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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’s Unit for Children’s Rights instrumental in helping human trafficked victim
2010-03-29
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Adv. Beatri Kruger.
Photo: Leonie Bolleurs |
“Wheeling and dealing is part of our daily life. But what if the ‘product’ bought or sold is not a spanner or a cell phone, but a living human being? Disturbing news came to the fore... apart from other places in the country, and for that matter all over the world, it was discovered that people are treated like commodities here in Bloemfontein as well,” said Adv. Beatri Kruger from the Unit for Children’s Rights at the University of the Free State (UFS).
Adv. Kruger was instrumental in completing and availing the first comprehensive Research Report on Human Trafficking in South Africa to the public on 23 March 2010. As a member of the Reference Group advising on interim research reports on human trafficking, she contributed to the report. The report proves to be an extremely valuable tool for, among others, government departments and non-governmental organisations that use it as a guideline in planning interventions to combat human trafficking.
The Unit for Children’s Rights is also one of the founding members of the Free State Human Trafficking Forum (FHF). To react on and fight the disturbing reality of human trafficking more efficiently, a number of concerned role players such as Child Welfare and other non-governmental organisations, police officials, prosecutors, social workers, health practitioners, private businesses, churches and community organisations joined forces and formed the FHF. The Unit for Children’s Rights hosts monthly meetings at the UFS to facilitate the coordination of this multi-disciplinary counter-trafficking team.
Adv. Kruger is very excited about some of the successes of the FHF; such as the story of Soma (not her real name). This Indian woman was recruited in India by an Indian couple who are staying in South Africa, by promising her a good job in South Africa. However, instead of finding the promised job, Soma was extensively exploited for labour purposes. With the help of a “good Samaritan” she managed to escape from the perpetrators and fled to the police. Soma was removed to ensure her safety and accommodated in a safe place in Bloemfontein. Counselling and other services were rendered to her by an organisation which is also a member of the FHF. One of the challenges facing Soma and the service providers was that Soma speaks a foreign dialect and for weeks a trusted interpreter could not be found.
This obstacle rendered communication with her to the bare minimum. The perpetrators were arrested but unfortunately the new comprehensive counter-trafficking law is not in force yet. Therefore the perpetrators could only be convicted of some offences in the Immigration Act. However, due to good police investigation followed by shrewd consultations, the perpetrators agreed to pay for the victim’s return flight to India as well as for the flight ticket of the investigating officer to escort her to safety. The Unit for Children’s Rights did networking with Ms Maria Nikolovska of the International Organisation for Migration (IOM), who agreed to assist in the safe reintegration of Soma in India. Soma is now on her way back home. |