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20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied
AnnelizeOosthuizen
Dr Annelize Oosthuizen, Subject Head of Taxation in the School of Accountancy, University of the Free State.
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

Exciting open day and Albert Einstein program at Boyden Observatory
2005-05-06

National Science Week, which will be held from 7-14 May 2005, is an annual country-wide celebration of science, led by the Department of Science and Technology.  The department selected a proposal by the Boyden Science Centre to coordinate a week of activities in the Bloemfontein area as one of the many projects in the country.

The project for Bloemfontein and surrounding areas will be delivered though a collaboration between the National Museum in Bloemfontein and the University of the Free State (UFS), including the Research Institute for Education Planning, the Department of Physics and other departments in the Faculty of Natural and Agricultural Sciences.

The purpose of National Science Week is:

to create awareness of the important role that science play in people’s daily lives;
to encourage our youth to consider studying and improving their performance in mathematics and science; and
to attract more of our youth into science, engineering and technology (SET) careers.

 

World Year of Physics and Albert Einstein Program at Boyden Observatory

The International Union of Pure and Applied Physics (IUPAP) declared the year 2005 as the World Year of Physics (WYP). In recognition of this declaration, the great contribution of Physics to the development of technology, and its importance in our everyday lives will be featured strongly during the National Science Week 2005.

On Saturday 7 May 2005 there will be a public programme at Boyden Observatory from 15:30 as a contribution to the World Year of Physics. The programme will be presented in collaboration with the Bloemfontein branch of the Astronomical Society of Southern Africa and will include short presentations on astronomy, space exploration and the sun.

The main presentation will be at 19:00 the evening on the life and work of Albert Einstein. The programme will also include observing sessions through telescopes of objects like the sun, Jupiter and Saturn. There will also be an exhibit on Albert Einstein. Attendance is free but booking is required.  For bookings, phone 051-4012561.

Public lecture programme:

Next week the following exciting public lectures will be presented as part of the Science Week activities:

Monday 9 May 2005 

National Museum:

A discussion on Apocalypse Then: the greatest mass extinction of all time.  The lecture will be presented by Dr Jennifer Botha, Paleontologist at the National Museum.
Bookings: 051-4479609 (entrance is free).

UFS campus:

All lectures at Kine 2, Medical Faculty, UFS campus. Follow directions from the DF Malherbe Road entrance.
Bookings: 051-4012561 (entrance is free).

Tuesday 10 May 2005:

A discussion on the Tsunami disaster of 26 December 2004 at 19:30 (UFS campus, Kine 2 Medical Faculty).

Wednesday 11 May 2005:

A discussion on Is there life out there? at 19:30 (UFS campus, Kine 2 Medical Faculty).

Friday 13 May 2005:

A discussion on Hunting Black Holes at 19:30 (UFS campus, Kine 2 Medical Faculty).  The lecture will be presented by Dr Phil Charles, Director: South African Astronomical Observatory.

Science awareness day at the National museum

The science week will be concluded on Saturday 14 May 2005 with a special Science Awareness Day at the National Museum, Aliwal Street, Bloemfontein. 

The excellent exhibits at the museum will be supplemented with activities, career information and video shows. The duration of the programme will be from 10:00-16:00.  For enquiries, please call 051-4479609.

 

Issued by:  Lacea Loader
   Media Representative
   Tel:  (051) 401-2584
   Cell:  083 645 2454
   E-mail:  loaderl.stg@mail.uovs.ac.za

6 May 2005
 

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