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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

Outstanding alumni celebrated at the Chancellor’s Distinguished Alumni Awards
2017-08-28

 Description: Outstanding alumni celebrated at the Chancellor’s Distinguished Alumni Awards Tags: Outstanding alumni celebrated at the Chancellor’s Distinguished Alumni Awards

From the left: Former Miss World and UFS Medical student, Rolene Strauss; Rector and Vice-Chancellor,
Prof Francis Petersen; The Chancellor’s Distinguished Alumnus of the Year,
Vian Chinner; and Chancellor of the UFS, Dr Khotso Mokhele. Photo: Charl Devenish

 

Alumni Awards Photo Gallery 

Alumni are the heart and soul of a university, a legacy that lives on for generations, bringing pride to the alma mater. Each year, the University of the Free State (UFS) through the Chancellor’s Distinguished Alumni Awards, celebrates its outstanding alumni, who have stood out among their peers, making waves in their careers, at home and abroad. The UFS Chancellor, Dr Khotso Mokhele, said the university plays a pivotal role in ensuring that students enjoy a life-long relationship with their alma mater.  He encouraged the UFS management to create opportunities to engage students during their years of study, in order to create this mutually-beneficial relationship into the future.

The Chancellor’s Distinguished Alumnus of the Year Award, the highest honour accorded to an alumnus, recognises the distinguished national or international achievements of its recipient. The award was presented to Vian Chinner, chief executive officer at Xineoh, a performance marketing company he founded in 2014. The company, based in Bloemfontein, with offices in Cape Town, Oregon in the US, and Vancouver in Canada, specialises in applying mathematical modelling and machine learning to optimise conversion in industries including real estate, mortgage banking and e-commerce. It has generated more than $30 million in revenue for its clients.

The Young Alumnus of the Year Award acknowledges the achievements of alumni who graduated within the past decade and was presented to Leah Molatseli, founder and managing director of Lenoma Legal, who graduated with an LLB at UFS in 2010.

The Cum Laude Award is bestowed upon an alumnus in recognition of excellence in any field, whether vocational or voluntary. The awards in this category were presented to three alumni:

David Abbey, Acquisition and Leveraged Finance Deal Maker at Rand Merchant Bank. David graduated with a BCom Accounting (RU) 2007 and a BCom Hons Accounting (UFS) in 2008.

Johan Eksteen, Agricon Pelleting, graduated with an MSc in Sustainable Agriculture in 1998, and received an MBA in 2005, both at the UFS.

Zola Valashiya, Co-founder and director: Debate Afrika and Schools Projects and Campaigns Manager at Corruption Watch. He graduated with an LLB (UFS) in 2014, and Masters of Public Administration (Central European University, Hungary) in 2016. He is a Mandela Rhodes Scholar (2015) and a Young African Leadership Initiative Mandela Washington Fellow (2017) and is presently featured on the Mail & Guardian list of top 200 young South Africans.

The Executive Management Award: this service award is presented to an individual who has delivered exceptional service to the UFS and is not limited to alumni of the institution, current students and the community at large. The award was presented to Sarina Cronje, Head of Athletics at KovsieSport.

She graduated with a Bachelor of Science (UFS) in 1977 and a Postgraduate Diploma in Higher Education (UFS) in 1983. She is a mother and career woman, whose family carries the same passion and drive for sports that champions are made of.

The Kovsie Ambassador Award is bestowed upon a current student whose achievements have brought him/her distinction, benefited his/her community, and brought credit to the UFS.

Crystal-Donna Roberts graduated with a BA Drama and Theatre Arts (UFS) in 2005. She is an active television, theatre and film actress who has appeared in a multitude of theatre productions in addition to starring in Afrikaans soap opera “7de Laan, Getroud Met Rugby, Montana” and “Vallei van Sluiers” in which she won public favour. She is currently playing the lead role in the internationally acclaimed film, “Krotoa” which has won numerous awards including Best Film at the Harlem International Film Festival in New York. It also won the Award of Excellence at the International Film Festival for Women: Social Issues and Zero Discrimination, and many more.

Franco Smith, Director: Free State Rugby and Assistant Coach: Springboks. He graduated with a BA Human Movement Sciences (UFS) in 1996 and began his career in rugby in 1999 when he was selected for the Free State Under-18 Craven Week team. He became a regular on the Free State Under-20 and the UFS Shimlas teams prior to his Free State Cheetahs debut in 1992. Franco was reappointed backline coach of the Cheetahs and head coach of the Shimlas in 2015. With many accolades to his name an illustrious career in coaching and management over the years, the name Franco Smith should not be foreign to true rugby connoisseurs.

The Rector and Vice-Chancellor, Prof Francis Petersen, congratulated all the award recipients: “I applaud all alumni; you have made the city of Bloemfontein and the whole province proud.” The National Executive Alumni Chairperson, Dr Pieter du Toit, congratulated the award recipients and thanked the leadership of the university as well as the event organisers. 

The awards signify the great esteem with which the UFS holds its alumni and the community that helps to drive its vision, cherish its history and pave the way for more outstanding Kovsies of the future.

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