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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

Krieket - Kovsies klop SUT

2005-01-31

Johan de Jager - Volksblad OFSKOON die spanne nie op volsterkte was nie, was die superligawedstryd tussen die Universteit van die Vrystaat (UV) en die Sentrale Universiteit vir Tegnologie, Vrystaat (SUT), Saterdag op Tokkiepark in Bloemfontein 'n toonbeeld van goeie klubkrieket. Die Kovsies het hul onoorwonne rekord behou toe hulle met ses paaltjies geseëvier het. Hulle het die wenteiken van 233 lopies in die 48ste boulbeurt oortref. Die voormalige kaptein Gerald Fourie (95 nun) het die aanslag gelei, terwyl die wenspan se Ryan McLaren (2/46 en 46) 'n veelsydige vertoning gelewer het. McLaren het hom op 'n driekuns bevind toe hy die laaste twee paaltjies ingeoes en toe byna 'n vyftigtal gemoker het. Die tuisspan het goed begin. Hy het egter ses paaltjies in die laaste tien boulbeurte verloor. Die Kovsies het mooi herstel nadat hulle 24/2 gehad het. Die tuisspan se Dewald Pretorius het met 2/11 ná agt boulbeurte gespog . Die wedstryd op CBCOB se veld tussen die tuisspan en SUT II is ná 'n ruk se spel aanvanklik afgelas omdat toestande as te gevaarlik bestempel is, maar is later die middag hervat en oor 25 boulbeurte aan 'n kant beslis . SUT II is vir 82 lopies uitgehaal, waarna CBCOB die wenlopies behaal het met nog vier paaltjies staande . Schoemanpark was in Mangaung met vyf paaltjies aan die wenkant teen Rocklands, terwyl Polisie sy tweede agtereenvolgende nederlaag in die tweede ronde gely het nadat die Peshawars hom naelskraap met 'n paaltjie op die UV-ovaal geklop het. Die tuisspan se Ferdi Botha (116) se honderdtal het gehelp dat die Peshawars die wedstryd met nog twee aflewerings oor kon wen nadat Polisie vroeër 221/8 aangeteken het. Die beknopte telkaarte is: SUT 232 (I. O'Neill 37, H. von Rauenstein 67, G. Liebenberg 26, G. McLaren 28; C. Deacon 2/47, R. McLaren 2/46, G. Perry 2/29, C. Ingram 2/44); UV 234/4 (R. McLaren 46, G. Fourie 95 nun, C. Linde 27, E. Weirich 27 nun; D. Pretorius 2/29). Kovsies wen met ses paaltjies. SUT II 82 (J. Labuscagne 21, A. van Deventer 16; J. Chemaly 3/11, M. Mashimbyi 2/7, J. Malao 2/19); CBCOB 84/6 (M. Mashimbyi 22, T. van der Westhuizen 21, P. Stander 21; R. Daniël 2/6, R. Wessels 2/17). CBCOB wen met vier paaltjies. Rocklands 107 (D. Makopanele 22); Schoemanpark 108/5 (J. Smith 37; N. Sefuthi 2/14). Schoemanpark wen met vyf paaltjies. Polisie 221/8 (W. Nel 86, B. Hector 62; N. de Bruin 4/49, J. Mostert 1/19, R. de Kock 2/50); Peshawars 222/9 (F. Botha 116, J. Mostert 26; W. Thies 3/30, E. van Niekerk 3/43). Peshawars wen met 'n paaltjie.

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