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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.
Rag 2005
2005-01-20
20 January
Thursday
08:00-12:00 Rag Workshop - Westblock 202
Workshops are held to introduce the First Year
students to the work that is done by Rag & Kovsco
and the importance of their social responsibility towards their community.
10:30-11:30 Lettie Fouchè
The Central Rag committee visits and treats the children of Lettie Fouchè School.
Evening Collections - Mochacos, Waterfront
First years work hard to raise money via door
to door collections in the neighbourhoods of
Bloemfontein for charity. First years dress-up as
chickens and prizes can be won every night.
21 January
Friday
08:00-12:00 Rag Workshop - Westblock 202
Workshops are held to introduce the First Year
students to the work that is done by Rag & Kovsco
and the importance of their social responsibility towards their community.
22 January
Saturday
08:30 for 09:00 Ladies Tea
in conjunction with Sarie
co-sponsored by Audi & Pick’nPay Hypermarket
An enjoyable morning where the ladies of Bloemfontein and surrounding areas are treated with beautiful
layed tea tables and guest artists. The host of every table participate in a competition and prize winners for the most beautiful tables are announced. The guest artist for Ladies Tea 2005 is Nataniel.
24 January
Monday Evening Collections - Mochachos, Waterfront
First years work hard to raise money via door to door collections in the neighbourhoods of Bloemfontein for charity. First years dress-up as chickens and prizes can be won every night.
25 January
Tuesday
08:30-16:00 MGD Coronation Ball tickets for sale
29 January 2005
Sand du Plessis Theatre
R260 per couple
The prestige evening of Kovsie Rag filled with
great music, sound and a vibrant show. The MGD
Rag Queen and her princesses are crowned and Rag
also makes use of this opportunity thank its
sponsors.
16:00 Vote for Rag Finalists at men’s hostels float-
building areas
Students have the opportunity to vote for their
favourite Rag finalists at the float building areas.
17:00-22:00 Evening Collections - Mochachos, Waterfront
First years work hard to raise money via door
to door collections in the neighbourhoods of
Bloemfontein for charity. First years dress-up as
chickens and prizes can be won every night.
26 January
Wednesday
22:00 MGD Rag Finalist Mass - Scholtz Hall
An exciting mass is held for the students to introduce
the 10 beautiful Rag finalists.
27 January
Thursday
08:00 Ritsim Launch - City Lodge
Ritsim 2005 is launched and introduced to the
UFS Top Management and the sponsors.
09:00-16:00 Campus vote for MGD Rag Finalists at various
voting stations.
Various voting stations are placed on campus for the students to vote for their favourite MGD Rag finalists.
Voting stations: Callie Human; Soetdoring Cafeteria; Library; Medical Cafeteria and at the Thakaneng Bridge.
17:00-22:00 Evening Collections - Mochachos, Waterfront
First years collect money for charity
28 January
Friday Ritsim Bloemfontein City Sales
6:30 Brace your self for the students around every corner
on the streets of Bloemfontein. Support Kovsie RAG
and buy a Ritsim 2005 magazine.
R10 per copy
16:00-22:00 Potjiekos - Vodacom & Tiger Brands
(Unite for Hunger)
Coca Cola Fortune & ABSA
Students enjoy a great evening of potjiekos and try their best to persuade the judges that their potjiekos is the best. Music and entertainment is organized.
29 January
Saturday
05:00 Ritsim Rural Town Sales
The students drive off into the country to sell the Ritsim magazines in various towns. R10 per copy.
18:00 for 18:30 MGD Coronation Ball
Sand du Plessis Theatre
R260 per couple
The crowning of the RAG Queen is a spectacular
evening not to be missed. It is an evening filled with
vibrant music and colour and you will also be treated
with a great show. Kovsie Rag also thanks its
sponsors on this prestige evening.
30 January
Monday
13:00-14:00 Sent placing - Thakaneng Bridge
Come and donate your change and it place it on a letter of a hostel of your choice.
5 February
Saturday
08:00-10:00 ENGEN RAG Procession
Proud Kovsie students have worked very hard on their floats and can’t wait for this day. Please come and enjoy a great day with Kovsie RAG and your family.
Procession Route: The Procession starts at the Kovsie Church. The procession proceeds in Nelson Mandela Drive and turn right into Markgraaff street. We then turn right into Kingsway and stop in front of the stage at the Art Market. Prof. Fourie introduces a toast on Rag 2005 and enjoys a glass of champagne with our
beautiful Rag Queen and her princesses.
Please support the first years in put your change into their collection tins.