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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

UFS Council votes on top appointments
2003-11-24

The Council of the University of the Free State (UFS) today voted on the filling of four senior vacancies, including three posts at Vice-Rector level and one at the level of Dean.

The Council voted as follows:
- Prof Magda Fourie will be offered the post of Vice-Rector: Academic Planning
- Dr Ezekiel Moraka will be offered the post of Vice-Rector: Student Affairs
- Prof Teuns Verschoor will be offered the post of Vice-Rector: Academic Operations
- Prof Letticia Moja will be offered the post of Dean: Faculty of Health Sciences

Two of the candidates, Prof Teuns Verschoor and Prof Magda Fourie, are currently acting Vice-Rectors at the UFS. Prof Verschoor is acting Vice-Rector for Student Affairs and Prof Fourie is acting Vice-Rector for Academic Planning. Dr Moraka is currently Dean of Student Affairs at the University of Pretoria (UP). Prof Moja is currently the acting Dean of the Faculty of Health Sciences at the UFS.

According to the Rector and Vice-Chancellor of the UFS, Prof Frederick Fourie, the filling of these senior vacancies comes after one of the most thorough search and selection processes ever at the UFS.

“It is wonderful that we are able to celebrate the outcome of this process that has brought forward such excellent candidates who reflect our country’s diversity. It shows that we can achieve the goals of quality and diversity at the same time,” Prof Fourie said.

Prof Magda Fourie (49) received her Ph D on Institutional governance of higher education in transition: a South African perspective from the UFS in 1996. She joined the UFS in 1998, later becoming Director of the Centre for Higher Education Studies and Development and Professor in Higher Education Studies. She said in her declaration of intent her aspiration is to contribute to making the UFS the excellent university it foresees in its vision and mission. Academic planning should position the UFS with regard to its core activities strategically as an institution of excellence that will meet the future from a strong basis of academic integrity and credibility.

Dr Moraka (45) received his Ph D in Education Management on Management of change and conflict resolution by student affairs officers at historically white universities in South Africa from the UP in 2002. He is Dean of Students at the UP since 2001. Before that he was Head of Student Support and Student Social Services at the UP for six years. He was also, among others, a lecturer at a college of education and a pastor of the Dutch Reformed Church in Africa. He said in his declaration of intent that diversity can become so greatly emphasised that people can be driven further apart. Focus should be on moulding a student community where everyone can feel at home, a community which lives together and works together without destroying what is unique to each individual.

Prof Verschoor (53) received his LL D in 1980 at the University of Pretoria on The criminal responsibility of psychopaths and similar figures. He was professor in and Head of the Department of Criminal Law and Medical Law at the UFS for 17 years before becoming Dean of Students in 1994. He said in his declaration of intent that he dreams of the realisation of projects that are awaiting the enthusiastic support, bringing together and empowering of persons involved by a Vice-Rector that wants to see the UFS prosper in an era of continuing dynamic development. In this he would like to make a substantial contribution.

Prof Moja (46) received her MB ChB in 1982 from the University of Natal and her M.Med in Obstetrics and Gynecology in 1990 from the Medical University of South Africa (Medunsa). She became a full professor in 2003 at the UFS and has been acting as Dean of the UFS’s Faculty of Health Sciences since February 2003. She said in her declaration of intent that the challenge for her is to manage change with the ultimate aim of both achieving the vision of the UFS and satisfying the needs of the community. Some of the academic challenges include the training of more people from designated groups and rural areas. Careful planning and integration of the curriculum should be done to ensure that all students perform to their best.

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