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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.
Unique partnership flows out of our Schools Projects
2011-06-29
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| At the meeting between our university and principals and teachers of three of the 23 schools in our university’s Schools Partnership Project were, from the left: Mr Motlolometsi Tshidiso, Tsotseletso Secondary School; Dr Choice Makhetha, Vice-Rector: External Relations (acting); Mr Vuyo Mlinde, Bloem-Oos Intermediary School; back: Dr Peet Venter, Head of our South Campus, and Mr Tlhabedi Mafoyane from Kagisho Secondary School. |
Our university established a unique partnership flowing from two of its community initiatives; the UFS Schools Partnership Project and the Extreme Make-over for Schools Project. Bloem-Oos Intermediary School which will benefit from the Extreme Make-over for Schools Project formed a partnership with Kagisho and Tsotseletso Secondary schools becoming a feeder school for the two schools. Both Kagisho and Tsotseletso Secondary schools are now beneficiaries of the UFS Schools Partnership Project.
With the Schools Partnership Project, the university is working closely with the 23 schools for a three- to five-year-period to help schools to become top achievers of which the teachers, learners and parents could be proud. The schools were identified last year and the groundwork for this project was finalised in 2010 as well. The university’s involvement in the Extreme Make-over for Schools Project includes amongst others a partnership with the Department of Basic Education and the Bloemfontein business community to work together to launch the first of a number of a newly upgraded schools to learners, teachers and the community. Bloem-Oos Intermediary School became the first school in Bloemfontein to undergo an extreme makeover.
Management structures from the University, including Prof. Jonathan Jansen, Vice-Chancellor and Rector, Dr Choice Makhetha, Vice-Rector: External Relations (acting), and Dr Peet Venter, Campus Head of the our South Campus, recently met with the principals and some of the teachers of three schools that form part of these two community initiatives of the university. The meeting between the university and principles Mr Tlhabedi Mafoyane (from Kagisho Secondary School), Mr Motlolometsi Tshidiso (Tsotseletso Secondary School) and Mr Vuyo Mlinde (Bloem-Oos Intermediary School) took place to enhance the relationships between the parties involved.
Dr Makhetha said, “When you support a school you groom learners to fit into the culture of the university. We were excited to learn that Bloem-Oos Intermediary School is a feeder school for Kagisho and Tsotseletso Secondary Schools. This partnership allows us to not only prepare learners already from an early age for university but also throughout their high school career. Let us make this project a model for South Africa.”
Continuous efforts and projects from the university as well as partners in the community, to invest in the learners of Bloem-Oos Intermediary School, include:
- The Project for Peace: A calculator project where learners will be taught on how to use a scientific calculator properly. A group of the learners will also be supplied with a free calculator.
- The Music Project: The Odeion School of Music at the UFS will also bring a music programme to the school.
- The Desk Project: This project includes fixing of all broken desks by Group 4 Correctional Facility. (This initiative includes all the broken desks of all the 23 schools in involve in the UFS Schools Partnership Project.)