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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

SAB World of Learning Brewery bid awarded to Kovsie Brewing
2017-11-28

Description: Kovsie Brewing 2 2017 Tags: Kovsie Brewing 2 2017 

Visitors from SA Breweries (AB InBev), Khosi Mogotsi,
Patience Selesho and Zinhle Ngcobo with
Dr Jan-G Vermeulen and Dr Errol Cason from
Kovsie Brewery.
Photos: Moeketsi Mogotsi

With the recent procurement of SAB by Anheuser-Busch InBev SA/NV (AB InBev), a Belgian transnational beverage and brewing company, the 500L educational brewery located at the SAB Cyril Ramaphosa World of Learning, became available for donation. After an initial shortlisting of three universities, the SAB World of Learning Brewery was awarded to the University of the Free State (UFS) to be managed by Kovsie Brewing.

Prof Corli Witthuhn, Vice-Rector: Research at the UFS, approved the application for a micro-manufacturing liquor licence right in the middle of campus, which effectively put the UFS bid in a class of its own. It is part of her vision that entrepreneurial activities must be visible on campus”

Sixteen universities were approached to obtain the brewery for their respective campuses.

Kovsie Brewing is an initiative started by postgraduate students at the UFS Department of Microbial, Biochemical and Food Biotechnology in 2012. The main objective of this initiative was to expose BSc students to brewing as a practical application of the scientific fields presented at the department.
 

Description: Kovsie Brewing 1 2017 Tags: Kovsie Brewing 1 2017 

Label mock-ups made by
Dr Jan-G Vermeulen from
Kovsie Brewery entered into
the yearly  SAB Intervarsity
Brewing Competition. Kovsie
Brewing has won the best label
competition in 2013, 2014 and 2015
and was placed in the top three in
2016 and 2017.


First brewing and fermentation school
Dr Errol Cason, project leader at Kovsie Brewery, said: “Over the past five years the small-scale experimental brewery has steadily grown to the point where we obtained institutional support to establish the first Brewing and Fermentation School at the university.

Dr Cason explains that the primary role of Kovsie Brewing is to establish an accredited fermentation-based curriculum at the UFS to educate undergraduate and postgraduate students in the scientific process involved in the production of beer. “In addition, the donation enables Kovsie Brewing to provide practical job-related training and skills development on industrial grade equipment,” he said.

Emphasis on entrepreneurship
The secondary role is for Kovsie Brewing to function as a multi-disciplinary platform to stimulate the interaction between students from various fields of study. Currently Kovsie Brewing has well-established cooperative projects with both Marketing and Entrepreneurship programmes.

“In the future, Kovsie Brewing will expand on these multi-disciplinary interactions by incorporating other departments of the UFS with the focus on product development, logistics, as well as the legal aspects concerned with brewing,” Dr Jan-G Vermeulen from the Kovsie Brewery team said.

Corporate social investment representatives from AB InBev recently visited the university. Among others they met Drs Vermeulen and Cason. During their visit they also looked at other university projects, including the Department of Paediatric and Child Health and the Universitas Hospital, the Engineering Sciences Department and the Naval Hill Planetarium.

Khosi Mogotsi from AB InBev said: “It was wonderful to experience the passion with which UFS staff do their work.”

 

 

 

 

 

 

 

 

 

 

 

 

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