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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

Address by the first Inaugural President of the Central SRC
2005-08-03


 

The UFS Central SRC

Address by the first Inaugural President of the Central SRC of the University of the Free State, Mr Tello Motloung on Wednesday 3 August 2003

The Chairperson of the UFS Council, Judge Faan Hancke,
The Vice-chancellor and Rector of the UFS, Prof Frederick Fourie
The Vice-Rector Student Affairs of the UFS, Dr Ezekiel Moraka
The Presidents of the main campus SRC and the Vista campus SRC
Colleagues in the Central SRC, campus SRCs, students and fellow South Africans

Please receive my heartfelt revolutionary greetings

Vice-chancellor and rector what I bring here with me assisted by facts, is just the work of my imagination. Like a love letter addressed to a sweetheart miles away, even though you do not know how she feels, what she wants to hear, and do not even know what she looks like.

I value speech as just an honest intimation, that’s why I got into a habit of establishing a dialogue with people, looking at each other’s face, and persuading one another of what we are saying.

Vice-chancellor, today marks an important milestone in the history of the existence of the UFS. Today reflects the confidence and trust that students of the UFS have placed in us. They are confident that the Central SRC has both the will and the capacity to take our university forward as we confront the challenge of transformation.

Students are confident that they are correct to trust the Central SRC as the principal agent of change in our university that is genuinely committed to the objective of building a non-racial, non-sexist and democratic university. We need to frankly ask ourselves, as CSRC members, whether are we up to all these challenges?

All Central SRC members have to understand this fully, internalize it, and ensure that everything we do, does not betray the confidence and trust of students, or disappoint their expectations. I say this knowing that all Central SRC members have committed themselves to serve the students of the UFS, black and white, and no one among us (CSRC) needs any special lectures about this central commitment.

The UFS should be an omnibus, welcoming everybody on board. But we should be a bus with a clear direction. We will certainly lose our way if we, as an institution, don’t have a clear road map spelling out where we are heading to.

There should be clear guidelines on the role of students in the transformation process. Students should also be viewed as role players in transformation along with the University management, and not just opposing forces. There is no right time, other than this one, to move away from the politics of opposition to politics of transformation.

However, we need the support of management to do so. The University should value the role and contribution of student leaders, hear our legitimate claims and consider them as part of political and policy decision making.
     
Vice-chancellor and Rector, it remains our task to ensure that the UFS is transformed into an institution that is seen to be playing a vigilant role in developing students academically, intellectually, socially, culturally, politically and otherwise. The process of transformation is not ending tonight, it is just beginning tonight.

Judge Hancke, Prof Fourie, Dr Moraka, fellow students and fellow South Africans, I lead students at this university with a sense of pride and duty, and I know very well that I lead men and women, students who are all determined that we reach our destination safely and on time.

A navy divided within its ranks will be destroyed and vanquished by the enemy, but the navy united in purpose and action, loyalty and commitment will not sink but sail on to victory.

It is befitting to mention that every drop of my blood is telling me that the UFS is my home. I firstly became a student here, I became the SRC treasurer in my first year here, I became the deputy president here, and I became the first president of the Central SRC of the UFS.

Therefore you should never doubt my commitment towards the transformation of this university. To paraphrase what was said by students at another institution, “If there is no UFS in heaven, then I am not going.”

Let me conclude by thanking my ancestors for teaching me that even if I wined and dined with kings and queens, I am not a king myself, so I should not turn my back on people who made me what I am today.

Most importantly, I would like to thank the Almighty God and the grace of our Lord Jesus Christ for giving me time and power to lead this university.

It will be theoretically irresponsible if I ended my speech without indicating that “Only a Kovsie knows the feeling”.

I thank you.

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