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Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

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

UFS gives recognition to excellent researchers

2004-11-16

p>The University of the Free State will give recognition to excellent researchers at UFS on Tuesday 16 November 2004. “This recognition function will also serve as the first annual lecture in research excellence,” says Prof Frans Swanepoel, Director of Research Development Division at the UFS.

This is the first occasion of its kind in the UFS. It coincides with the university’s centenary celebrations. The recognition of excellent research shows the UFS’s commitment and innovative focus on research as one of its core functions,” says Prof. Swanepoel.

Recognition will be given in different categories. They are female researchers, black researchers, young researchers, C- and L-Rated researchers, researchers with significant research outputs, B-Rated researchers and distinguished professors in research.

The promotion of equity and development of research capacity of designated groups is one of the objectives of the UFS’s research strategy therefore the university is recognising the research achievements of 21 women and 16 black persons. Amongst these are Prof. Margaret Raftery (English and Classical Languages), Dr Liesl van As (Zoology and Entomology), Prof. Peter Mbati (head of the Qwaqwa campus) and Prof. Charles Ngwena (Constitutional Law and Philosophy of Law).

The UFS is also recognising nine young researchers. They must hold a doctorate and have the potential to establish themselves as researchers within a five-year period based on their performance and productivity as researchers during their doctoral studies and/or early post-doctoral careers. Amongst them are Dr Esta van Heerden (Microbial Biochemical and Food Biotechnology) and Prof. André Jooste (Agricultural Economics).

Fifty-eight established researchers with a sustained recent record of productivity are receiving recognition in the C- and L-rated researchers’ category. Amongst them were Prof. Hennie van Coller (Afrikaans, Dutch, German and French) and Prof. Gert Erasmus (Animal- and Wildlife- and Grassland Sciences).

Prof. Francois Tolmie (New Testament) and Prof. Gina Joubert (Biostatistics) are two of the twelve researchers that are receiving recognition for having excelled in research outputs during recent years.

Nine researchers are acknowledged in the B-category for the international recognition they receive from their peers for the high quality and impact of their recent research outputs. Amongst them were Prof. Johan Grobbelaar (Plant Sciences) and Prof. Hendrik Swart (Physics). Prof. Grobbelaar focused in his research on limnology, algal biotechnology, plant stress and Prof. Swart focused on solid state physics and degradation mechanisms that are responsible for the degradation of field emission and TV displays.

Seven individuals are recognised for their exceptional achievements as researchers. Prof. Frederick Fourie, Rector, but previously in the Department of Economics, is recognised for his research in two policy areas: Political Economics, Government Finance and Fiscal Policy, and Industrial Economics, in particular analysis of the South African industrial structure and competition policy, where his research contributions played a key role in reforming South Africa’s competition policy.

Prof. Lodewyk Kock (Microbial, Biochemical and Food Biotechnology) focuses in his research mainly on pure and oxidised edible oil where yeasts are used as a study model. He obtained national as well as international recognition for this research program.

The UFS is also awarding the S2A3 Bronze Medal to recognise a Master’s degree student who has delivered outstanding research in one of the sciences. Mr Pieter Taljaard and Ms Tania Venter are recognised in this category.

Media release
Issued by: Lacea Loader
Media Representative
Tel: (051) 401-2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za
16 November 2004

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