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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

Education dialogue opens engagement on legacy of OR Tambo
2017-10-05

Description: Dialogue  Tags: OR Tambo, education, future, students, Africa, activism 

Pali Lehohla, outgoing Statistician-General speaking at the
Centennial celebration of Oliver Tambo.
Photo: Supplied


To celebrate Oliver Reginald Tambo’s centennial year, the Oliver and Adelaide Tambo Foundation, in partnership with the Rector and Vice-Chancellor of the University of the Free State (UFS), Prof Francis Petersen, and Absa Bank, hosted an interactive dialogue session, titled “Educating Africa’s Future” on 26 September 2017 on the Bloemfontein Campus.

Students encouraged to take charge of their future
The event opened up dialogue on some of the current burning issues that affect students in South Africa, societal challenges such as poverty and crime, and how leaders such as Tambo envisaged a free Africa. Prof Petersen highlighted the role that universities played in developing society, in creating leaders and crafting the path to transformation. Other speakers included Pali Lehohla, outgoing Statistician-General, Linda Vilakazi, CEO of the Oliver and Adelaide Tambo Foundation, Nombulelo Nxesi, CEO of Education, Training and Development Practices, Sector Education and Training Authority, Prof Peliwe Lolwana, Associate Professor at Wits University’s Centre for Researching Education and Labour, and Sikhululekile Luwaca, former UFS Student Representative Council (SRC) president.

Education may require a new approach
During the panel discussion that was facilitated by Phiwe Mathe, former UFS SRC President and media officer in the Office of the Chief Whip of the Free State Legislature. The audience raised concerns regarding the future of funding for university study, the securing of employment and possibilities, if any, of entrepreneurship. In response to some of the concerns, Pali Lehohla said the realities of family dynamics in South Africa affected the ability of students to be properly profiled and funded, according to family income, and that most importantly, the solutions to Africa’s challenges had to come from within and not without. Students’ questions gravitated towards the question of whether higher education in its current form was still valuable or whether new models of teaching that would foster inclusion and earlier economic independence would be of better value.

The legacy of OR Tambo continues to be honoured
The notion of education as a driver for the liberation of South Africa and the continent as a whole, poverty alleviation and freedom from colonial rule are some of the building blocks of the legacy of Oliver Tambo. 
Linda Vilakazi reiterated that students and student leaders would benefit from seeing the importance of using a broad-based African approach to the issues that plague them and their peers, rather than seeing their challenges outside of the continental context.  Sikhululekile Luwaca said higher education must be more accessible, and in order to drive change, students should use their education to become future employers rather than employees and change the face of the future themselves as was envisioned by other liberation leaders.
Caption: Pali Lehohla, outgoing Statistician-General speaking at the Centennial celebration of Oliver Tambo.

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