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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
Two Kovsie women involved in international sports events
2012-05-14
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Hetsie Veitch and Ebeth Grobbelaar
Photo: René-Jean van der Berg
14 May 2012
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The organisers of two international sports events will depend on the expertise of two Kovsie women to make the events a major success.
The honour to be involved in international sports event has befallen Ms Hetsie Veitch and Ms Ebeth Grobbelaar.
The honour is the result of many years’ hard work and devotion in their respective fields.
In June, when the USA chooses the team to represent it at the 2012 Paralympic Games in London, Ms Veitch will be one of the classifiers who will determine in which categories athletes may compete.
Ms Veitch, Head of the Unit for Students with Disabilities at the University of the Free State (UFS), has been invited to be a member of the Classification Panel at the final USA Paralympic athletics trials. The trials take place from 27 June to 1 July 2012 in Indianapolis, Indiana, in the USA.
Ms Veitch and four other classifiers, two from Brazil, one from Canada and one from the USA, will test and verify the international classification status of the American athletes. No athlete will be allowed to take part without their classification being verified by the panel.
Ms Veitch, who recently achieved the status of International Paralympic Committee (IPC) Athletics Classifier, the highest achievement for a classifier in sport for the disabled, said that this category of sport has always been her passion.
“To have the opportunity to be involved in the classification of the USA team for the London 2012 Paralympic Games is a huge honour. I am going to start working on being chosen for the official IPC classification panel for the 2016 Paralympic Games in Brazil.”
Ms Grobbelaar, Assistant Director of the South African Testing Laboratory for Prohibited Substances at the UFS, was invited to be involved in the Drugs Control Centre in the unit against prohibited substances which will test sportsmen and women during this year’s Olympic Games in London.
Ms Grobbelaar said that even though the future of sportsmen and women would be in her hands, she is totally capable of carrying out the task that awaits her.
“I will be part of the laboratory team who will test the athletes’ samples for prohibited substances. I was part of the South African team who tested samples in our own laboratory in 2010 during the FIFA Soccer World Cup, as well as for the All Africa Games. The task is one I perform every day in our own laboratories. Each sample that I analyse determines an athlete’s future. The circumstances during the Olympic Games are different, but the work remains the same.”