

Students who are unsuccessful in their application may appeal within 14 days of the outcome of the decision by completing an appeal form which will also be available on the university's website at http://www.ufs.ac.za/kovsielife/unlisted-pages/bursaries/financial-aid.

The closing date for applications is 15 February 2017.

4.    International students

The prepayments for 2017 as approved by the UFS Council on 2 December 2016 are:
1.    Non-resident students: R28 160
2.    Resident students: R43 160

The following concessions were made to assist international students to meet the financial requirements for 2017 as approved by the UFS Council on 2 December 2016:

1.    Students who are unable to pay the full amount must visit Student Finance in registration venues.
2.    All outstanding monies of the previous year must be paid in full.

3.    The prepayment amount for 2017 will be calculated for each student based on the following:
a.    A minimum payment of R12 820 for non-resident students and R22 725 for resident students is payable before registration can be considered.
b.    A quotation will be prepared based on the academic advice for 2017.
c.    A payment agreement for the balance of the pre-payment or the first semester’s fees is signed by the student.
d.    This amount is payable not later than 31 March 2017.
e.    The registration of these students are subject to the on-time payment of the agreed amounts.    
The current position of the Department of Home Affairs is that all students who have pending applications should be allowed to register on condition that they produce their study visas by 31 March 2017 (Refer to the Minister’s Dispensation Immigration Directive 26 of 2016).

International students may apply for an emergency travel document at their respective Embassies/Consulates, as this will allow for cross-border travelling and will give the student an opportunity to register on site.

Students should bring or email a copy of their receipts as proof that they have applied for their study visa and a certified copy of their passport (issued by the South African Embassy or Consulate), confirmation of their medical aid (a SA medical aid registered under the SA Medical Schemes Act 131 of 1998). Students will have up until 31 March to submit their study visas to Mrs Niemann at the Office for International Affairs, located in the Mabaleng A Building on the Bloemfontein Campus; email: niemannaja@ufs.ac.za. Failure of which will result in deregistration of students.

Zimbabwe: Because Zimbabwe no longer issues emergency travel documents,  students from Zimbabwe must email a certified copy of their passport and receipt (issued by the South African Embassy or Consulate), and confirmation letter of the medical aid to Ms Jeanne Niemann from the Office for International Affairs on the following email address: niemannaja@ufs.ac.za. In doing so, students will be able to register online provided that their finances and their admission requirements are in order.

International students should note that the blanket concession was only for final-year students that could not complete their studies due to exams being written at the beginning of the next academic year.  If a student returned home in December 2016, this concession expired and the student had to re-apply for a study visa or apply for a visitor’s visa. The relaxed requirements will apply only to final-year students who were not meant to return and continue studies in 2017.

Please see the following explanation of the Blanket Concession:

CLARIFICATION – BLANKET STUDY VISA EXTENSION TO 31 MARCH 2017

Circular 31 of 2016 has reference.

The International Education Association of South Africa (IEASA) has brought to our attention that there may be some confusion regarding the blanket administrative extension to 31 March 2017 of study visas with an expiry date of or prior to 31 December 2016 granted by the Department of Home Affairs in Immigration Directive No. 25 of 2016.

The Department of Home Affairs has confirmed that the Directive does not serve as a replacement visa for students travelling home in December 2016. This Directive serves as an extension of current visas for students who need to complete their academic programmes in 2017. The DHA has advised that should any final-year students be travelling to their home countries in December 2016, they would need to return in January 2017 with a visitor’s visa.

5.    Enquiries

Bloemfontein and South Campuses:

Undergraduate and honours students: +27 51 401 3003 / 2806 / 9090 / 9670 / 2817 / 9669

Postgraduate students (Master’s and Doctoral): +27 51 401 9537

Refunds: +27 51 401 7050

Student cards (meals and books): +27 51 401 2799 / 3337

Collections: +27 51 401 3643 / 3448; Fax: +27 51 401 3579

Email: tuitionfees@ufs.ac.za  

Qwaqwa Campus:

Client Services: +27 58 718 5024 / 5119 / 5262

Student cards (meals and books): +27 58 718 5026

Cashiers: 058 718 5028; Fax: +27 58 718 5118

Email: nchapiem@qwa.ufs.ac.za

International Office:  

+27 51 401 3219

 

Released by:
Lacea Loader (Director: Communication and Brand Management)
Telephone: +27 51 401 2584 | +27 83 645 2454
Email: news@ufs.ac.za | loaderl@ufs.ac.za
Fax: +27 51 444 6393















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