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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.
Sport results: Tennis, Netball, badminton, athletics
2009-05-05
During the Mega-intervarsity Tournament held at Sun City last week, both the University of the Free State’s (UFS) men’s and women’s tennis teams beat their opponents. The Kovsies women’s team beat the Pukke 15-0, Tukkies 15-1 and Maties 12-5.
The Kovsies men’s team beat their respective opponents as follows: Maties A 12-6, Maties B 15-0, Pukke A 9-7, Tukkies A 14-1 and Pukke B 15-0.
Janine de Kock from KovsieSport said that she was satisfied with these achievements. “For the past two years the women have won the University Sports South Africa (USSA) tournament and now again this tournament. What makes this achievement special is the fact that it was the first tournament that four of the women’s team members played for the UFS.”
“I am also very satisfied with the achievements of the men’s team. They ended sixth in last year’s USSA tournament. This year, at a tournament where the top four universities in terms of tennis were present, they won,” said Janine. |
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Rensia Henning in action during the Mega-intervarsity Tournament that took place at Sun City last week.
Photos: Jeanine de Kok
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Netball: Hard work gets rewarded - (April 2009)
Three Kovsies were selected from the South African National Netball team to the Senior Top 12 Team that will represent South Africa at the SPAR Challenge, a three nation’s test series against Botswana and Fiji. These matches will take place towards the end of May in Pretoria.
The three students are Elzet Engelbrecht, Maryka Holtzhausen, en Adele Niemand.
Kovsie students compete at badminton championships
One former student from the University of the Free State (UFS) Chris Dednam, and one current Kovsie student Annari Viljoen are included in the National Badminton Team that represented South Africa from 17 to 24 April 2009 at the All Africa Badminton Championships in Nairobi, Kenya. They also participated in the Kenya International Championships from 25 to 27 April 2009.
Chris Dednam and Annari Viljoen and with them Roelof Dednam, also a former Kovsie student, were included in the team that will participate at the Sudirman Cup in Guangzhou, China. The Sudirman Cup that will take place from 10 to 17 May 2009 is the world mixed team badminton championship and takes place every two years.
Kovsie athletes win medals
Kovsie athletes excelled at the South African Students Athletics Championships (USSA) that was held in Stellenbosch by winning a total of 15 medals.
The medal winners are:
Gold: Thuso Mpuang for the 200m, Johan Cronjè for the 1 500m, Maryna Swanepoel for the half marathon and Marizette Badenhorst for hammer throw.
Silver: Thuso Mpuang for the 100m, Johan Cronjè for the 5 000m, Charles le Roux for triple jump, Ronè Reynecke for the 800m, and Abongile Lerotholi for 1 500m.
Bronze: Kagisho Kumbane for 100m and 200m, Boy Soke for half marathon, Charles le Roux for long jump, Thandi Malindi for the 3 000m steeple chase, and Marike Steyn for triple jump.
In the team competition the Kovsie men’s team received third place and the women’s team fourth place.
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