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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.
Project aims to boost science pass rate
2009-01-19
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Attending the launch of the HP grant of about R1 million to the UFS are, from the left: Mr Leon Erasmus, Country Manager for HP Technology Services in South Africa, Prof. Teuns Verschoor, Acting Rector of the UFS, and Mr Cobus van Breda, researcher at the UFS's Centre for Education Development and manager of the project.
Photo: Lacea Loader |
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The University of the Free State (UFS), in partnership with computer giant Hewlett Packard (HP), wants to boost the pass rate of its science students by using mobile technology.
The UFS is one of only 15 universities across Europe, the Middle East and Africa and the only university in South Africa to receive a grant from HP to promote mobile technology for teaching in higher education valued at USD$ 100,000 (or about R1 million). Altogether 80 universities from 28 countries applied for the grant.
“Last year HP invited a number of selected universities to submit proposals in which they had to explain how they are going to utilise mobile technologies in the redesign of a course that is presented at the university. The proposal of the Centre for Education Development (CED) at the UFS entitled “Understanding Physics through data logging” was accepted,” says Mr Cobus van Breda, researcher at CED and manager of the project.
According to Mr van Breda, students who do not meet the entrance requirements for the three-year B.Sc. programme have to enroll for the four-year curriculum with the first year actually preparing them for the three-year curriculum.
In order to increase the success rate of these students, the project envisages to enhance their understanding of science principles by utilising the advantages of personal computer (PC) tablet technology and other information and communication technologies (ICT) to support effective teaching and learning methodology.
“By using PC tablet technology in collaboration with data-logging software, a personal response system, the internet and other interactive ICT applications, an environment different from a traditional teaching milieu is created. This will consequently result in a different approach to addressing students’ learning issues,” says Mr van Breda.
The pilot project was launched during the fourth term of 2008 when 130 first-year B.Sc. students (of the four-year curriculum) did the practical component of the physics section of the Concepts in General Science (CGS) module by conducting experiments in a computerised laboratory, using data-logging software amongst other technology applications. “The pilot project delivered good results and students found the interactive application very helpful,” says Mr van Breda.
”The unique feature of the latter is the fact that real-life data can be collected with electronic sensors and instantly presented as computer graphs. It can then be analysed and interpreted immediately, thus more time can be devoted to actual Science principles and phenomena and less time on time-consuming data processing,” says Mr van Breda.
The CGS module can be seen as a prerequisite for further studies in physics at university level and in this regard it is of essence to keep looking for new models of learning and teaching which can result in student success. This year the theoretical and practical component of the physics section of the CGS programme will be done in an integrated manner.
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
16 January 2009
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