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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.
Council concerned over health crisis
2009-06-08
The Council of the University of the Free State (UFS) has come out in support of doctors and health professionals attached to its Faculty of Health Sciences who expressed their concerns about the health crisis in the Free State.
At its meeting on Friday, 5 June 2009 the Council said it shared the concerns of health professionals that the quality of patient care and the quality of training being provided at the health faculties across the country are being compromised.
Earlier last week doctors and other health professionals of the UFS Faculty of Health Sciences issued a statement highlighting the seriousness of the crisis in health care provision in the Free State Province, warning that the system was on the verge of collapse.
According to the Council of the UFS, a petition will be addressed to the Minister of Health and the Minister of Education calling for urgent steps to be taken to correct the deteriorating situation in the province’s health care system.
In other decisions, the UFS Council also decided to confer an honorary doctorate on Judge Louis Harms, the Deputy President of the Supreme Court of Appeal in Bloemfontein.
Judge Harms is an international specialist in the field of Intellectual Property Law and has been actively involved in legislation and international agreements on intellectual property law, including the Designs Act, Trademarks Act and Patents and Copyrights Acts.
The motivation quotes one of his fellow jurists as saying that: “Harms is one of the greatest South African lawyers of the last 50 years. He is an intellectual giant who has made an impressive and profound contribution to the development of South African law: He is erudite, visionary, astute and principled.”
An honorary doctorate will also be conferred on geologist and expert on the geology of the Karoo Supergroup, Mr Johan Loock, for his distinguished efforts towards promoting the earth sciences and specifically geology, particularly in the context of the Free State.
Mr Loock has had two Karoo fossils named after him, which is a particular honour in the scientific world of palaeontology. He was employed by the UFS for 32 years and has close ties with the Free State in terms of his wide field of research interests.
The motivation further states that “the man affectionately and respectfully known as Oom Loock, or Malome, has selflessly given of his vast knowledge, expertise and insights into the physical and cultural heritage of the Free State to all who would learn from, and with, him”.
A Council Medal will be awarded to Prof. Johan Grobbelaar from the Department of Plant Sciences at the UFS. During his time at the UFS he has been a pioneer in many areas, including the first research expedition to Marion Island, the first PhD about research on Marion Island, the establishment of the Institute of Environmental Sciences as well as the establishment of the Centre for Environmental Management.
Council also decided to refer a report from the iGubu consultants regarding aspects of diversity in student residences to the Executive Committee of the Council so that the benefit of the participation of the rector-designate Prof Jonathan Jansen could be obtained and for further participation and consultation with relevant stakeholders.
In another decision the Council also extended the term of appointment of Prof. Tienie Crous as Dean: Economic and Management Sciences for an additional term of five years.
The Council furthermore appointed Prof. Hugh Patterton as the director of the strategic academic cluster dealing with advanced biomolecular research and Prof. Wijnand Swart as Director of the strategic academic cluster dealing with technologies for sustainable crop industries in semi-arid regions.