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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 departments receive recognition for quality work from MACE

2017-12-07

The team from the Department of Communication and Brand Management,
UFS Marketing and Institutional Advancement who received awards at the
2017 Annual National MACE Congress.
Photo: Supplied

The Departments of Communication and Brand Management, UFS Marketing, and Institutional Advancement collectively won 16 awards during the 2017 Excellence Awards presented by the National Association of Marketing, Advancement, and Communication in Education (MACE), which took place in Johannesburg on 30 November 2017.

Shared experiences and best practices
The awards ceremony is part of the MACE Annual National Congress, which took place from 29 November to 1 December 2017 at the Wits School of Governance. The MACE Congress is a platform on which experts from the fields of marketing, advancement, and communication share experiences and best practices. This year’s programme included speakers such Basetsana Kumalo, CEO of Basetsana Woman Investment Holdings and a former Miss South Africa (1994), and first runner-up in the Miss World Pageant, Saint-Francis Tohlang, independent trend analyst and writer, Emma Sadleir, founder of the Digital Law Co and Leanne Manas, multiple award-winning TV presenter.

Celebrating successes
Lacea Loader, Director of the Department of Communication and Brand Management at the University of the Free State, received an Award of Excellence Gold for the UFS Graduations Ceremonies Communication Strategy and an Award of Excellence for the UFS Rector’s inauguration and welcoming ceremonies.

Mamosa Makaya, Deputy Director: Integrated Communication received two Merit Awards for, respectively, the Dumela newsletter and the Visitor’s Guide. Jóhann Thormählen, former employee in the department’s Internal Communication Unit, received an Award of Merit for the Wayde van Niekerk Campaign and an Award of Excellence Gold for the Student Newsletter. Thabo Kessah, also from Internal Communication, on the UFS Qwaqwa Campus, received an Award of Merit for the UFS Qwaqwa Campus Open Day video.

"I am extremely proud of what we
have achieved this year and of
the quality and standard of the
work produced."

Martie Nortjé, Assistant Director of the Unit for Branding and Merchandise received an Award of Merit for KovsieGear Qwaqwa: Live the brand and set the trend. Leonie Bolleurs, Assistant Director of the Unit for Internal Communication received two Awards of Merit, for respectively, the UFS Schools Marketing Video and the UFS Corporate Profile and UFS Fingertips brochures.

Ilze Bakkes from UFS Marketing received the Chairperson’s Award of Excellence for her entry, Top Achievers Early Bird Registration. The award is for the highest-scoring entry across all divisions. She also brought home the Award of Excellence Gold for Registration branding and communication – The Lighthouse Campaign, the Award of Excellence Gold for the Kick-Start Your “I-Want-To-B” Grade 9 Subject Choice Booklet and the Award of Excellence Gold for the Top Achievers Early Bird Registration project. Chantel Koller, also from UFS Marketing, received an Award of Merit for her Star of Stars Competition entry.

The Institutional Advancement (IA): Alumni event planning committee received an Award of Excellence Gold for their entry: Chancellor’s Distinguished Alumni Awards Dinner. The committee consisted of Helen Namponya, Ntokozo Nkabinde, Tertia de Bruin, Nhlanhla Modzanane, and Elmada Kemp.

IABC Africa Award
“This is the second year in a row that the department has received so many accolades from its peers at MACE. I am extremely proud of what we have achieved this year and of the quality and standard of the work produced. The fact that we were also again acknowledged by the Africa Chapter of the International Association of Business Communicators (IABC) is also commendable,” said Loader. She is also the National Chairperson of MACE.

Earlier this year, the Department of Communication and Brand Management received an IABC Africa Award of Excellence for the UFS 2017 Winter Graduation Ceremonies Communication Strategy from the International Association for Business Communicators (IABC). Loader collected the award during the Silver Quill Awards ceremony on 3 November 2017 in Cape Town.

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