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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 Council elects a new Chairperson
2009-11-22
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| Judge Ian van der Merwe |
The Council of the University of the Free State (UFS) elected Judge Ian van der Merwe as its new Chairperson at its last meeting for this year on Friday, 20 November 2009.
Judge Van der Merwe is an alumnus of the UFS and has been a member of the Council since 9 March 2007. In accepting his appointment, Judge Van der Merwe said that he was honoured and humbled to lead a Council of this calibre. “I will always do what is in the best interest of the UFS and, together with the Council, I will work towards making it an autonomous institution of academic excellence that is non-racial, non-sexist, and where diversity is cherished,” he said.
The election of a new Chairperson and the term of the Chancellor were among the matters discussed during yesterday’s meeting.
Dr Franklin Sonn will retire as Chancellor on 31 December 2009 and the term of office of the current Chairperson of Council, Judge Faan Hancke, will also expire on 31 December 2009. Dr Sonn has been Chancellor since 7 February 2003 and Judge Hancke has been Chairperson of the Council since 1 June 2001.
“I am elated that someone of Judge Van der Merwe’s stature has been elected as Chairperson and will provide him with my full support,” said Prof. Jonathan Jansen, Rector and Vice-Chancellor.
The Council paid tribute to Judge Hancke for the time he dedicated to the UFS, as well as for his leadership, guidance and wisdom to take the institution to where it stands in the current phase of its history. The Council also recognised Judge Hancke for, amongst others, his decision to appoint Prof. Jansen as the first black Rector and Vice-Chancellor, for his role in the implementation of the Transformation Plan and the policy to increase diversity in residences at the UFS, as well as his contribution to the growth of black students.
Judge Hancke thanked the Council for their support and assistance during his term and congratulated Judge van der Merwe on his appointment. “I wish Prof. Jansen and his management team well and hope that they will have the wisdom to solve the problems the institution is facing so that they can focus on the core business of the UFS namely its academia. I know the University can make a tremendous contribution to the country,” he said.
The Council also welcomed the following new members who were present at the meeting: Mr Pule Makgoe, MEC for Education in the Free State; Mr Ndaba Ntsele, Chief Executive Officer of the Pamodzi Group and Mr Willem Louw, Managing Director of Sasol Technology.
The new Chancellor will be elected as soon as the proposed statute is approved by the Council in 2010 and published in the Government Gazette. Prof. Jansen will act as Chancellor for the interim period from 1 January 2010.
Media release
Issued by: Lacea Loader
Deputy Director: Media Liaison
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@ufs.ac.za
21 November 2009