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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

Protection of Information bill- opinions from our experts
2011-11-28

Prof. Hussein Solomon
Senior Professor in the Department of Political Science at the University of the Free State. 

In recent years, given their failure to effectively govern, the ANC has become increasingly defensive. These defensive traits have become particularly acute in light of the various corruption scandals that members of the ruling party involve themselves in.
 
Given the fact that for now they are assured of an electoral majority (largely on account of their anti-apartheid credentials), coupled with the fact that they have managed to make parliament a rubber stamp of the executive as opposed to holding the executive accountable, it is the media which has increasingly held the ruling party to account by exposing such corruption and incompetence in government.
 
The passing of the information bill, therefore, is not merely an attack on the media, but an attack on the pivotal issue of accountability. Without accountability, there can be no democracy.
 
By defining national interest broadly, by refusing to accept a public interest clause in the bill, the ANC increasingly shows its disdain to South Africa's constitution and its citizens.
 
More importantly, as former Minister of Intelligence and ANC stalwart Ronnie Kasrils pointedly makes clear, the ANC is also betraying its own noble struggle against the odious apartheid regime. It was the media which played a key role in exposing apartheid's excesses, it is the same media which is coming under attack by the heirs of PW Botha's State Security Council - Minister of State Security Siyabong Cwele and his security apparatchiks whose mindsets reflect more Stalin's Gulag's than the values of the Freedom Charter.
 
The passing of this bill is also taking place at a time when journalists have had their phones attacked, where the judiciary has been deliberately undermined and parliament silenced.
 
Democrats beware!

 
Prof. Johann de Wet
Chairperson: Department of Communication Science 
 
The ANC’s insistence on passing the Protection of State Information Bill in its current form and enforcing it by law, means that the essence of our democratic state and the quality of life of every citizen is at stake.
 
Yes, our freedom as academics, researchers, mass media practitioners and citizens comes into play. Freedom implies the right to choose and is, along with equality, an underlying principle which helps make democracy happen. While the South African state needs to protect (classify) information which could threaten its security and/or survival, the omission of a public interest clause in the Bill at this stage effectively denies a citizen the right to freedom of information.
 
 Freedom of information, along with press freedom, freedom of speech, freedom of assembly, freedom of association and religious freedom, are essential to democracy. These freedoms are granted because they conform to basic liberal ideas associated with (Western) democracy and which resonate with South Africa’s liberal constitution, such as (1) belief in the supreme value of the individual (and thus not of the state); (2) belief that the individual has natural rights (rights which belong to all human beings by nature – such as the right to life and to control government)) which exist independently of government, and which ought to be protected by and against government; and (3) recognition of the supreme value of the individual. 
 
One wonders how many cases of South African government corruption and mismanagement would have been uncovered by investigative journalists over the past number of years if this Bill in its current form was on the statute books. This Bill represents a backward step from the promise of democracy of having an informed public. The former National Party government had similar laws in place and one does not want to go there again. The infamous Information Scandal in South Africa of some thirty years ago, or Muldergate as it has come to be known, reminds one of what governments can do when it works clandestinely.
 
What South Africans need, is more information on what government structures are doing and how they are doing it with taxpayers’ money, not less information. While information in itself does not equal communication or dialogue, it is an indispensable part thereof, and the need for dialogue based on verifiable information is urgent for meeting vexed challenges facing South African communities. Academics in all fields of specialisation are constantly in need of untainted information to pursue answers and/or offer solutions to where South Africa should be moving in all spheres of life.

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