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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
UFS welcomes Constitutional Court’s ruling on its Language Policy
2017-12-29
The executive management of the University of the Free State (UFS) welcomes today’s judgement by the Constitutional Court in favour of the university’s Language Policy. The judgement follows an appeal lodged by AfriForum against the judgement and order delivered by the Supreme Court of Appeal (SCA) on the implementation of the UFS Language Policy on 28 March 2017.
In a majority ruling, Chief Justice Mogoeng Mogoeng denied AfriForum’s application for leave to appeal the SCA’s ruling, and said the UFS Council’s approval of the Language Policy was lawful and constitutionally valid. The court found that the adoption of the Language Policy was neither inconsistent with the provisions of the Constitution, nor did it violate the Constitutional rights of any students and/or staff members of the UFS.
Today’s landmark judgement is not only paving the way for the UFS to continue with the implementation plan for its Language Policy as approved by the UFS Council on 11 March 2016, but it is also an indication of the value which the university’s decision to change its Language Policy to English as primary medium of instruction has on higher education in South Africa.
“The judgement by the Constitutional Court is not a victory against Afrikaans as language. The UFS will continue to develop Afrikaans as an academic language. A key feature of the UFS Language Policy is flexibility and the commitment to strive for a truly multilingual environment. Today’s judgement allows the UFS to proceed with the implementation of its progressive approach to a language-rich environment that is committed to multilingualism,” says Prof Francis Petersen, Rector and Vice-Chancellor of the UFS.
According to Prof Petersen, the UFS is dedicated to the commitments in the Language Policy and, in particular, to make sure that language development is made available to students in order to ensure their success as well as greater levels of academic literacy – especially in English. This includes contributing to the development of Sesotho and isiZulu as higher-education languages within the context of the needs of the different UFS campuses.
“We can now continue to ensure that language is not used or perceived as a tool for the social exclusion of staff and/or students on any of the three campuses, and continue to promote a pragmatic learning and administrative environment committed to and accommodative to linguistic diversity within the regional, national, and international environments in which the UFS operates,” says Prof Petersen.
The UFS is the first university in South Africa appearing before the Constitutional Court regarding its Language Policy.
During 2017, the Faculties of Health Sciences, the Humanities, and Law started with the implementation of the new Language Policy at first-year level. This includes the presentation of tutorials in Afrikaans. The remaining faculties will start implementing the policy as from 2018.
Released by:
Lacea Loader (Director: Communication and Brand Management)
Telephone: +27 51 401 2584 | +27 83 645 2454
Email: news@ufs.ac.za | loaderl@ufs.ac.za
Fax: +27 51 444 6393
Related articles:
UFS welcomes unanimous judgement about its Language Policy in the Supreme Court of Appeal (28 March 2017)
Judgement in the Supreme Court of Appeal about UFS Language Policy (17 November 2016)
Implications of new Language Policy for first-year students in 2017 (17 October 2016)
UFS to proceed with appealing to Supreme Court of Appeal regarding new Language Policy (29 September 2016)
UFS to lodge application to appeal judgment about new Language Policy (22 July 2016)
High Court ruling about new UFS Language Policy (21 July 2016)
UFS Council approves a new Language Policy (11 March 2016)