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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.
Literacy Month fosters the love of reading
2017-09-19
Vutivi Baloyi author of Keep Hoping with Neo Kgoroba
one of the co-authors of In Our Own Words.
Literacy Month is celebrated in September each year at the University of the Free State (UFS) with various activities that are academic and community related and aim to join different departments in collaborative efforts to carry forward an awareness of literacy and the joy of reading among learners. The UFS Sasol Library lined up a series of events to celebrate the month, one of them being the launch of two books on 14 September 2017.
Vutivi Baloyi is a UFS student who wrote a collection of poems at the age of 17 which were recently published in a book called Keep Hoping. The book was launched alongside In Our Own Words, a collection of narratives written by UFS students about university life and transitioning from township high schools to a different culture, society and community, and the challenges with which they are faced.
In their own words, they share incredible experiences
The launch was attended by learners from Christian Liphoko High School in Thaba Nchu as well as Moroka High School and others. The compilation of narratives by UFS students was done under the auspices of Prof Merridy Wilson-Strydom through the Enabling Success project in the Centre for Research in Higher Education. Prof Wilson-Strydom said the project, supported by the National Research Foundation, was a profound way of empowering students by bringing out the value of the stories of their life on campus as they saw them, with each student writing a chapter on a specific theme.
Students as change agents and community builders
The student authors spoke to their audience from the heart, sharing words of advice, especially to younger learners who are still in high school. This has sparked a desire for the beginning of collaborative programmes between the individual university students and high school learners who hail from Botshabelo and Thaba Nchu, highlighting the need for mentorship, life skills, academic improvement and an opportunity to give back.
The event is also part of the ongoing Launch Your Own Book project that has grown in 2017 at the UFS Library under the leadership of Mr Marcus Maphile, Assistant Director: Library Marketing and Community Engagement. Literacy Month will be celebrated with more events in September such as a round-table discussion in collaboration with the Academic and Non-Fiction Authors Association of South Africa (ANSAFA) on 20 September 2017 at the library, to discuss developing authors and the role of ANSAFA. More activities will include outreach and community engagement, with a visit to Christian Liphoko High School in Thaba Nchu on 21 September 2017.