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20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied
AnnelizeOosthuizen
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.
Opinion article by 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.

News Archive

First doctorate in Thoracic Surgery in Africa awarded
2009-05-12

The University of the Free State (UFS) has become the first university in Africa to award a Ph.D. degree in Thoracic Surgery. The degree was conferred on Prof. Anthony Linegar from the university’s Department of Cardiothoracic Surgery during its recent graduation ceremony.

Thoracic surgery is a challenging subspecialty of cardiothoracic surgery. It began in South Africa in the 1940s and is a broad medico-surgical specialist discipline that involves the diagnosis, operative and peri-operative treatment of acquired and congenital non-cardiac ailments of the chest.

Prof. Linegar became the first academic to conduct a mixed methods analysis of this surgical specialty, which included a systematic review of all the research done in this field in South Africa. The title of his thesis is A Model for the Development of Thoracic Surgery in Central South Africa. The research was based on the hypothesis of a performance gap between the burden of disease in the community and the actual service provision. It makes use of systems theory and project management concepts to develop a model aimed at the development of thoracic surgery.

The research proved that there is a significant under provision of clinical services in thoracic surgery. This was quantified to a factor of 20 times less than should be the case, in diseases such as lung and oesophagus cancer. According to Prof. Linegar, there are multiple reasons for this. Listed amongst these reasons is the fact that thoracic surgery is not part of the undergraduate education in medical training. There tends to be a low level of awareness amongst clinicians as to what the thoracic surgeon offers their patients. The diagnostic and referral patterns in primary and secondary health facilities, where diseases must be picked up and referred early, are not functioning well in this regard. In addition, relatively few cardiothoracic surgeons express an interest in thoracic surgery.

Prof. Linegar’s model is named the ATLAS Mode, which is an acronym for the Advancement of Thoracic Surgery through Analysis and Strategic Planning. It includes the raising of awareness of the role of the specialist thoracic surgeon in the treatment of patients with thoracic diseases as part of the solution to the problem. Furthermore, it aims to develop an accessible and sustainable specialist service that adequately provides for the needs of the community, and that is appropriately represented in health administration circles.

His promoters were Prof. Gert van Zyl, Head of the School of Medicine at the UFS, Prof. Peter Goldstraw, from the Imperial College of London, United Kingdom (UK) and Prof. Francis Smit, Head of the Department of Cardiothoracic Surgery at the UFS.

Prof. Linegar has been with the UFS since 2004, is a graduate from Stellenbosch University in 1984 and completed his postgraduate training in Cardiothoracic Surgery at the University of Cape Town. He was granted a Fellowship in Thoracic Surgery at the Royal Brompton Hospital in London, UK and has since held consultant positions at the UFS, Stellenbosch University and in private practice. He has been involved in registrar training since returning from the UK in 1994 and has extensive experience in intensive care medicine. He has published widely, has presented papers at many international conferences, has been invited as a speaker on many occasions and has won awards for best presentation on three occasions.

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  
12 May 2009
 

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