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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

State-of-the-art physics equipment and investment in students result in academic success
2017-09-26

Description: State-of-the-art physics equipment 1 Tags: State-of-the-art physics equipment 1 

At the recent nanotechnology facility tour at the UFS,
were, from the left, Dr Mthuthuzeli Zamxaka, SAASTA;
Prof Hendrik Swart, Sarchi Chair in the Department of Physics;
and Xolani Makhoba, Department of Science and Technology.
Photo: Leonie Bolleurs

Nanoscience, which is revealing new properties of very small arrangements of atoms, called nanoparticles, is opening a new world of possibilities. The Department of Physics at the University of the Free State is undertaking fundamental research with potential commercial applications. Its equipment and expertise is giving solid state physics research the edge in South Africa.

The UFS team of researchers and students are passionate about studying planets and atoms, all under one roof. Recently, the department, in collaboration with the South African Agency for Science and Technology Advancement (SAASTA), hosted a nanotechnology facility tour to give the public, learners and the media the opportunity to familiarise themselves with the science of nanotechnology, its origins, potential applications and risks.

Successes of the department
According to Prof Hendrik Swart, Senior Professor in the Department of Physics, the increase in resources since 2008 is playing a big role in the success rate of its research outputs. The Sarchi Chair awarded to Prof Swart in 2012 (bringing with it funding for equipment and bursaries) also contributed to the successes in the department.

The UFS Directorate Research Development also availed funding that was used for bursaries. These bursaries made it possible for the department to appoint 10 post-doctoral fellows, not one of them originally from South Africa.

The investment in people and equipment resulted in researchers and students publishing some 80 articles in 2016. Their work was also cited more than 900 times by other researchers in that year.

Another highlight in terms of the department’s growth in the past 10 years is the new wing of the Physics Building. Physics at the UFS is the only place in sub-Saharan Africa where state-of-the art equipment is found under one roof.

Description: State-of-the-art physics equipment 2  Tags: State-of-the-art physics equipment 2  

Antonie Fourie, Junior Lecturer in the UFS Department of
Physics, explained to a group of delegates and
members of the media the workings of an electron beam
evaporation system.
Photo: Leonie Bolleurs

Application of research
The department is a unique research facility with equipment that includes the X-ray Photoelectron Spectrometer (for the study of atoms), the Scanning Auger Microscope, as well as the Ion Time-of-Flight Secondary Ion Mass Spectrometer (revealing the chemical bonds in a sample, and drawing maps of the positions of atoms).

One of the areas on which the department is focusing its research, is phosphors. Researchers are exploring light emitting diodes (LEDs) which use less energy, are brighter and provide a wider viewing field. They are also looking into LED displays (LCDs) which are used in flat screens – the phosphors create the different colours and backlighting.

The research on solar cells reveals that phosphors can increase their efficiency by increasing the range of light frequencies which can be converted into electricity. Glow-in-the-dark coatings absorb light in the day and emit it later so cells can charge at night. As glow-in-the-dark phosphors become cheaper and more effective, they can be used as a lighting substitute on the walls of houses, street numbers and stop signs.

Video production of the Department of Physics research and equipment

 

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