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Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

Opinion article by 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.

News Archive

UFS forms a strategic partnership with Yale University

2010-03-16

At the official inauguration of the Jonathan Edwards Center Africa was, from the left, front: Prof. Harry Stout, Chair of the Department of American Religious History at Yale University; Prof. Jonathan Jansen, Rector and Vice-Chancellor of the UFS; back: Prof. Dolf Britz, Director of the Jonathan Edwards Center Africa at the UFS; Prof. Kenneth Minkema, Executive Director of the Jonathan Edwards Center at Yale University; Prof. Adriaan Neele of Yale University, now also Professor Extraordinary in the Faculty of Theology at the UFS; and Prof. Francois Tolmie, Dean of the Faculty of Theology at the UFS.
Photo: Stephen Collett

The University of the Free State (UFS) officially inaugurated the Jonathan Edwards Centre Africa in its Faculty of Theology last week. This centre, affiliated with the Jonathan Edwards Centre Yale University in New Haven in the United States of America, was established at the UFS last year.

The strategic partnership between the UFS and Yale University exemplifies the vision of the Faculty of Theology to be an internationally renowned theological and training faculty.

Leading scholars from Yale University, Prof. Harry Stout, Chair of the Department of American Religious History, and Prof. Kenneth Minkema, Executive Director of the Jonathan Edwards Center at Yale participated in the inauguration of the Jonathan Edwards Center Africa.

The Dean of the Faculty of Theology, Prof. Francois Tolmie said, “This visit underscores the strategic relationship between Yale University and the Faculty of Theology and will assist in us continuing to foster high aspiring scholarship, student and faculty support.”

This is an exciting development between universities renowned for excellence in learning, and innovation in scholarship. Prof. Minkema added, “The establishment of this renowned center for research, education and publication, at the UFS is a significant expansion of Edwards scholarship and will serve widely both academia and the church,” Said Prof. Stout.

The Faculty of Theology also announced the appointment of Prof. Adriaan Neele of Yale University as Professor Extraordinary. The appointment follows the vast growth of the Jonathan Edwards Centre Africa. “I welcome this appointment with much anticipation as the strategic relationship between Yale University and the Faculty of Theology develops in unprecedented ways, attracting doctoral students from Southern Africa, South Korea and America,” said Prof. Tolmie.

Jonathan Edwards (1703-1758), pastor, revivalist, Christian philosopher, missionary, and president of Princeton University, is widely regarded as North America’s greatest theologian. He is the subject of intense scholarly interest throughout the world, because of his significance as a historical figure and the profound legacy he left on America’s religious, political and intellectual landscapes.

“The centre and appointment of Prof. Neele will provide sustainable scholarship of primary sources in new and promising ways, said Prof. Dolf Britz, Director of the Jonathan Edwards Africa at the UFS.

“My appointment at this prestige university of Southern Africa is both an honour and humbling. I look forward to a beneficial and academic engagement with students, as well as to serve the academy and the church,” said Prof. Neele.

Prof. Neele’s inaugural address entitled A Transitional Moment in Theology argued for the classicality and catholicity of Edwards’ theology.

The interest in Edwards globally has in part been fuelled by the work of the Jonathan Edwards Centre at Yale University, whose sole mission is to support inquiry into the life, writings, and legacy of Jonathan Edwards by providing resources that encourage critical appraisal of the historical importance and contemporary relevance of America’s premier theologian.

The primary means to achieve this are with the Works of Jonathan Edwards Online, a digital learning environment for research, education and publication that presents all of Edwards’s writings, along with helpful editorial materials that allow the reader to examine Edwards's thought in incredibly powerful, useful ways.

Media Release
Issued by: Lacea Loader
Director: Strategic Communication (actg)
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl@ufs.ac.za
15 March 2010

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