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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.
With the two-pot retirement system having been effective from 1 September 2024, it is important to demystify certain aspects to prevent an unpleasant surprise when you retire. Although there are other complex rules, this article was simplified and does not deal with exceptions. It also does not deal with members of a provident fund who were 55 years of age or older on 1 March 2021. Furthermore, reference to retirement funds is to a pension fund, provident fund or a retirement annuity fund (a discussion on preservation funds is therefore excluded).
Three, not two pots
Firstly, there are effectively three pots and not two.
- The first pot is referred to as the vested component. You will only have this component if you were a member of a retirement fund prior to 1 September 2024. This component consists of the member’s interest (balance) in the retirement fund on 31 August 2024 (the day before the implementation of the two-pot system) after being reduced with the amount of the seed capital that was transferred to the savings pot (see below). This seed capital amount was calculated as the lesser of 10% of the value of the member’s interest in the fund on 31 August 2024 or R30 000. No further contributions will be allocated to this component from 1 September 2024. Upon retirement, one-third of the funds in this component can be taken in the form of a lump sum. The balance will be transferred to the retirement component below and will be paid out in the form of monthly annuities.
- The second pot is the savings component. The opening balance of the savings component is the seed capital that was transferred from the vested component above. Thereafter, from 1 September 2024, one third of your monthly contributions to the retirement fund are allocated to this component.
- The third pot is the retirement component. From 1 September 2024, two-thirds of your monthly contributions to the retirement fund are allocated to this component. The funds in this component can only be accessed upon retirement (i.e. after reaching your retirement age, which is stipulated in the fund rules). Furthermore, upon retirement, the money in this pot is only paid out in the form of monthly annuities (i.e. monthly pensions) and no lump sum can be taken from this pot unless its total value is R165 000 or less.
Withdrawals are taxed unfavourably
Secondly, withdrawing from the savings component before retirement has adverse tax implications.
- From 1 September 2024 onwards, one is allowed to make an annual withdrawal (minimum of R2 000) from the savings component even if you have not yet reached your retirement age and although you are still employed. It is, however, important to remember that such withdrawals are taxed very unfavourably since they are taxed by using the normal progressive tax tables that apply to your other income such as salary. If you wait for your retirement and only withdraw from this savings component upon retirement, the first R550 000 will be tax-free and withdrawals above R550 000 will be taxed at rates much lower than the current progressive tax rates applicable to other income.
- Upon retirement, only the money in the savings component is allowed to be taken as a lump sum. If you therefore withdraw all the money from this pot annually prior to retirement, you will not have any funds available to access as a lump sum on retirement and will only have access to the monthly annuities payable from your retirement component.
Less funds available
Lastly, for those members who have a vested component (i.e. who became members of the retirement fund before 1 September 2024), the old rules still apply to the funds in that component. Therefore, upon retirement, you will still be able to take one third of the value of your vested component as a lump sum. The balance will be transferred to the retirement pot and will be paid out in the form of monthly annuities.
To summarise, even though it might appear lucrative to withdraw from your savings component annually, it is advised that you refrain from doing it unless you really need the funds to fulfill basic needs. Withdrawing prior to retirement has the following adverse consequences:
- Money withdrawn from the savings component is taxed at higher rates than what would have applied had you reached your retirement age and retired. You will therefore not make use of the R550 000 tax-free option.
- You will have less funds available to pay out as a lump sum on retirement. As a simple calculation, had you not withdrawn R30 000 in a single year, conservatively calculated at a rate of 5%, this R30 000 would have grown to R79 599 (R139 829 if a rate of 8% is used) calculated over 20 years that can be withdrawn tax-free when utilising the R550 000 tax-free portion on retirement.
Council on Higher Education LLB qualification review not yet complete
2017-05-16
The reaction from various stakeholders following the ‘Outcomes of the National Review of the LLB Qualification’ by the Council on Higher Education (CHE) on 12 April 2017 requires the CHE to clarify that the national review process has not been completed and is ongoing.
The peer-review process conducted under the auspices of the CHE is based on the LLB Standards Document which was developed in 2014-2015 with input from higher-education institutions and the organised legal profession. Following self-review and site visits by peers, the process is now at the point where commendations and shortcomings have been identified, and the statement of 12 April reflects those findings. All law faculties and schools have been asked to improve their LLB programmes to meet the LLB Standard, and no LLB programme has been de-accredited. All institutions retain the accreditation they had before the Review process began and all institutions are working towards retaining their accreditation and improving their LLB programmes.
The South African Law Deans’ Association (SALDA) has issued a set of responses regarding the LLB programme review. The following questions and answers were published to give more clarity on the questions raised.
1. What is the effect of a finding of conditional accreditation?
The programme remains accredited.
(“Accreditation refers to a recognition status granted to a programme for a stipulated period of time after an HEQC evaluation indicates that it meets minimum standards of quality.”)
The institution must submit a progress report by 6 October 2017 that indicates how short-term aspects raised in the HEQC reports have been addressed and an improvement plan to indicate how longer-term aspects will be addressed.
2. What is the effect of a finding of notice of withdrawal of accreditation?
The programme remains accredited.
The institution must submit an improvement plan by 6 October 2017 to indicate how the issues raised in the HEQC report will be addressed, including time frames.
3. How does the finding of notice of withdrawal affect current students?
Students currently enrolled for the LLB programme at any institution are not affected at all. They will graduate with an accredited qualification.
4. How does the finding of notice of withdrawal affect new applicants?
The programmes remain accredited and institutions may enrol new students as usual. This also includes students completing BA/BCom (Law) programmes who wish to continue with the LLB programme.
5. How does the finding of notice of withdrawal affect prior graduates?
Degrees previously conferred are not affected.
6. What happens when the improvement plans are submitted in October 2017?
The CHE will evaluate the plans when they are submitted, and the programmes remain accredited until a decision is taken whether the improvement plan is sufficient and has been fully given effect to or not. The institutions will have to submit progress reports to the CHE indicating implementation of measures contained in the improvement plan.
Should a decision at some stage be taken that a programme’s accreditation must be withdrawn, a teaching-out plan would be implemented so that all enrolled students would have the opportunity to graduate with an accredited degree.
For more information on the CHE’s pronouncement please contact Moleboheng Moshe-Bereng on MosheBerengMF@ufs.ac.za.