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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 to monitor the use of ARV-drugs on pregnant women and children
2004-12-08
The University of the Free State (UFS) is to establish a Pharmacovigilance Centre that will monitor the effects of Anti-Retroviral (ARV) drugs on HIV positive pregnant women and children starting early in the new year.
The UFS is one of only two institutions chosen by the Minister of Health, Dr Manto Tshabalala-Msimang, to establish such an ARV monitoring centre.
The other centre will be based at Medical University of South Africa (MEDUNSA) and will concentrate mainly on monitoring the effects of the drugs on adults.
“The establishment of the UFS’s Pharmaconvigilance Centre forms part of government’s Comprehensive Plan on HIV and AIDS, often termed the roll-out plan for ARV drugs. The centre’s primary responsibility will be to specifically monitor the use of these drugs in pregnant women, and children under the age of 13,” said Prof Andrew Walubo of the UFS’s Department of Pharmacology.
“Although most of the side effects of ARV drugs have been identified in other countries, it has now become critical to identify the side effects amongst the South African population. This is important because many people will be exposed to the drugs within a short time. Our aim is so identify the most common side effects and make recommendations for the prevention thereof. The centre will help in detecting the risk of using anti-retroviral drugs in pregnancy and children, and prevention of adverse drug reactions,” said Prof Walubo.
According to Prof Walubo 12 drugs will be monitored – these drugs will be selected according to the patient’s profile.
The centre will comprise of two components: A pregnancy registry, which will focus on a new-born child up until two months and a pediatric registry, which will focus on children who are born of mothers who used ARV drugs and children using ARV drugs.
According to Prof Walubo, the Pharmaconvigilance Centre will also be responsible for offering relevant technical advice, training and selected research on ARV drugs in these patients.
The centre will be fully sponsored by the national Department of Health. It will be based in the UFS’s Faculty of Health Sciences, Department of Pharmacology, and will be run in collaboration with experts from different departments in the faculty.
Media release
Issued by: Lacea Loader
Media Representative
Tel: (051) 401-2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za
8 December 2004