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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

Higher than expected prevalence of dementia in South African urban black population
2010-09-22

 Prof. Malan Heyns and Mr Rikus van der Poel

Pilot research done by University of the Free State (UFS) indicates that the prevalence of dementia, of which Alzheimer’s disease is only one of the causes, is considerably higher than initially estimated. Clinical tests are now underway to confirm these preliminary findings.

To date it has been incorrectly assumed that dementia is less prevalent among urban black communities. This assumption is strongly disputed by the findings of the current study, which indicates a preliminary prevalence rate of approximately 6% for adults aged 65 years and older in this population group. Previous estimates for Southern Africa have been set at around 2,1%.

The research by the Unit for Professional Training and Services in the Behavioural Sciences (UNIBS) at the UFS and Alzheimer’s South Africa is part of the International 10/66 Dementia Research Group’s (10/66 DRG) initiative to establish the prevalence of dementia worldwide.

Mr Rikus van der Poel, coordinator of the local study, and Prof. Malan Heyns, Principal Investigator, say worldwide 66% of people with dementia live in low and middle income countries. It is expected that it will rise to more than 70% by 2040, and the socio-economic impact of dementia will increase accordingly within this period. 21 September marks World Alzheimer’s Day, and this year the focus is on the global economic impact of dementia. Currently, the world wide cost of dementia exceeds 1% of the total global GDP. If the global cost associated with dementia care was a company, it would be larger than Exxon-Mobil or Wal-Mart.

The researchers also say that of great concern is the fact that South Africa’s public healthcare system is essentially geared toward addressing primary healthcare needs, such as HIV/Aids and tuberculosis. The adult prevalence rate of HIV was 18,1% in 2007. According to UNAIDS figures more than 5,7 million people in South Africa are living with HIV/Aids, with an estimated annual mortality of 300 000. In many instances the deceased are young parents, with the result that the burden of childcare falls back on the elderly, and in many cases elderly grandparents suffering from dementia are left without children to take care of them. “These are but a few reasons that highlight the need for advocacy and awareness regarding dementia and care giving in a growing and increasingly urbanized population,” they say.

Low and middle income countries often lack epidemiological data to provide representative estimates of the regional prevalence of dementia. In general, epidemiological studies are challenging and expensive, especially in multi-cultural environments where the application of research protocols relies heavily on accurate language translations and successfully negotiated community access. Despite these challenges, the local researchers are keen to support advocacy and have joined the international effort to establish the prevalence of dementia through the 10/66 DRG.

The 10/66 DRG is a collective of researchers carrying out population-based research into dementia, non-communicable diseases and ageing in low and middle income countries. 10/66 refers to the two-thirds (66%) of people with dementia living in low and middle income countries, and the 10% or less of population-based research that has been carried out in those regions.

Since its inception in 1998, the 10/66 DRG has conducted population based surveys in 14 catchment areas in ten low and middle income countries, with a specific focus on the prevalence and impact of dementia. South Africa is one of seven LAMICs (low and medium income countries) where new studies have been conducted recently, the others being Puerto Rico, Peru, Mexico, Argentina, China and India.

Mr Van der Poel says participating researchers endeavour to conduct cross-sectional, comprehensive, one-phase surveys of all residents aged 65 and older within a geographically defined area. All centres share the same core minimum dataset with cross-culturally validated assessments (dementia diagnosis and subtypes, mental disorders, physical health, anthropometry, demographics, extensive non-communicable risk factor questionnaires, disability/functioning, health service utilization and caregiver strain).

The local pilot study, funded by Alzheimer’s South Africa, was rolled out through an existing community partnership, the Mangaung University of the Free State Community Partnership Programme (MUCPP).

According to Mr Van der Poel and Prof. Heyns, valuable insights have been gained into the myriad factors at play in establishing an epidemiological research project. The local community has responded positively and the pilot phase in and of itself has managed to promote awareness of the condition. The study has also managed to identify traditional and culture-specific views of dementia and dementia care. In addition, existing community-based networks are being strengthened, since part of the protocol will include the training and development of family caregivers within the local community in Mangaung.

“Like most developing economies, the South African population will experience continued urbanization during the next two decades, along with increased life expectancy. Community-based and residential care facilities for dementia are few and far between and government spending will in all probability continue to address the high demands associated with primary healthcare needs. These are only some of the reasons why epidemiological and related research is an important tool for assisting lobbyists, advocates and policymakers in promoting better care for those affected by dementia.”

Media Release
Issued by: Mangaliso Radebe
Assistant Director: Media Liaison
Tel: 051 401 2828
Cell: 078 460 3320
E-mail: radebemt@ufs.ac.za  
21 September 2010

 

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