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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

Kovsie Sportsman and Sportswoman of the Year
2011-10-19

 

Thuso Mpuang en Gabisile Hlumbane
Foto: Leonie Bolleurs

KovsieSport honoured its top achievers at a glamorous gala dinner in the Centenary Complex on our Bloemfontein Campus on 13 October 2011.

The KovsieSportsman and KovsieSportswoman of the year were Thuso Mpuang and Gabisile Hlumbane respectively.

Gabisile is a member of the Banyana Banyana National Soccer Team. The team obtained a bronze medal at the African Women’s Championships during October 2010, a gold medal at the Unity Cup Hosted during December 2010, a silver medal at the COSAFA Women’s Championship hosted during July 2011 and qualified for the London Olympics in 2012.

Thuso represented South Africa during the World Athletic Championships in Deague, Korea. He obtained the silver medal in the 200m during the World Student Games in Shenzhen, China and a gold medal as a member of the 4 x 100m relay team.

Pieter Rademan (rugby) and Karla Mostert (netball) were named as the Junior Sportman and Sportwoman of the year, respectively.

Other nominations for this year in the women’s category were:

  • Lesley Ann George (hockey) – Represented the Protea Women’s Hockey Team during the series against China, Belgium and Azerbajan. She was also a member of the Protea Women’s Hockey Team during the Champs Challenge in Ireland. The team finished fifth.
  • Nicole de Vries (hockey) – Represented the Protea Women’s Hockey Team during the series against China, Belgium and Azerbajan. She was also a member of the Protea Women’s Hockey Team during the Africa Cup in Bulawayo.  The team obtained a gold medal.
  • Hettie Oosthuizen (hockey) – Represented the Protea Women’s Hockey Team during the series against China, Belgium and Azerbajan.
  • Izelle Lategan (hockey) – Represented the Protea Women’s Hockey Team during the series against China, Belgium and Azerbajan.
  • Nicole Kemp (hockey) – Member of the Protea Women’s Hockey Team during the Africa Cup in Bulawayo. The team obtained a gold medal.
  • Nelmaré Loubser (triathlon) – Represented the SA Elite Team during the World Championships in Spain.
  • Janette Siebert (athletics) – Represented South Africa during the Southern Africa Championships in Maputo, Mozambique.
  • Elsabe le Roux (karate) – Member of Protea JKA Shotokan Karate team that participated in the Africa Zone 6 Championships in Maputo where she obtained a gold and silver medal.

Other nominations for this year in the men’s category were:

  • Boy Soke (athletics) - Represented South Africa during the Africa Cross Country Championships in Cape Town. He also represented South Africa during the World Cross Country Championships in China.
  • Boom Prinsloo (rugby) – He represented the Springboks in the HSBC Sevens World Series 2010 – 2011.
  • Bruno Schwalbach (karate) – Member of the Protea JKA Shotokan Karate team that participated in the Africa Zone 6 Championships in Maputo where he obtained two gold medals. He was also a member of the Protea JKA Shotokan Karate team that participated in the Common Wealth Karate Championship in Australia where he obtained one silver and two bronze medals. He was a member of the Protea JKA Shotokan Karate team that participated in the All Africa Games in Maputo Mozambique where he obtained a bronze medal.
  • Paul Rodrigues (squash) – He represented the South African U/ 23 team at the All Africa Squash Championships in Johannesburg.
  • Balungile Nchofe (karate) – He was a member of Protea JKA Shotokan Karate team that participated in the Africa Zone 6 Championship in Maputo where he obtained a gold medal.
     

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