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20 August 2025
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Story Dr Annelize Oosthuizen
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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 student registration shows good progress
2005-01-31
The registration of students on the main campus of the University of the Free State (UFS) is on track and is progressing well. More than 2000 first-time entering first-year students have already registered.
“We are happy with the registration progress and have experienced no major problems. Other than last year, the registration of all students is taking place in the Callie Human Centre. A one stop service is available to students on the premises – among others advice on bursaries, loans, staff and council bursaries, enquiries for international students, information on class and room tables, student cards, vehicle permits etc, “said Mr Vernon Collett, Registrar: Academic Student Services at the UFS.
According to Mr Collett students are registered on the UFS’s new PeopleSoft
software programme, which was installed last year.
“In the past a student’s data had to be captured and he/she had to wait for a proof of registration. This prolonged the registration process. This year the Callie Human Centre was equipped with a complete data capturing centre comprising of 85 computers. Students no longer have to stand and wait for a proof of registration. An SMS is sent to the student per cell phone within 48 hours to confirm whether the registration was successful or not. Students can also track their registration information on the UFS web site,” said Mr Collett.
Senior undergraduate students may register until 29 January 2005 and postgraduate students, first-time entering first-year students and other students who applied for admission after 30 November 2004 until 15 January 2005 , may register from 31 January- 4 February 2005 according to a programme. Senior students who have not register yet, will also be allowed to register from 31 January 2005-4 February 2005 according to the scheduled programme.
According to Mr Collett postgraduate students who applied for admission from 15 January- 11 February 2005 , may register according to a programme from 7-11 February 2005. Students who want to change their field of study or want to amend their modules, may do so during this period.
“Pipeline students from Vista must register on the UFS’s Vista campus on the dates already mentioned and first-year students from Vista must register on the UFS’s main campus. These students, including students on the UFS’s Qwaqwa campus, may register until 11 February 2005 ,” said Mr Collett.
Lectures at the UFS’s main campus as well as the Vista- and Qwaqwa-campusses will commence on 31 January 2005 .
A complete registration programme is available on the UFS’s web site at www.uovs.ac.za.
Media release
Issued by: Lacea Loader
Media Representative
Tel: (051) 401-2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za
28 January 2005