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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.
Construction at Qwaqwa Campus creates jobs for local community
2010-05-28
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At the construction site hand-over ceremony are, from the left: Dr
Elias Malete, Dr Dipane Hlalele, Prof. WF van Zyl and Mr Derek Canavan
(Freelance Construction)
Photo: Thabo Kessah |
Local labour is set to benefit from at least 20 job opportunities that will be created during the building of new facilities valued at R13,5 million for the Faculty of Education on the Qwaqwa Campus of the University of the Free State (UFS).
This was announced by Mr Derek Canavan, an architect from Freelance Construction, during the sod-turning ceremony held on the construction site recently.
The soon to be built facilities will include a 100-seater lecture hall, two 50-seater classrooms, an office block, ablution facilities, two separate laboratories for biology and science, as well as an IT laboratory with 70 work stations. All these facilities will be user-friendly to the disabled students.
Addressing a contingent of brains behind the project that included Mr Nico Janse van Rensburg, Manager of Physical Planning at the UFS, Dr Elias Malete, the Qwaqwa Campus Principal, said that this addition to the existing infrastructure would enable the campus to meet its enrolment and output challenges.
“These new facilities will no doubt increase the university’s academic and research capacity and will certainly help us respond positively to Minister Blade Nzimande’s call to institutions of higher learning to improve on scientific research. We are therefore pleased with this multi-million rand investment from the National Department of Education and the UFS,” he concluded.
Also attending was Dr Dipane Hlalele, Programme Head in the faculty, who was also pleased with the new facilities. “These facilities will help us to answer to our community’s needs of pre-school and foundation-phase teacher training which will be added to our study programme in January 2011. We will be introducing a new B.Ed. degree in Pre-school and Foundation phases and these facilities will help in the production of quality teachers for the benefit of our community,” he said.
The new building is expected to be ready for usage in June 2011.
Media Release
Issued by: Lacea Loader
Director: Strategic Communication (acting)
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl@ufs.ac.za
27 May 2010