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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

Award-winning architect firm presents the 29th Sophia Gray Memorial Lecture and Exhibition
2017-09-07

  Description: Arch break Tags: Sophia Gray Memorial Lecture and Exhibition, Elphick Proome Architects, South African Institute of Architects

At the Sophia Gray Bursary Fund breakfast, were from the left:
Henry Pretorius, head of the UFS Department of Architecture,
AJ Corbett, and Boipelo Morule, third-year student
in Architecture and Prof Francis Petersen, UFS Rector
and Vice-Chancellor, 
at the UFS
Photo: Stephen Collett

The laureates of this year’s Sophia Gray Memorial Lecture were George Elphick and Nicholas Proome from the award-winning architecture firm, Elphick Proome Architects (EPA). Over the past 28 years this Durban firm has received 26 awards and its work has been published in 26 magazines.  

From bedroom to boardroom
EPA is involved in major corporate architecture as well as several residential projects. It believes that good design is produced from careful study and research combined with sound technical knowledge and artistic judgement. At the 29th Sophia Gray lecture, presented by the Department of Architecture at the University of the Free State, EPA addressed the Bloemfontein community, stating that architecture was about people, space and light. 

For EPA, architecture is the form of art with the most impact on society. “Ultimately, our architecture needs to be enjoyed and be hard to forget,” it said. 

In its three decades of practice, most of EPA’s built work has been executed in South Africa. It has also completed projects beyond South African borders, including Mozambique, Kenya, Ghana, and France. 

The lecture was followed by the opening of the 29th Sophia Gray Memorial Exhibition at Oliewenhuis Art Museum.

New PhD in Architecture with Design announced
A highlight at this year’s lecture was the announcement by Henry Pretorius, the head of the department, of a new and innovative doctoral programme, the PhD in Architecture with Design. From 2018, students with a MArch (professional) or MArch can enrol for this postgraduate qualification.

“The programme recognises the intelligence and ingenuity of design. Its primary objective is to harvest and study the implicit orientations, operations, and achievements of design, and to enlist creativity in the formation of new knowledge. The degree facilitates analytical reflection, stimulates creative action, and opens new insights into the unique logic of design,” said Pretorius.

“Although design-based research has gained international momentum in recent years, similar research has not been done in South Africa until now.”

Contribution to the Sophia Gray Bursary Fund 
During a breakfast function, the department also announced another initiative, the Sophia Gray Bursary Fund. Prof Francis Petersen, Rector and Vice-Chancellor at the UFS, said that the type of architecture in developing countries was different from places such as New York and other big cities in developed countries. For a transformed profession we need architects from different cultures and demographics in the system. The bursary fund was a fantastic starting point for this to happen. 

The Sophia Gray Bursary Fund initiative is part of a greater call to alumni and friends of the department to be actively involved in the department’s continuous development and future endeavours towards imagination, care, and excellence.
AJ Corbett, founder and director of TCN Architects in East London, made the first contribution towards the fund. 

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