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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

Inauguration of Prof Francis Petersen as 14th Vice-Chancellor and Rector of the UFS
2017-05-23

Description: Prof Petersen Inauguration Charl Devenish photo Tags: Prof Petersen Inauguration Charl Devenish photo

Dr Khotso Mokhele, Chancellor of the UFS, robes Prof Francis Petersen as Vice-Chancellor and Rector of the UFS.
Photo: Charl Devenish

“At the UFS, we want to produce graduates for the world, and we need to ensure that we use our knowledge to uplift society”
— Prof Francis Petersen, 14th Vice-Chancellor and Rector of the University of the Free State (UFS)

On Friday 19 May 2017, the University of the Free State (UFS) celebrated the inauguration of its 14th Vice-Chancellor and Rector, Prof Francis Petersen. The formal inauguration was held in the Odeion Theatre on the Bloemfontein Campus. The ceremony was preceded by a week-long welcoming programme on the three UFS campuses.

The guest list included representatives from local and provincial government, vice-chancellors and rectors from across South Africa, and senior members of the university’s executive management.

During the inaugural address, Prof Petersen paid tribute to his predecessors for the role they played in making the university what it is today. This included former rectors and vice-chancellors who attended the ceremony, such as Prof Francois Retief and Prof Frederick Fourie, and Prof Stef Coetzee and Prof Jonathan Jansen who were unable to attend.

Prof Petersen characterised 2015 and 2016 as watershed years for the South African higher-education system. “The Rhodes Must Fall, and subsequent Fees Must Fall student and staff protests challenged us, and re-energised a critical engagement around the purpose of the university in an equal society, both as a site of complicity and as a potential agent for social change,” said Prof Petersen.

He committed himself to developing the UFS into an institution that will have an even greater impact than before.

“This institution I am striving to establish will be one that responds positively to inclusivity, diversity, and transformation, and which can incorporate these values into our curriculum, scholarship, and research in a productive way,” said Prof Petersen.

Prof Petersen emphasised the importance of the three-campus model. “The University of the Free State is ONE university with three campuses: the Bloemfontein Campus, our South Campus, and the Qwaqwa Campus. I am committed to align the activities of the three campuses, and to integrate our activities to a greater extent.

“We must work together to infuse each campus with the values we have identified as essential if we are to make our mark as a united University of the Free State: academic excellence, diversity and inclusivity, and innovation.”

The Chancellor, Dr Khotso Mokhele, had the honour of handing over the gown to Prof Petersen. Prof Lis Lange, Vice-Rector: Academic, explained the relationship between the university and the Basotho people, and how this relationship is honoured through the official procession gowns of the UFS. The Basotho blanket is worn by kings, and the university therefore hopes that the symbolism of the gown would be a source of inspiration to Prof Petersen.

The event was concluded by congratulatory messages from former colleagues and the President of the Student Representative Council on the Bloemfontein Campus, SK Luwaca. The event was elegant and graceful – the inaugural address was thought-provoking and inspiring.

 

Official Inauguration Ceremony:

19 May 2017
Bloemfontein Campus

 Description: Official Inauguration photo small Tags: Official Inauguration photo small


"I challenge you to dream big and do big." - Prof Petersen

 

Photo Caption: Dr Khotso Mokhele, Chancellor of the UFS, robes Prof Francis Petersen as Vice-Chancellor and Rector of the UFS.
Photo: Johan Roux

Short biography of Prof Francis Petersen
Inaugural address: 19 May 2017
Transcription of the ceremony
Photo Gallery
Video

 

Welcoming Ceremonies:

The week of 11-19 May 2017 was one of the highlights in this year’s calendar for staff and students of the University of the Free State (UFS), with various ceremonies taking place to welcome Prof Francis Petersen – who assumed his duties on 1 April 2017 – as the 14th Vice-Chancellor and Rector. The festivities culminated in the official inauguration ceremony at the Bloemfontein Campus on 19 May 2017.
 
The Qwaqwa Campus welcoming ceremony took place on Thursday 11 May 2017, attracting a wide spectrum of community leaders from the area. Prof Petersen was welcomed by representatives from the two trade unions, National Education Health and Allied Workers Union (Nehawu) and UVPERSU, as well as representatives from the Student Representative Council (SRC), the Thabo Mofutsanyana Education District, and the House of Traditional Leaders. Paramount Queen Mopeli of the Bakoena Royal House bestowed a special honour upon Prof Petersen by clothing him in a traditional Basotho blanket and hat. She said, "From our heart of hearts, welcome, Prof Francis ..., and all Godspeed during your tenure."
 
The South Campus in Bloemfontein hosted a welcoming ceremony for the new Vice-Chancellor and Rector on 18 May 2017. The ceremony included a number of vocal performances and messages from various stakeholder groups. The same afternoon, the Institute for Reconciliation and Social Justice (IRSJ) also facilitated a panel discussion, titled Diversity, inclusivity, and social justice and the renewed call for decolonisation, in the Albert Wessels Auditorium (AWO) on the Bloemfontein Campus.

The welcoming ceremonies culminated in an event in the Callie Human Centre on Friday 19 May 2017 at the Bloemfontein Campus, with a number of performances by musicians associated with the UFS, marimbas, drum majorettes from Jim Fouche Secondary School, the Grey College Gumboots, and school choirs from Eunice Secondary School, Brebner Primary School, and Willem Postma Primary School. Representatives from key stakeholders such as Nehawu, UVPERSU, the Campus Ministries Forum, SRC, Alumni, Convocation, and the UFS Council had the opportunity to convey their messages of welcome to Prof Petersen.
 
The formal inauguration ceremony took place in the Odeion Theatre on the Bloemfontein Campus the same day.

 

Qwaqwa Campus ceremony:

11 May 2017
Qwaqwa Campus

 Description: Prof Petersen with the queen 2 Tags: Prof Petersen with the queen 2

 

"Qwaqwa Campus is the perfect laboratory for sustainable sciences.” – Prof Petersen

 

Photo caption: Paramount Queen Mopeli of the Bakoena Royal House with Prof Petersen and his wife, Cheslyn.
Photo: Mamosa Makaya

Photo Gallery
Video

Read the full story
Transcription of the ceremony

 

South Campus ceremony:

18 May 2017
South Campus

 Description: South Campus welcoming Tags: South Campus welcoming

 

"South Campus: you aspire excellence, adding to diversity and you are innovative in what you do." - Prof Petersen

Photo caption: Flag bearers and drummers walking to the Madiba Arena.
Photo: Hannes Pieterse

Photo Gallery

Read the full story
Transcription of the ceremony

 

 

Bloemfontein Campus panel discussion:

Panel discussion: Diversity, inclusivity and social justice and the renewed call for decolonisation
18 May 2017
Bloemfontein Campus

 Description: Panel discussion 18 May 2017 Tags: Panel discussion 18 May 2017


"The UFS should be a place of belonging for everyone." - Prof Petersen

 

Photo caption: from left: SK Luwaca (SRC President, Bloemfontein Campus), Prof Elelwani Ramugondo (UCT), Prof Francis Petersen (UFS), Prof Melissa Steyn (WITS), Prof Andre Keet (UFS)
Photo: Lelanie de Wet

Photo Gallery

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Transcription of panel discussion



 

Bloemfontein Campus ceremony:

19 May 2017
Bloemfontein Campus

 Description: Bloem welcoming ceremony on 19 May 2017 Tags: Bloem welcoming ceremony on 19 May 2017


"I can just say, Wow! I've experienced a lot during the welcoming functions on all three campuses." - Prof Petersen

 

Photo caption: Prof Francis Petersen, Vice-Chancellor and Rector of the UFS
Photo: Rulanzen Martin

Photo Gallery

Read the full story
Transcription of the ceremony


 

 

Description: Inauguration and welcoming of Prof Petersen combined gallery Tags: Inauguration and welcoming of Prof Petersen combined gallery

Photo gallery of Inauguration and Welcoming Ceremonies

 

 

 

 

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