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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.
Kovsies beat Pukke at USSA tennis tournament
2010-01-13
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| The Kovsies women’s team that participated in last year’s USSA tennis tournament were, from the left, front: Elrien de Villiers and Nicola Dormehl; middle: Rensia Henning and Christine Keyser; back: Jeanne du Plessis and Elizna Barnard. |
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The men who participated in the tournament were, from the left: Willem Steenkamp, PW Holtzhausen, Duke Munro, Janine de Kock (manager), Marnus Kleinhans (coach), Divan Olivier, HB Steyn and Reon Henning.
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Last year Kovsie tennis concluded on a highlight when the men’s tennis team of the University of the Free State (UFS) won the USSA tournament that was held in Grahamstown for the first time in twenty years. The UFS women’s team also excelled by going through to the final round, where they had to bow the knee before the team of Stellenbosch University.
The result of these excellent achievements was that two of the five players that were selected for the USSA women’s training group were Kovsies. They are Rensia Henning and Christine Keyser. Elrien de Villiers was selected as the player of the tournament but unfortunately she could not be included in the group because she is a Namibian citizen.
The men’s group existed of eight players, of which four are Kovsies. They are Reon Henning, Duke Munro, Willem Steenkamp and PW Holtzhausen.
Members of the USSA training group will participate in training camps, tournaments and trials to prepare for the Confederation of University and College Sport Association (CUCSA) games (where all the Southern Africa countries participate) in Botswana that will take place from 5-11 July 2010. The training group will also participate in the World Student Games in 2011.
The Kovsies men’s team kick-started last year’s USSA tournament by beating the team from the University of Cape Town with 6-1 and later on the same day beating the team from the University of Johannesburg with 5-1. The next day they beat the team from the Tshwane University of Technology with 7-0 and the team of the University of Pretoria with 5-1. According to Ms Janine de Kock from KovsieSport at the UFS this is an excellent achievement, taking into account that Tukkies had ended in second place at the 2008 tournament.
In the semi-finals Kovsies played against the North-West University and beat them with 4-1. After this triumph in the singles matches the organisers decided that the doubles would not be played.
The women’s team won their matches against the Universities of Pretoria, Cape Town, Rhodes, KwaZulu-Natal and the Tshwane University of Technology. The tournament ended with Kovsies and Maties as the only two unbeaten teams and Stellenbosch University walked away with the laurels. The North-West University did not have a women’s team at the tournament at all.