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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

UFS Safety Awareness March set to create a safe space for students
2017-07-27

 Description: Suspicious behavior Tags: safety, campaign, SRC, communication, awareness


The University of the Free State (UFS), in collaboration with various stakeholders, has dedicated the week of 24 to 28 July 2017 to creating awareness for the safety of students on and around its campuses.

UFS and CUT unite for safety
The highlight of the week will be on Thursday 27 July 2017 when a safety awareness march will take place from the Main Building on the Bloemfontein Campus to the Bram Fischer Building, where a memorandum will be handed over to Mr Sam Mashinini, MEC for Police, Roads, and Transport in the Free State. The march is a partnership between the UFS Student Representative Council (SRC) and the Central University of Technology (CUT).

 During a meeting on 24 July 2017, the Executive Committee of Senate granted formal approval for students and staff of the Bloemfontein Campus to take part in the safety march on 27 July 2017. For this reason, all lectures will be suspended from 11:00 to 13:00 on 27 July 2017 in order to give the campus community the opportunity to participate in the march. Academic staff, as well as staff in the administrative support services, are encouraged to join the march.

Programme for the safety march:


11:00: Marchers gather in front of the Main Building

11:15: Marchers depart from the Main Building to the Main Gate

11:30: Marchers exit the Main Gate and move towards the Central University of Technology (CUT). Students and staff who are unable to participate in the rest of the march, return to their work places or classes.

12:20: UFS and CUT marchers will gather at the Bram Fischer Building, situated on the corner of Nelson Mandela Avenue and Markgraaff Street. Here, the Rector and Vice-Chancellor of the UFS, Prof Francis Petersen, and the Vice-Chancellor and Principal of CUT, Prof Henk de Jager, will address the marchers, after which the memorandum will be read by the respective SRC Presidents and handed to Mr Mashinini.

Activities underway to raise safety awareness
During the week, the Student Representative Council (SRC), together with other stakeholders, have been involved in several activities on and off the Bloemfontein Campus, including door-to-door visits to student homes and residences on and around campus, awareness campaigns at all the gates of the campus, and a Safety Dialogue that will be held on Wednesday 26 July 2017 at the Equitas Auditorium. The aim of the Safety Week is to focus on informing, educating, and encouraging students as well as the Mangaung community at large, in order to work together in creating a safe environment for students.

The week started with the roll-out of an awareness campaign titled Reach Out, which is set to bring students and the community of Mangaung together to help decrease the number of violent crimes faced by students off campus. The communication plan includes safety messages, using outdoor billboards, posters on lampposts around the residential student areas, local community radio stations, campus media, and the university’s social media platforms.

A similar student safety awareness campaign will take place on the university’s Qwaqwa Campus during the week of 31 July 2017.



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