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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.
Year-long programme to celebrate the story of life and survival
2009-02-13
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At the launch of the UFS's year-long programme to celebrate the story of life and survival were, from the left: Prof. Schalk Louw, Department of Zoology and Entomology, Prof. Jo van As, Department of Zoology and Entomology, Prof. Maitland Seaman, Centre for Environmental Management, and Prof. Matie Hoffman, Department of Physics. All four are associated with the UFS.
Photo: Hannes Pieterse |
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A year-long programme to celebrate the 200th anniversary of the birth of Charles Darwin and the 150th anniversary of the publication of his scientifically important book “The Origin of Species” was launched yesterday (the birth date of Darwin) by the University of the Free State (UFS) on its Main Campus in Bloemfontein.
The UFS is the only university in the country that is presenting such an extensive programme on life and survival. Yesterday’s launch programme entailed a portrayal of the life of Darwin and a presentation on what nature tells us about cosmic history. It was the start of a year-long lecture programme in which various departments at the UFS will take part.
“The lecture programme, called “The story of life and survival”, forms a cycle of the progress of man and does not only focus on Darwin. The programme aims to portray the influence of Darwin’s theory of evolution on a wide range of disciplines. We see this as a good opportunity to promote science in its broadest context,” says Prof. Jo Van As, head of the Department of Zoology and Entomology at the UFS.
The lecture programme will include topics such as the geological evolution of our planet, extinction, Darwinian agriculture, the road to civilisation, the proliferation of technology and communication, human demography and the human impact on the environment. It will be concluded in February 2010 with a lecture on the future of evolution.
The programme is spearheaded by the Department of Zoology and Entomology at the UFS, in conjunction with the National Museum and the Central University of Technology.
“Today evolution is no longer considered to be a theory and is widely accepted by most serious scientists as the process responsible for the diversity of life on our planet,” says Prof. Van As.
Complete programme:
26 February 2009: The geological evolution of our planet
13 March 2009: Origin of life, prokaryotes and eukaryotes
24 March 2009: Extinction
16 April 2009: Evolution and biodiversity of plants
30 April 2009: Evolution and biodiversity of animals
14 May 2009: The mechanisms of evolution: Heredity and Natural Selection
28 May 2009: Origin of humankind
4 June 2009: Darwinian agriculture
30 July 2009: Road to civilisation
6 August 2009: Human demography
20 August 2009: Proliferation of technology and communication
10 September 2009: Human impact: On the environment
8 October 2009: Human impact: Resistance, ectoparasites, HIV/Aids, antibiotics
22 October 2009: How to care for the world
12 February 2009: The future of evolution
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
13 February 2009
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