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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

New name and format for UFS Rag
2017-11-02

Description: Rag new format  Tags: Rag new format  

The community garden project will help individual student communities
to begin and maintain their own vegetable gardens to address food insecurity
within their own environment.
Photo: Pixabay

Get ready for celebrating with a cause at the University of the Free State (UFS). After an external review and internal consultation process, our “giving back” will get a fresh new look. Our RAG, as you know it, will have a new name and format going forward. 

Innovative thinking will align the UFS Student Affairs, RAG Community Services (RCS), Community Engagement (CE), and Services Learning (SL) to deliver suitable contributions for current community needs. We will guide the alignment process with an integrated framework for learning and developmental outcomes. If the RCS, CE, SL, and Student Affairs align their specific programmes and activities to achieve the same developmental outcomes, we believe that the collective effect will be enhanced. You get further if you pull in the same direction, rather than various good-intentioned movements on different routes. 
 
Stronger together An Institutional Committee for Civic and Social Responsibility (CSR) will act as the overarching structure for accountability, alignment, and advice to the RCS, CE and SL divisions. In a collective effort, four exciting programmes will take flight.

1 Schools project for first-year students Mentored by senior students, groups of first-year students will be assigned to, and participate in local school projects. Students will learn to solve problems and work together in small groups as they collaborate on a specific community project involving primary or secondary schools in the Mangaung region. 

2 Community gardens This project will help individual student communities to begin and maintain their own vegetable gardens to address food insecurity within their own environment.

3 Eco-vehicle project for senior students The aim of the eco-vehicle project is to create an interdisciplinary experience. Undergraduate senior students from a Student Life College (SLC) can work together to build an eco-vehicle from waste material. The track day, along with creative pit stops, will take place on 16 February 2018, preceding the Community celebration of 17 February 2018.

4 Community celebration To foster good relationships between the UFS and the community, we aim to host an annual celebration that will be open to the broader Mangaung community. The celebrations will kick off on the morning of 17 February 2018 with a business relay and a showcase of the eco-vehicles. The festive day will conclude with an evening music concert. 

We have yet to rename “RAG”, and while this creative process is brewing, you can look forward to paying it forward with value! Any suggestions with regard to a new name for our new process can be forwarded to scheepersk@ufs.ac.za 

Name suggestions will be accepted until 30 November 2017.

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