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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

African Student Affairs Conference a huge success
2011-05-24

 
Mr Rudi Buys, UFS Dean of Student Affairs, Mr. Folabi Obembe, Managing Director of Worldview International, Ms Birgit Schreiber, Director of the Centre for Student support services at the University of the Western Cape, Dr. Augustinah Duyilemi, Dean of Student Affairs at the Adekunleh Ajasin University in Nigeria, Dr. Christina Lunceford, assistant Director for the Centre for Research on Educational Access and Leadership at California State University in America, and Prof. Cecil Bodibe, student affairs veteran and consultant.
Photo: Earl Coetzee

The African Student Affairs Conference (ASAC), which took place on our Main Campus last week, was a major success, with two days of lectures and discussions and two pleasant social gatherings, where delegates had the opportunity to get to know each other.

The conference, hosted on African soil for the first time, and co-hosted by the University of the Western Cape (UWC), started on Wednesday 18 May 2011 with an informal welcoming session. Delegates got to meet each other and Mr Rudi Buys, UFS Dean of Student Affairs, explained the meaning of South African words like "kuier" and "lekker'.

The official start of events took place on Thursday 19 May 2011, in the Reitz Hall in our Centenary Complex. The conference was attended by delegates from universities across the continent and aimed to place the focus on issues relating to student affairs in an African context.

Delegates shared and exchanged strategies, ideas and resources, and discussed issues related to the work of student affairs professionals. The conference hoped to promote an exchange of best practice and assist attendees in identifying successful programmes.

Among the topics discussed on the first day, were “Constructing Post-Conflict Democracy on campus: a case study of transformation of student governance and political engagement as post-conflict intervention”, by Mr. Buys, and a discussion on ways in which social and online media can be used to ease the challenges of student interaction, development and support, by Ms Birgit Schreiber, Director of the Centre for Student Support Services at UWC.

A panel discussion, led by Mr Buys and several members of our Interim Student Council (ISC), discussed the specific challenges faced at the UFS.  The importance of buy-in from role-players in decisions taken by University management in order to ensure their success, was discussed, using the UFS and our recent changes as an example.

The successful integration of residences on campus inevitably came under the spotlight and the recently resolved Reitz-saga was named as a catalyst in getting students less apathetic and more involved in attempts at creating racial and social harmony.

Dr Christina Lunceford, Assistant-Director of the Centre for Research on Educational Access and Leadership at California State University, presented a paper entitled A National Approach to Building Capacity in Student Affairs in South African Higher Education.

She commented on the fact that there is little or no philosophical framework or explicit theory that informs practice of student services in South Africa.

According to Dr Lunceford, student development should be a key concern for every department or unit within student services and emphasized the need for a centralized student development unit at each university.
She also touched on the need for institutions to implement support from international student affairs professional associations, professional development for student affairs practitioners, the utilization of technology to support professionals in the field, and working with international partners to explore future opportunities, as ways in which student affairs can be used to drive performance and change at universities.

The conference continued in the Scaena theatre on Friday 20 May 2011, with presentations by Dr Augustinah Duyileme, Dean of Student Affairs at Adekunle Ajasin University in Nigeria, and Prof. Bobby Mandew, Executive Director of Student Affairs at the University of Johannesburg (UJ).

Dr Duyileme presented a paper on the challenges faced by Nigerian universities with regard to student conflict and protests, which often turn violent, and how such violence can be curbed through proper planning and management.

Prof. Mandew presented a very well-received presentation on UJ’s successful off-campus housing initiative, which involves home-owners and business owners in the areas surrounding their campuses.

Their approach demonstrated how proper planning can prevent problems associated with over-population in private homes and conflict with neighbours of the university, usually related to an influx of students into residential neighbourhoods.

This problem is faced by many universities, as more and more students flock to universities on the continent and campus residents cannot accommodate them.

The conference came to a close on Friday, with most delegates agreeing that the exchange of knowledge which took place was extremely valuable.

Ms Deborah Lahlan, of Nigeria, said: “This is an important conference for Africa and it should become a regular event.”
 

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