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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.
World renowned cardiothoracic surgeons convene at UFS
2010-03-14
World-renowned cardiothoracic surgeons from around the world will be the guests of the Department of Cardiothoracic Surgery at the University of the Free State (UFS) when a workshop for cardiothoracic surgeons is presented at the UFS Faculty of Health from Monday, 15 March to Wednesday, 17 March 2010.
The workshop is presented by the European Association of Cardiothoracic Surgery (EACTS), which focuses on development and training in Africa.
Prof. Francis Smit, Head of the UFS Department of Cardiothoracic Surgery and also member of the international cooperation committee of EACTS, says EACTS have selected the UFS, and specifically Bloemfontein, to be the site for their African Training and Education outreach. “We are extremely honoured by this after working at it for more than four years.”
Seven world-renowned cardiothoracic surgeons, including three former presidents of EACTS, will present the training courses in Bloemfontein from 15-17 March 2010. These surgeons are from the United States of America, Norway, the Netherlands, Belgium, Switzerland and Scotland.
The European Cardiovascular Technologists are sending a perfusionist as well to present a perfusion workshop on Wednesday, 17 March 2010. The last day will be devoted to advanced surgical techniques.
The programme consists of a two-day scientific course that addresses research issues. All the invited speakers are well-known and established researchers. They all have been editors/editorial staff members of major international journals.
Prof. Smit says, “The knowledge transfer to South African surgeons can be phenomenal. Young and established surgeons can also meet the experts and improve their skills in conducting and successfully publish results.”
More than a hundred participants are expected for the workshops of the first two days, of which forty from abroad. The last day would be open registration and more than 150 people are expected.
Prof. Smit says, “This is a wonderful opportunity for us to educate, stimulate and teach surgeons in South Africa. It will add to their knowledge base and introduce them to high quality research methodology that will certainly have an impact on our research output. Hopefully this will be a bi-annual event where we can teach our academic community at a very focused and high level supported by EACTS.”
Media release
Issued by: Mangaliso Radebe
Assistant Director: Media Liaison
Tel: 051 401 2828
Cell: 078 460 3320
E-mail: radebemt@ufs.ac.za
12 March 2010