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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

UFS academic appointed as team doctor for SA Olympic Team
2012-03-22

 

Dr Holtzhausen’s appointment reflects well on the quality of exercise and sports medicine presented at the university.
20 March 2012

Dr Louis Holtzhausen, Head of the university’s Department of Sports and Exercise Medicine, has been selected by the South African Sports Confederation and Olympic Committee (Sascoc) as team doctor for the more than 300 athletes that will represent South Africa at this year’s Olympic Games in London.

“This is definitely one of the most important highlights of my career, in which I’ve worked with professional athletes and top sporting people,” says Dr Holtzhausen, a recognised South African academic in Sports Medicine.

“It is not only an honour to be appointed as team doctor for the South African Olympic Team. It is also a privilege to represent the UFS. The fact that Sascoc approached me reflects well on the quality of exercise and sports medicine that we present here at the university,” says Dr Holtzhausen.

Dr Holtzhausen says he has already worked with some of the athletes in the Olympic Team. These include members of the South African boxing team, the hockey team, as well as track and field athletes that have been preparing for the Olympic Games at the university’s High Performance Unit.

There is, however, hard work ahead for Dr Holtzhausen. His work will start before the team leaves for London in July. “I have to ensure that all the athletes are healthy and that everyone’s immunisation programmes are up to date. We also have to ensure that no athlete takes banned substances,” he says.

During the Games, Dr Holtzhausen will keep an eye on the optimal functioning of every athlete. “Anything that could hamper them medically will be sorted – whether it’s a broken ankle or a cold,” he says.

He will also see to it that medical services are available during the competition. Immediate medical assistance will be available, especially at high contact sports like boxing.

Dr Holtzhausen has also been team doctor for Team South Africa at the All Africa Games, the biggest sporting event in Africa. He was recently appointed as a member of the International Committee and Coordinator for Africa of the worldwide Exercise is Medicine project. This project proposes that exercise be used in the prevention of chronic disease in the general population, as well as in the treatment of people with existing chronic diseases. Dr Holtzhausen is also an honorary member of the South African Sports Medicine Association (SASMA). This membership is awarded to members of the medical and scientific community who make significant contributions to the advancement of sports medicine.

Dr Holtzhausen is a member of the Vice-Chancellor’s Prestige Scholars Programme.
The goal with the Prestige Scholars Programme is to select no more than 100 of the most promising young scholars (typically holding lecturer status) and to make substantial investments in their development towards the professoriate. A tailored, intensive programme of support has been designed which combines international placement working alongside leading scholars in the discipline of the prestige scholar, with intensive mentorship and support from within the university.

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