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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

Lecture on interpretations and translations of San place names
2011-09-23

Prof. Peter Raper, recently appointed as Honorary Professor: Linguistics, in the Department of Language Management and Language Practice at the University of the Free State, will deliver his inaugural lecture on Tuesday evening, 27 September 2011. His topic for the evening is “Interpretations and translations of Bushman (San) place names”. With this inaugural lecture, he also introduces an interesting one-day international colloquium on the theme: “Name-change planning – striving towards authenticity”.A panel discussion about street-name changes in Bloemfontein forms part of this colloquium and promises to elicit a stimulating debate.

Prof. Raper is probably better known for three popular place-name dictionaries, Streekname in Suid-Afrika en Suidwes, published in 1972; the Dictionary of Southern African Place Names, published in 1987, updated in 1989 and published in 2004 with some additions as New dictionary of South African place names; and Hottentot (Khoekhoen) place names, a dictionary compiled in collaboration with the famous Prof. G S  Nienaber (a former Kovsie). In fact, Prof. Raper’s work is a continuation of their world-renowned series, Toponymica Hottentotica, which was published between 1977 and 1981. It is generally regarded as the most authoritative work on Hottentot place names. His current interest in Bushman place names builds on this pioneering work and is actually also a re-evaluation of the underestimated role of the Bushman with regard to place naming in South Africa up to now. His work offers a new perspective on what could be regarded as the “first” or earliest names of places in South Africa and brings a sobering perspective to the current debates regarding place-name changes where various claims are made about “who has given the name first”.

However, Prof. Raper is also known for his role in the standardisation of place names, both nationally and internationally. In South Africa, he has served on the South African National Place Names Committee (1972-1999), the South African Geographical Names Council (1999-2002) and, since 1981, on the Names Society of Southern Africa. Currently, he is an honorary member of this association. Since 1984, he has also been serving on the United Nations Group Experts on Geographical Names and has even been the Chairperson of this Leading international standardisation body (1991-2002).

Apart from this, Prof. Raper regularly publishes his research on geographical names in a variety of academic journals and still participates in the most important national and international conferences on names on a regular basis. Prof. Raper is honoured as South Africa’s foremost names expert.

His inaugural lecture will introduce a colloquium on names planning, presented by his host department. Experts from Lesotho, Zimbabwe and the USA are participating in the proceedings, amongst others, the current Chairperson of the Names Society of Southern Africa, Prof. Adrian Koopman (University of KwaZulu-Natal).

RSVP: Joy Maasdorp on +27(0)51 401 2405 or maasdorpjh@ufs.ac.za before or on Thursday, 22 September 2011.

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