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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

Ms Oprah Winfrey to receive an honorary doctorate in Education from our university
2011-06-10

 

Ms Oprah Winfrey

Invitation to the public (PDF document)
Invitation to UFS staff and students (PDF document)
Media accreditation (PDF document)
Street closures on 23 and 24 June 2011 (Bloemfontein Campus)
Map from the Bloemfontein Airport to the UFS (PDF document)
Map of the UFS (PDF document)


For more information, please contact:

Tel: 051 401 3000
E-mail: info@ufs.ac.za

Staff and students from our Qwaqwa Campus, please contact:
Dr Elias Malete's office
 


Our university will be awarding an honorary doctorate in Education to the global media icon, philanthropist and public educator, Ms Oprah Winfrey, on its Bloemfontein Campus on Friday, 24 June 2011.

Both the Council and Senate of our university gave strong support to awarding the honorary doctorate to Ms Winfrey.

By awarding the honorary doctorate, we want to recognise Ms Winfrey’s accomplishments and unparalleled work as a global media leader, as well as a philanthropist with vision and foresight in the field of education and development.

“It is a great privilege for us to be the first South African university to honour Ms Winfrey in this way and to be able to recognise a global icon of her stature,” says Prof. Jonathan Jansen, Vice-Chancellor and Rector of our university.

Ms Winfrey already holds honorary doctorates from Princeton University as well as Duke University in the United States, among others.

Reaching millions of viewers in more than 150 countries with her award-winning programme, “The Oprah Winfrey Show,” she has brought genuine change into the lives of ordinary people during its 25-year run.

Capitalising on the power of the media and her standing as a global icon, Ms Oprah Winfrey has brought a range of critical social and educational matters to the attention of her viewers. In 2000, she expanded her media reach through the successful creation of O, The Oprah Magazine, which then debuted in South Africa in 2002. Earlier this year, she extended her media influence through the launch of a US cable channel, OWN: Oprah Winfrey Network.

Her Book Club has had a dramatic and profound impact on the reading habits of America and those of people in other parts of the world, while her public charity, Oprah’s Angel Network, collected approximately $80 million over a period of twelve years in aid of building schools, women’s shelters and youth centres across the globe.

Through her private charity, The Oprah Winfrey Foundation, hundreds of grants have been awarded in support of empowering women, children and families, and The Oprah Winfrey Scholars Program, supports hundreds of university students, in the United States and elsewhere, who are committed to giving back and making a difference in their communities and country.

During a December 2000 visit to former president Nelson Mandela, Ms Winfrey pledged to build a school for girls in South Africa. This gift was to become the Oprah Winfrey Leadership Academy for Girls, which opened in 2007.

The Academy embodies her strong belief in the power of education to change the future. The Academy provides a unique educational opportunity to over 400 young girls, in Grades 7 through 12, from all over South Africa. These young women come from small rural towns and the big cities, but they share a common background in that they all come from poor families.

Ms Winfrey believes that the Academy can contribute to the development of a new generation of women leaders, deeply imbued with a sense of public service. The Academy stands as a beacon of hope in the educational landscape of this country.

More recently, Ms Winfrey has turned her attention to the failing public-school system in the United States and has brought the impact thereof on the lives of many people in America to the attention of the American public and policy-makers. Even more profoundly, she has highlighted how poor education entrenches poverty and social exclusion. In this sense, Ms Winfrey demonstrates the interconnection between education struggles in the USA and South Africa in powerful ways.

Both the Interim Director of our university’s International Institute for Studies in Race, Reconciliation and Social Justice, Mr John Samuel, and Prof. Jansen have worked for and with Ms Winfrey on matters of education at her school in Johannesburg, and in South Africa more broadly.

The South African public is invited to share in this occasion, and attend the award ceremony. A limited number of tickets will be available to the public from Wednesday, 15 June 2011 to Wednesday, 22 June 2011, and can be purchased from Computicket at an administrative cost of R10 a ticket.


Media Release

11 June 2011
Issued by: Lacea Loader
Director: Strategic Communication
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: news@ufs.ac.za

 

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