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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.
A bridge to the future for school leavers
2009-03-04
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Ms Merridy Wilson-Strydom, Research Consultant at the Centre for Higher Education Studies and Development at the UFS.
Photo: Supplied) |
Thousands of learners in the country’s high schools fail to qualify for post-school education and training. Now a unique project funded by the Ford Foundation and being piloted at the University of the Free State (UFS) seeks to provide such learners with a lifeline.
The 2008 Grade 12 results showed once again that the schooling system is – and has been for a long time – in the throes of a severe crisis. The most disturbing feature of this crisis is that the system does not produce learners with the required level of literacy, numeracy and other cognitive skills to further their education or to become part of the country’s workforce.
Clearly this situation is untenable in a developing country such as ours, facing the immense challenges of a severe skills shortage, poverty and unemployment. We cannot afford to have hundreds of thousands of young people walking the streets without any prospect of a decent living and a future of opportunity.
The UFS and partners in the Free State Higher Education Consortium (FSHEC) have devised a unique programme to help underprepared and even unprepared school-leavers who have fallen through the cracks of the school system.
“We are hoping to make a meaningful contribution to the challenging field of creating educational opportunities for post-school study and the world of work through the generous support of the Ford Foundation,” says Ms Merridy Wilson-Strydom, Research Consultant at the Centre for Higher Education Studies and Development at the UFS.
“The Skills for a Changing World Programme is specifically aimed at removing barriers to educational opportunities for school-leavers who are not able to access higher education – mainstream or extended degrees. At the moment there are few, if any, meaningful opportunities for those learners who come through the school system un/underprepared,” she says.
The primary target group for the NQF Level-5 Programme is young people between the ages of 18 and 25 who are currently excluded from post-schooling educational opportunities. The duration of the programme is one year.
According to Ms Wilson-Strydom, the core modules of the activity-driven curriculum are English Literacy and Language Development, Mathematical Literacy, Information and Communication Technology and Your Global Positioning System (YGPS), which focuses on study skills and critical life skills, e.g. dealing with diversity. Students will also be supported to make informed choices about their future study or career directions.
“The development of the core-module materials is almost complete and from the second semester we plan to test the programme by means of a pilot project, which will be conducted on the UFS’s South Campus in Bloemfontein,” says Ms Wilson-Strydom.
“The pilot study will involve a group of 20-50 learners who have finished Grade 12 but do not qualify for the UFS bridging programme known as the Career Preparation Programme or any other higher-education programmes,” says Ms Wilson-Strydom.
Although not yet accredited, the project team aims to have the programme accredited as a Higher Certificate and is also exploring the possibility of registering the programme as a Short Learning Programme.
“One of the challenges with access and bridging programmes in the country is that students do not obtain a formal qualification for their bridging year. Hence those who do not continue with higher-education study (or cannot continue for various reasons such as finances), do not gain the recognition they should get for what they have learnt during their bridging year.”
“Our focus on developing the Skills for a Changing World Programme as a qualification in its own right is a key innovation in the current education and training landscape,” says Ms Wilson-Strydom.
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
4 March 2009