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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

UFS to implement a policy on HIV and Aids
2005-03-14

The Council of the University of the Free State (UFS) approved the implementation of a policy on HIV and AIDS.

“With this policy we recognise the seriousness of the HIV and AIDS epidemic and the potential impact this disease can have on both the UFS and the wider society.  We are committed to addressing HIV and AIDS in a positive, supportive and non-discriminatory approach by providing resources and leadership to implement HIV and AIDS university-based, as well as community outreach programmes,” said Dr Ezekiel Moraka, Vice-Rector:  Student Services at the UFS.

The objectives of the policy include:

  • The protection of individual rights of confidentiality and freedom from discrimination.

  • The promotion of a sustained educational programme that provides counseling and current accurate information to the University community and to the outside community.

  • The promotion of behaviors that reduce or minimise the risk of acquiring HIV infection and generally create a safe environment.

  • The provision of leadership in teaching, research and community service on HIV and AIDS and its impact.

  • The provision of leadership in promoting the human rights based approach to HIV and AIDS, and thereby also breaking down the stigma attached to the illness.

“The policy also makes provision for the establishment of a Centre for HIV and AIDS within Kovsie Health.  This centre will render HIV and AIDS related support services and initiatives to the whole campus,” said Dr Moraka.

According to Dr Petro Basson, head of the Centre for HIV and AIDS at the UFS, there is less than 1% incidence of HIV positive cases amongst undergraduate students on the main and Vista campuses.  All these students take part in a voluntary confidential counseling and testing programme (VCCT).  In the case of postgraduate students, there is about 1% incidence on both campuses.

“The Centre for HIV and AIDS has led in the development of information campaigns and workshops for students and staff to make them aware of the risks of HIV and AIDS and the necessary measures to ensure their safety.  We have found that, because students have access to the right information, they are more cautious when it comes to HIV and AIDS.  Awareness campaigns are also conducted throughout the year – especially during rag and intervarsity,” said Dr Basson.

“Some departments have also taken the lead in introducing aspects of HIV and AIDS into academic programmes while important research on the HIV and AIDS topic has already been completed and receives continuous attention,” said Dr Basson.

To achieve a coordinated approach, a Life Skills Forum will be established consisting of representatives of among others the Student Representative Council (SRC), academic departments, trade unions, Kovsie Counseling and Development, etc.

“With this policy the UFS pledges its commitment to participate actively in the fight against the disease,” said Dr Moraka.

Issued by: Lacea Loader
Media Representative
Tel:   (051) 401-2584
Cell:  083 645 2454
E-mail:  loaderl.stg@mail.uovs.ac.za
14 March 2005

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