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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.
UFS cardiac team leading with project
2017-05-31
Prof Peter Schultheiss of the Charité University in Berlin,
Germany, visited the Robert WM Frater Centre for
Cardiovascular Research at the UFS for a study regarding
cardiomyopathy, a significant cause of fatal heart failure
among Africans. From the left are Dr Glen Taylor,
Dr Danie Buys, Prof Makoali Makatoko,
Prof Schultheiss and Prof Francis Smit.
Photo: Rulanzen Martin
A team of cardiac doctors associated with the Robert WM Frater Cardiovascular Research Centre at the University of the Free State’s (UFS) Faculty of Health Sciences has commenced with a pioneering research project regarding idiopathic dilating cardiomyopathy.
An Afrocentric research focus
Prof Francis Smit, Head of the Department of Cardiothoracic Surgery at the UFS and Head of the Frater Centre, describes dilating cardiomyopathy as a heart muscle disease that is quite common, particularly among people of African descent. The disease weakens the heart muscle, which in turn leads to heart failure.
“To date there is no curable treatment for this condition and 50% of patients that have shown heart failure, died within a period of five years. The causes of this condition have been unknown in the majority of patients. But over the past few years major strides have been made where virus infections of the heart muscle or myocarditis have been identified as a possible underlying cause. Various genetic diseases are also linked to it,” says Prof Smit.
International collaborations ensure success
According to Prof Smit, the project is being run in conjunction with Prof Heinz-Peter Schultheiss of the Charité University and the Institute for Cardiac Diagnostics and Therapy in Berlin, Germany.
“We have been working on the project over the past 18 months and I have twice visited Prof Schultheiss in Germany. He is now visiting us in Bloemfontein. We have established a collaborative project focused on patients in central South Africa”.
Prof Schultheiss is a world leader regarding the diagnosis, pathology and treatment of dilating cardiomyopathy, says Prof Smit.
“He brings a lifetime of research experience to Bloemfontein and is internationally renowned as the father of myocardial or heart muscle biopsies.
“His pioneering work on the discipline has led to diagnostic accuracy that has induced purposeful and personalised treatment of dilating cardiomyopathy and has brought about dramatic changes in some subsets of patients’ life expectancy and their cure.”
Solving problems close to home
According to Prof Mokoali Makatoko, Head of the Department of Cardiology, there are more than 1500 new cases of heart failure identified annually at the Universitas Academic Hospital, of which approximately 30% are attributed to cardiomyopathy. “With the use of endomyocardial biopsies the team hopes to treat viruses unique to Southern Africa as well as other underlying causes of dilating cardiomyopathy.”
Prof Stephen Brown, Head of Paediatric Cardiology at the Universitas Academic Hospital, says children suffering from this disease never reach a mature age and those under his supervision will also be undergoing these tests. Various other departments at the UFS will also participate in this project. Profs Makatoko and Brown did the first four endomyocardial biopsies under the management of Prof Schultheiss during the past week. The results will be available in the coming weeks after which the project will be officially launched and patient recruitment will start in earnest.