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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

In January 1, 2003, the Qwa-Qwa campus of the University of the North (Unin) was incorporated into the University of the Free State (UFS).
2003-02-07


FREDERICK FOURIE

IN January 1, 2003, the Qwa-Qwa campus of the University of the North (Unin) was incorporated into the University of the Free State (UFS).

While this is merely the beginning of a long and complex process, it does represent a major milestone in overcoming the apartheid legacy in education, realising the anti-apartheid goal of a single non-racial university serving the Free State.

The incorporation is also part of the minister's broader restructuring of the higher education landscape in South Africa - a process which aims to reshape the ideologically driven legacy of the past.

In contrast to the past educational and social engineering that took place, the current process of incorporating the Qwa-Qwa campus of Unin into the UFS is informed by three fundamentally progressive policy objectives, clearly outlined in the education white paper 3: (A framework for the transformation of higher education):

To meet the demands of social justice to address the social and structural inequalities that characterise higher education.

To address the challenges of globalisation, in particular the role of knowledge and information processing in driving social and economic development.

To ensure that limited resources are effectively and efficiently utilised, given the competing and equally pressing priorities in other social sectors.

Besides informing the way the UFS is managing the current incorporation, these policy objectives have also informed the transformation of the UFS as an institution over the past five years.

In 2001, former president Nelson Mandela lauded the success of the UFS in managing this transformation, by describing the campus as a model of multiculturalism and multilingualism. This was at his acceptance of an honorary doctorate from the UFS.

Indeed our vision for the Qwa-Qwa campus as a branch of the UFS is exactly the same as it is for the main UFS campus - a model of transformation, academic excellence, community engagement and financial sustainability, building on the histories and strengths of both the Qwa-Qwa campus and the UFS (Bloemfontein campus).

Realising this vision will be a giant leap forward in establishing a unified higher education landscape in the Free State.

In more concrete terms, the UFS is working towards this vision by focusing on the following areas of intervention: access and equity; academic renewal; investment in facilities; and sound financial management.

These interventions are being made not to preserve any vestiges of privilege or superiority, but precisely to increase access for students from poor backgrounds and to promote equity and representivity among all staff.

The current growth phase of the UFS has seen student enrolment almost double over the past five years, in particular black students, who now constitute approximately 55 percent of the student population of nearly 18 000 (including off-campus and online students).

But it has not just been a numbers game. Our approach has been to ensure access with success.

Our admissions policy, coupled with the academic support and "career preparation" programmes we offer, have resulted in significant successes for students who otherwise would not have been allowed to study at a university.

This will be continued at Qwa-Qwa as well.

Our academic offerings too have undergone dramatic change. We have become the first university in the country to offer a degree programme based on the recognition of prior learning (RPL).

This is not just a matter of academic renewal but of access as well, especially for working adults in our country who were previously denied a university education.

As for the sound financial management of the UFS (including the Qwa-Qwa campus), this is being done not for the sake of saving a few rands and cents, but for the greater value to our society that comes from having sustainable institutions.

It is sustainable universities that can make long-term investments to fund employment equity, provide information technology for students, upgrade laboratories, construct new buildings, develop research capacity, and provide a safe environment for students and staff, as is happening now at the UFS.

As a result of such management, a practical benefit for prospective students at the Qwa-Qwa campus of the UFS will be lower academic fees in some cases compared with the Unin fees.

As is the case with all these processes, there are concerns from staff and students at Qwa-Qwa and the broader community of the region that the Qwa-Qwa campus serves.

To get the campus viable and to ensure its continuation in the short term, tough choices had to be made by the minister of education regarding which programmes to offer and fund.

But we have been encouraged by the community's understanding that these concerns can be addresed over time as the campus becomes financially viable.

Meetings between the top mangement of the UFS and community representatives, staff and students at Qwa-Qwa have laid the basis for building a climate of trust in such a complex process.

We should not be captives of the past divisions but build this new unified higher education landscape that can meet our country's developmental needs.

It should be a higher education landscape that is based on broadening access, promoting equity and social justice, developing academic excellence, and the effective and efficient management of scarce resources. This should be our common common objective.

Professor Frederick Fourie the rector and vice-chancellor of the University of the Free State (UFS)

 

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