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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.
Grant encourages and enables more learners to enter into science-related studies and careers
2009-06-26
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At the launch are, from the left, front: Consolation Mochusi, Graad 12 learner from Heatherdale Secondary School, Alexander Bergman, Grade 10 learner from Grey College Secondary School, Danél Prinsloo, Grade 11 learner from Eunice High School; middle: Ms Lea Koenig, Coordinator: ICT Laboratory of the Qwaqwa Campus, Prof. Daniela Coetzee-Manning, Director: CED; back: Ms Elna Fourie, Development Planner from SANRAL, Prof. Teuns Verschoor, Acting Rector of the UFS, Mr Cobus van Breda, Project Coordinator: CED and Mr Nazir Alli, Chief Executive Officer of SANRAL.
Photo: Stephen Collett |
The University of the Free State’s (UFS) Centre for Education Development (CED) has this week launched a project on the Main Campus in Bloemfontein.
to enable and encourage more learners to enter into science-related studies and careers.
The grant of R4,5 million over a period of three years was made by the South African National Roads Agency Ltd (SANRAL). This week’s function was attended by the representatives of the sponsors and the UFS, as well as learners, parents, principals and Physical Sciences teachers of participating schools.
The grant will be utilised to foster a positive attitude towards Mathematics and Science amongst learners in the early school years as well as raising the knowledge and skills levels of learners in the Further Education and Training (FET) Phase. “This will be done through our Family Math and Family Science Programme for younger learners and through e-Education in Science and Mathematics for learners in the FET Phase,” said Mr Cobus van Breda, Project Coordinator at the CED.
About 330 selected Grade 10, 11 and 12 learners from 16 schools in the Free State are attending Physical Sciences and Mathematics sessions during weekdays at the ICT Laboratories on the Main and Qwaqwa Campuses of the UFS. In order to make provision for the needs of generation Y-learners (techno-clever generation), the project envisages to enhance their understanding of Science and Mathematics principles by utilising the advantages of ICTs (Information and Communication Technologies) during the sessions.
On average, learners attend four sessions per term, with one of the sessions a special event like visiting Boyden Observatory, departments at the UFS, etc. Learners will be exposed to about 36 sessions over the three years. Special attention to vocational guidance, in collaboration with the Unit for Prospective Students at the UFS, forms part of the support system of the programme to participating learners.
“Learning is a life-long experience and we must encourage our learners to grab this opportunity to learn more about important fields such as Mathematics and Science. It is a privilege for SANRAL to have this partnership with the CED and the university as it is an indication of our efforts to educate our youth,” said Mr Nazir Alli, Chief Executive Officer of SANRAL.
Mr Alli encouraged learners to grab the opportunity to learn and to make the field of science their career. “Science can be the foundation on which to build your career and this programme can assist you to reach your goal,” he said.
According to Prof. Teuns Verschoor, Acting Rector of the UFS, the SANRAL grant is a wise investment because it is an educational investment. “We cannot cut back on the investments we make in education and SANRAL’s investment in this programme is of benefit to schools and learners in the central region. Through this programme, its bursaries, various career opportunities and ongoing support of schools and universities SANRAL is making a huge contribution to promoting science-related studies and careers in our country,” he said.
Media Release
Lacea Loader
Assistant Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
26 June 2009