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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.
UFS Alumni honours five Kovsie Alumni
2009-08-26
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Prof. André Venter and Prof. Johan Grobbelaar
Photo: Supplied |
The sought-after Kovsie Alumni Awards, which are awarded to alumni of the University of the Free State annually, will be presented to five Kovsie alumni at a gala award dinner on Friday, 4 September 2009.
UFS Alumni nominated Mr Gert Grobler as the 2008/09 Kovsie Alumnus of the Year. Dr. Gert Marincowitz and Sekoati Tsubane (Kabelo in 7de Laan) will receive the Kovsie Alumni Cum Laude Award. Prof. Johan Grobbelaar, Senior Professor at the Department of Plant Sciences and Prof. André Venter, Chief Specialist at Paediatrics and Child Health, will both receive the Kovsie Alumni National Executive Award. These awards are presented annually to honour alumni for their excellent achievements and contributions towards the UFS.
The Kovsie Alumnus of the Year Award is presented to a Kovsie alumnus with outstanding achievements at national and international level. Mr Grobler receives this award for his role as ambassador for South Africa in Japan and the significant role that he played in initiating various structures and bilateral mechanisms to improve South Africa’s relations with various countries actively. His expertise, knowledge and passion for the diplomatic service and direct mediation and involvement in the establishment of various projects abroad are evidence of his dedication.
Dr. Marincowitz, who has also been honoured as RUDASA’s Rural Physician of the Year, receives the Kovsie Alumni Cum Laude Award for his contribution to the promotion of primary health care in rural areas in Limpopo and for his role in sensitisation towards HIV care in these communities. The Cum Laude Award is given to an alumnus for outstanding service or achievement at local, national or international level in his/her specific professional field.
With his portrayal of the character Kabelo Padi in the Afrikaans soap 7de Laan, Mr Tsubane has distinguished himself in a highly competitive market. His impressive presence in portraying this character makes him a factor to be reckoned with in the world of entertainment.
Prof. Grobbelaar is honoured for his contributions, which put the UFS in the forefront, especially in the field of research, leading research expeditions to Marion Island and research in the Amazon, as well as the establishment of the first commercial algae-biotechnological plant in Africa at Muzina. His phenomenal leadership role in salary negotiations, his transparent and inclusive management style and the incredible way in which he empowers people to fulfil their tasks at the UFS also makes him a worthy recipient of the award. Under his leadership, UVPERSU has grown into the majority and representative union on campus.
Prof. Venter is also honoured for his outstanding service delivery to the UFS over the years and the exceptional way in which he has developed the Department of Paediatrics and Child Health to be one of the prestigious departments in the country. In the field of paediatric neuro-development, he dramatically improved the lives of children with attention-deficit hyperactivity disorder. He has also played a major role in generating money to acquire equipment to improve intensive-care facilities in the paediatric unit in particular. He has been honoured by the International Biographical Centre in Cambridge as one of the Great Lives of the 21st Century and is a finalist for the Bloemfontein of the Year 2009 award.
Everyone is welcome to attend the Kovsie Alumni Gala Award Dinner that will be held in the Reitz Hall of the UFS Centenary Complex. Various talented Kovsies will appear as guest artists. The cost of R120 per person includes a three-course meal. If you are interested in attending the dinner, contact Annanda Calitz at 051 401 3382 or ficka.stg@ufs.ac.za.
Media release:
Lacea Loader
Deputy Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
26 August 2009