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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

Boyden Observatory turns 120
2009-05-13

 

At the celebration of the 120th year of existence of the UFS's Boyden Observatory are, from the left: Prof. Herman van Schalkwyk, Dean: Faculty of Natural and Agricultural Sciences at the UFS, Prof. Driekie Hay, Vice-Rector: Academic Planning at the UFS, Mr Ian Heyns from AngloGold Ashanti and his wife, Cheryl, and Prof. François Retief, former rector of the UFS and patron of the Friends of Boyden.
Photo: Hannes Pieterse

The Boyden Observatory, one of the oldest observatories in the Southern Hemisphere and a prominent beacon in Bloemfontein, recently celebrated its 120th year of existence.

This milestone was celebrated by staff, students, other dignitaries of the University of the Free State (UFS) and special guests at the observatory last week.

“The observatory provides the Free State with a unique scientific, educational and tourist facility. No other city in South Africa, and few in the world, has a public observatory with telescopes the size and quality of those at Boyden,” said Prof. Herman van Schalkwyk, Dean of the Faculty of Natural and Agricultural Sciences at the UFS.

The observatory, boasting the third-largest optical telescope in South Africa, has a long and illustrious history. It was established on a temporary site on Mount Harvard near the small town of Chosica, Peru in 1889. Later it was moved to Arequipa in Peru where important astronomical observations were made from 1891 to 1926. “However, due to unstable weather patterns and observing conditions, it was decided to move the Boyden Station to another site somewhere else in the Southern Hemisphere, maybe South Africa,” said Prof. Van Schalkwyk.

South Africa's excellent climatic conditions were fairly well known and in 1927 the instruments were shipped and the Boyden Station was set up next to Maselspoort near Bloemfontein. Observations began in September 1927 and in 1933 the new site was officially completed, including the 60 inch (1.5 m) telescope, which was then the largest optical telescope in the Southern Hemisphere. This telescope was recently refurbished to a modern research instrument.

The observatory has various other telescopes and one of them, the 13" refractor telescope, which was sent to Arequipa in 1891 and later to Bloemfontein, is still in an excellent condition. Another important telescope is the Watcher Robotic Telescope of the University College Dublin, which conducts many successful observations of gamma ray bursts.

“In the first few decades of the twentieth century, the Boyden Observatory contributed considerably to our understanding of the secrets of the universe at large. The period luminosity relationship of the Cepheid variable stars was, for example, discovered from observations obtained at Boyden. This relationship is one of the cornerstones of modern astrophysics. It is currently used to make estimates of the size and age of the universe from observations of the Hubble Space Telescope,” said Prof. Van Schalkwyk.

“The Boyden Observatory contributed to the university’s astrophysics research group being able to produce the first M.Sc. degrees associated with the National Space Science Programme (NASSAP) in the country and the Boyden Science Centre plays an important role in science and technology awareness of learners, teachers and the general public,” said Prof. Van Schalkwyk.

The Boyden Science Centre has also formed strong relationships with various institutions, including the South African Agency for the Advancement of Science and Technology (SAASTA) and the Department of Science and Technology. The centre has already conducted many different projects for the Department of Science and Technology, including National Science Week projects, as well as National Astronomy Month projects. It also serves as one of the hosts of SAASTA’s annual Astronomy Quiz.

Media Release:
Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
13 May 2009
 

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