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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.
New developments in the Faculty of Theology and Religion
2017-08-30
Bishop JM Khumalo, Apostolic Church of
Christ; Prof Fanie Snyman, Dean of the
Faculty of Theology and Religion; and
Rev Simon Galada, Wesleyan Church,
at the faculty’s official opening in
February 2017.
Photo: Eugene Seegers
At a meeting of the UFS Council last year, a name change was accepted for the Faculty of Theology, renaming it to the Faculty of Theology and Religion. This change signals openness in approach to other religions, in addition to those of Christian denominations. This is a development that took root in Europe a few years ago. Furthermore, a growing field of interest is the study of the impact religion has had and still has, even in highly secularised societies. This name change is the first of its kind in South Africa, which means that the faculty will lead the way in transformation and impact-based religious studies.
Exciting times lie ahead
Prof Fanie Snyman, Dean of the faculty, says of these refinements: “The new name and restructuring of departments will lead to a new synergy that will have an impact on our teaching and research in the faculty. Exciting times lie ahead for the Faculty of Theology and Religion!”
Apart from the change in the name of the faculty, departments within the faculty were also regrouped, with new names. The Departments of Old Testament and New Testament merged to become the Department of Old and New Testament Studies, while the Departments of Systematic Theology and Ecclesiology merged and will now be known as the Department of Historical and Constructive Theology. The former Departments of Practical Theology and Missiology became the Department of Practical and Missional Theology. The Department of Religion Studies remained unchanged to emphasise the importance of religion in South Africa and the world at large.
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Distinction of theological disciplines
The rationale for these groupings is the distinction of theological disciplines in terms of the study of texts (Old and New Testament), sources (Systematic Theology and Church History), and practices (Practical Theology and Missiology). One benefit of these newly-constructed departments is that they will be more cost-effective, but the more important advantage is that this will stimulate discussion and research across the various theological disciplines.