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20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied
AnnelizeOosthuizen
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.

Opinion article by 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.

News Archive

Community of Qwaqwa gives Prof Petersen a warm Basotho welcome
2017-05-16

 

 Description: Prof Petersen with Basotho hat and blanket Tags: Prof Petersen with Basotho hat and blanket

 Prof Francis Petersen, Vice-Chancellor and Rector of the University of the Free State
Photo: Ian van Straaten

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Video

Various stakeholders pledged their support to the newly-appointed Vice-Chancellor and Rector of the University of the Free State (UFS), Prof Francis Petersen, during the first in a series of welcoming events that was held at the Qwaqwa Campus on Thursday 11 May 2017.

A message of support and welcome from the Paramount Queen of the Bakoena Royal Council, Mofumahadi Mathokoana Mopeli, took everybody in attendance back three decades to the time when the campus was first established.

“The Qwaqwa Campus of the then University of the North was created to swell this area and the broader Eastern Free State with intellectual capacity,” she said.

“It is with this in mind that we encourage you, Prof Petersen, to continue upholding the best of your predecessors. Search for what they could not achieve and learn from that. Traditional leadership in this area will always be a friend to the university,” she added.

Description: Community of Qwaqwa gives Prof Petersen a warm Basotho welcome Tags: Community of Qwaqwa gives Prof Petersen a warm Basotho welcome

Prof Petersen received a warm Basotho
welcome from Morena Thokoana Mopeli and
Paramount Queen Mofumahadi Mathokoana Mopeli of
the Bakoena Royal Council. With them is
Mrs Cheslyn Petersen.
Photo: Thabo Kessah

The Thabo Mofutsanyana Education District was represented by the Acting District Director, Lindiwe Mabaso, who expressed the district’s pride in being associated with the university.

“Our district is excelling in Mathematics and Science, and this can be attributed to the educators that we get from the Qwaqwa Campus. We are proud to say that we are number one nationally when it comes to Mathematics and Science, and this is through the support we get from the campus. Our schools will continue to be centres of excellence under the new leadership of Prof Petersen,” she said.

Staff and students weigh in

Both Nehawu and Uvpersu expressed their optimism in working with Prof Petersen.

Branch chairperson of Nehawu, Teboho Pitso, said the union appreciated the fact that Prof Petersen was taking over the leadership of the institution at a very difficult time, both institutionally and nationally.

“As workers, we are faced with a lot of challenges and we hope that none of us will be retrenched under your leadership,” he said to an appreciative audience consisting of various internal and external stakeholders.

Acting Chairperson of UVPERSU, Khethiwe Biyo, said the workers’ union was happy that Prof Petersen believed in teamwork.

“Your commitment in working with us is appreciated. We look forward to learning from you about institutional innovation,” she said.

Students were represented by the Qwaqwa Campus SRC President, Njabulo Mwali, who expressed the need for a deeper and detailed transformation process.

“Your expertise and skills have set you above all other aspirant applicants for this position, and we hope that we will learn a lot on this journey,” he said.

“We at the UFS are actively, intentionally,
and continuously engaged in promoting
diversity.”

"Ensure fairness" 

In his response, Prof Petersen emphasised the importance of inclusivity and innovativeness. He said, “Staff and students at the three sites of learning must do all they can to ensure that the UFS realises its goal of being an inclusive institution, one that provides equal access and opportunities to everyone, makes a conscious effort to prevent discrimination, and ensure fairness.”

“Being committed to inclusivity means that we at the UFS are actively, intentionally, and continuously engaged in promoting diversity. This diversity is expressed through our people and through the curriculum, and in the way we work with our communities to promote awareness, empathy, and understanding of the complex ways individuals interact. As you know, our ultimate goal as a university is not only to educate young people up to the point that they graduate. What they learn during their time with us should help shape them into people who can think innovatively in order to address the challenges that face us in the 21st century,” he said.

The Qwaqwa Campus Chorale and the award-winning choir from The Beacon Secondary School in Phuthaditjhaba provided the entertainment.

Similar events will respectively be hosted on the South and Bloemfontein Campuses on 18 and 19 May 2017.

 

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