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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.
2010 World Cup: An opportunity for nation-building
2010-05-11
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Pictured from the left, front are: Prof. Labuschagne and Prof. Cornelissen. Back: Prof. Kersting, Prof. Teuns Verschoor (Acting Senior Vice-Rector: UFS) and Dr Ralf Hermann (DAAD).
Photo: Mangaliso Radebe |
“The 2010 FIFA World Cup creates a window of opportunity for nation-building in South Africa that could even surpass the opportunity created by the 1995 Rugby World Cup.”
This was according to Prof. Pieter Labuschagne from the University of South Africa, who was one of the three speakers during the lecture series on soccer that were recently presented by the Faculty of the Humanities at the University of the Free State (UFS), in conjunction with the German Academic Exchange Service (DAAD), under the theme: Soccer and Nation Building.
Prof. Labuschagne delivered a paper on the topic, The 2010 Soccer World Cup in South Africa: Nation Building or White Apathy?, highlighting the critical issue of how sport in South Africa was still largely supported along racial lines.
“We are still enforcing the separateness of rugby as a sport for whites and soccer as a sport for blacks,” he said.
He said a high degree of animosity against soccer existed among whites because they felt rugby and cricket were being singled out by parliament as far as transformation was concerned. He said that could be the reason why a large number of South African whites still supported soccer teams from foreign countries instead of local Premier Soccer League teams.
“Bridging social context between different racial groups is still a major problem, even though patriotism is comparatively high in South Africa,” added Prof. Norbert Kersting from the University of Stellenbosch, who also presented a paper on World Cup 2010 and nation building from Germany to South Africa, drawing critical comparisons on issues of national pride and identity between the 2006 World Cup in Germany and the 2010 World Cup.
“Strong leadership is needed to utilize the opportunity provided by the 2010 World Cup to build national unity as former President Nelson Mandela did with the Rugby World Cup in 1995,” said Prof. Labuschagne.
Although acknowledging the power of sport as a unifying force, Prof. Scarlett Cornelissen, also from the University of Stellenbosch, said that, since 1995, the captivating power of sport had been used to achieve political aims and that the 2010 World Cup was no different.
Amongst the reasons she advanced for her argument were that the 2010 World Cup was meant to show the world that South Africa was a capable country; that the World Cup was meant to solidify South Africa’s “African Agenda” – the African Renaissance - and also to extend the idea of the Rainbow Nation; consolidate democracy; contribute to socio-economic development and legitimize the state.
“We should not place too much emphasis on the 2010 World Cup as a nation-building instrument,” she concluded.
She presented a paper on the topic Transforming the Nation? The political legacies of the 2010 FIFA World Cup.
The aim of the lecture series was to inspire public debate on the social and cultural dimensions of soccer.
DAAD (Deutscher Akademischer Austausch Dienst) is one of the world’s largest and most respected intermediary organisations in the field of international academic cooperation.
Media Release
Issued by: Mangaliso Radebe
Assistant Director: Media Liaison
Tel: 051 401 2828
Cell: 078 460 3320
E-mail: radebemt@ufs.ac.za
11 May 2010