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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 presents sport concussion programme for schools

2008-11-14

The Sports Medicine Clinic at the University of the Free State (UFS) will present a sports concussion programme for schools in the Free State.

“The Pharos Schools Concussion Programme makes the latest methods and technology in concussion management available to learners who play contact sport,” says Dr Louis Holtzhausen, Programme Director of Sports Medicine at the UFS.

The great risk of concussion is that there is an uncertainty about when a player can return to a sport with safety and with the minimum complications in the brain. This programme fills that gap to a large extent.

“By using this programme, no player who suffers concussion will return to play before it is medically safe to do so. The programme also educates players, parents, coaches and the medical fraternity on how to manage sports concussion,” says Dr Holtzhausen.

The programme has been designed for hockey, soccer, cricket, rugby and other contact and collision sports.

SA Rugby has used the programme for professional players for the last five years and advocates that all school rugby players should participate in the programme.

Several sports teams from schools in and around Bloemfontein as well as the University’s Shimla and Irawa rugby teams have already been tested. This will provide invaluable information in the management of possible head injuries.

“We can now give definite guidelines to players and coaches regarding the safe return of players to teams after such an injury. It takes a lot of the guesswork out of the management of concussion and provides peace of mind to coaches, parents and players regarding serious injuries,” says Dr Holtzhausen.

By enrolling in the concussion programme, learners and their parents are ensured of among others:

A baseline computer brain-function test before the start of the season.
Information on how to recognise and treat concussion, including a fieldside information card for the player’s team.
A free consultation and neurological examination by a sports physician after any suspected concussion.
As many brain-function tests and sports-physician consultations as necessary after any concussion, until complete recovery.
Referral to a network of specialists if necessary.

The Pharos Programme uses a cognitive function evaluation called Cogsport. This is a neurophysiological test that measures brain function before the season starts. In this way, a baseline standard is established and, should concussion occur during the season, the extent of it can be measured according to the baseline and rehabilitation.

“Once we have the baseline values, the concussed player’s return to those levels must be monitored. He/she can return to light exercise in the meantime and semi- and full-contact can be introduced at appropriate times,” says Dr Holtzhausen.

The cost of enrolment is R200 per learner, regardless of the number of concussions suffered or sports physician consultations received. “By enrolling in this programme, parents will ensure that their child has the best chance of avoiding the potentially serious consequences of concussion, including learning disabilities, recurrent concussions, epileptic fits and even death,” says Dr Holtzhausen.

More information on the programme can be obtained from Ms Arina Otto at 051 401 2530.

Media Release
Issued by: Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
14 November 2008

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