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20 August 2025
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Story Dr Annelize Oosthuizen
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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.
Successful conviction on edible oil adulteration
2009-03-28
A successful conviction in the South African food industry for selling diluted olive oil under the guise of virgin olive oil was handed down in the Special Commercial Crimes Court in Durban this week.
Salvatore Pollizi, owner of the company Ital Distributors, pleaded guilty in terms of Section 105A of the Crime Prosecuting Act to selling fake virgin olive oil under the names of Antico Frantoio and Ulivo.
He was sentenced to a fine of R250 000 or three years’ imprisonment, of which R130 000 or 18 months imprisonment is suspended for five years, on condition that he is not found guilty of fraud or theft or an attempt to commit such crimes during the period of suspension.
The offence was committed in 2001 when the scandal involving olive oil being mixed with a cheaper edible oil and being sold as the more expensive virgin olive oil was uncovered by scientists from the University of the Free State (UFS) in Bloemfontein, in collaboration with Mr Guido Costas, The Olive Growers’ Association, AgriInspec and the South African Police Services.
According to Prof. Lodewyk Kock, Head of the South African Fryer Oil Initiative (SAFOI) that is based at the UFS, the conviction is to his knowledge the first successful conviction of this kind in the South African food industry.
Prof. Kock said, “The court’s decision on Monday, 23 March 2009 is good news to our country and sends out a dire warning to all fraudsters in the food industry.”
He attributed the successful conviction to the active and enthusiastic participation by Advocate Joanna Bromley-Gans from the Special Commercial Crime Unit (SCCU) in Durban, Captain Pragasen Govender from the Serious Economic Offences Unit (SEOU) in Pretoria and the team from SAFOI.
Prof. Kock said that in 2003 some of the prominent members of the edible oil industry took responsibility for the authenticity of their own oils by appointing outside laboratories for routine monitoring.
In some cases a seal of approval from such laboratories is displayed on the monitored oil containers. This is an attempt to inform oil distributors, shop buyers and consumers that these oils have been monitored by an outside laboratory for authenticity.
This “policing” has been supported by major role players in the fast-food sector like Nando’s, Spur, Captain Dorego’s, King Pie Holdings, etc. and various oil distributors like Felda Bridge Africa, Willowton Oil & Cake Mills, Refill Oils, etc.
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
27 March 2009