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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 blossom with potential
2010-02-04
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Pictured with Prof Jansen are, from the left: Marike Botha, Sibusiso Tshabalala, Cumine de Villiers, Portia Lehasa and Meyer Joubert.
Photo: Hannes Pieterse |
The Rector and Vice-Chancellor of the University of the Free State (UFS), Prof. Jonathan Jansen, recently made closer acquaintance with five top Grade 12 achievers who are currently first-year students at the UFS.
The five students all achieved exceptional results in their final exams.
Cumine de Villiers from the Volkskool Secondary School in Potchefstroom obtained seven distinctions. She is an MBChB I student and resides in Roosmaryn Residence on the Main Campus. People are her passion, which makes a career as a doctor ideal for her. “I can help people physically, as well as emotionally. And save lives!” Her advice to learners is to work hard from Grade 11 already. According to her a balanced life is also very important: “The more you do, the better you can do.” One of her goals is to learn Sesotho while she is studying.
Marike Botha attended Potchefstroom Gymnasium. She obtained seven distinctions. She is also studying MBChB I and plans to become a paediatric surgeon. “I know one is going to lose patients, but one will also save lives.”
She resides in Roosmaryn Residence and plans to enjoy her student life to the full: “I am going to attend everything! Every dance, rugby match and serenade – there are some things in life that one can only experience once, and one’s first year is one of those.” According to her, the Grade 12 work is not that difficult; it is only a lot. She advises matriculants to always to their best and never to leave anything till later.
Sibusiso Tshabalala from HTS Welkom obtained three distinctions. He is studying BCom Law. He chose that degree because it perfectly integrates law and commerce. “In that way I am keeping my career options open”. He chose Kovsies for the opportunity to be part of one of the best Faculties of Law in South Africa. He resides in JBM Hertzog Residence. His advice to matriculants is to fully make use of every opportunity. “There will be setbacks – it is not supposed to be easy. All of that makes you a stronger person. Strive after your own goals – don’t measure them against others’ goals.”
Portia Lehasa from Eunice High School obtained five distinctions. She is studying BA Accounting and resides in Roosmaryn Residence. She chose Kovsies in order to be part of the transformation.
“Transformation leads to growth – and growth is essential for all persons.” She chose accounting because she enjoys challenges. “It is also a skill that will enable me to empower the economic status of South Africa.”
She also wants to become involved in everything on campus and make a difference. “You are going to see me a lot – I am going to change the world!” She also has some advice for matriculants: “It is very important to have a goal. In that way one still has something to strive for. It helps incredibly.”
Meyer Joubert attended the Ferdinand Postma Secondary School in Potchefstroom. He obtained seven distinctions. He is an MBChB I student and resides in Abraham Fischer Residence. “One’s life only becomes meaningful once one does something for someone else; that is why I want to become a doctor. By means of medicine one can make a difference to someone else’s life.” He plans to become the best doctor possible. According to him learners can take it leisurely up to Grade 10. “The requirements for many fields of study, like medicine, already apply from Grade 10. Therefore it is important to start to focus and work hard from then onwards. However, don’t only study! Balance is very important; therefore participate in sports, cultural activities and, of course, socialise.”
Prof. Jansen was, rightly so, impressed by all the talent that have settled at Kovsies this year: “This is only the beginning. With so much potential Kovsies can blossom!”
Media Release:
Mangaliso Radebe
Assistant Director: Media Liaison
Tel: 051 401 2828
Cell: 078 460 3320
E-mail: radebemt@ufs.ac.za
4 February 2010