Latest News Archive

Please select Category, Year, and then Month to display items

Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

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

UFS receives record number of applications

2011-12-31

The University of the Free State (UFS) is looking forward to the start of the new academic year in January 2012, when thousands of new students will be joining the Kovsie family.

The UFS received almost 13 000 applications for studies in 2012. This is an increase of about 80% compared to the total number of applications received in 2010 for studies in 2011.

This increase is partly attributed to the university’s new method in approaching prospective students and the marketing initiatives followed during 2011. These included visits to various schools in the country by the Vice-Chancellor and Rector, Prof. Jonathan Jansen.

“This shows that the UFS is becoming a preferred place of study. Unfortunately, we can only take in about 4 000 first-years from these applications. We will, of course, choose the best and most diverse class of students,” says Prof. Jansen.

The university’s marketing initiatives will be intensified next year where students will take part as ambassadors in the university’s student recruitment campaigns for 2013.

Mr.Rudi Buys, The Dean of Student Affairs at the UFS, says Prof. Jansen’s visit to various schools in the country was very successful. This will be continued in 2012 and student leaders from residences, associations as well as the Student Representative Council will accompany him on these visits during the course of the year.

“These learners, just like our students, are part of a new generation of new democratic South Africans. Our students are excellent examples of youth leadership in the country and we are very excited about all our initiatives,” Mr Buys said.

The UFS is aware of the fact that learners will only receive their final Grade 12 results in January 2012. Final admission will therefore only be granted upon the submission of a certified copy of the matriculation results. Fax these results to 086 586 8947 or e-mail to applications@ufs.ac.za as soon as it is available.

Important dates for Bloemfontein students

Friday and Saturday 13 & 14 January 2012: Welcoming of new first-years
Sunday 15 January: Gateway College life programme (Bloemfontein edition) begins)
Monday 16 January 2012: Registration starts

Important dates for Qwaqwa students

Thursday 12 January 2012: Arrival of first-years
Friday 13 January 2012: Gateway College Life programme (Qwaqwa edition) begins.
Monday 16 January 2012: Registration starts

For more information, Bloemfontein students can contact Student Affairs at 051 401 9102 or send an e-mail to Cornelia Faasen at faasenc@ufs.ac.za . Qwaqwa students can contact Dulcie Malimabe at 058 718 5018 or send an e-mail to malimabedp@qwa.ufs.ac.za

Media Release
Issued by: Lacea Loader
Director: Strategic Communication
Telephone: +27 (0) 51 401 2584
+27 (0) 83 645 2454
E-mail: news@ufs.ac.za
Fax: +27 (0) 51 444 6393
Web: www.ufs.ac.za

Back

Economic and Management Sciences

Education

Health Sciences

The Humanities

Law

Natural and Agricultural Sciences

Theology and Religion

Open Distance Learning

Business School

We use cookies to make interactions with our websites and services easy and meaningful. To better understand how they are used, read more about the UFS cookie policy. By continuing to use this site you are giving us your consent to do this.

Accept