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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

Reverend Frank Chikane honours ‘Oom Bey’ at second Beyers Naudé Memorial Lecture for 2012
2012-09-11

Rev. Frank Chikane and Dr Choice Makhetha, Vice-Rector: External Relations at the UFS.
Photo: Stephen Collett
10 September 2012

The 9th Beyers Naude Memorial Lecture, a partnership initiative between the University of the Free State (UFS) and Kagiso Trust, was held on the South Campus of the university last week. The theme of the lecture focused on Collaborative partnership for social cohesion: Building of a nation with ethics.

Guest speaker, Reverend Frank Chikane, is a member of the UDF, ANC, Director-General in the Office of the President and a board member of Kagiso Trust.

In his speech, Rev. Chikane focused on the first 45 years in the life of Beyers Naudé, sketching a picture of a man who lived for what he believes in. When this former minister of the South African Dutch Reformed Church and member of the Broederbond, decided to question the morality of the Apartheid government after the Sharpeville Massacre in 1960, he made some changes in his beliefs and started to play a big role in the struggle against apartheid.

“If one know about ‘Oom Bey’s’ earlier life, you will see how radical his contribution was in turning South Africa from a country on the brink of destruction to a country of peace. ‘Oom Bey’ must be seen as a role model, someone we can aspire to be in South Africa today,” Rev. Chikane said.

“From his legacy one sees elements of someone building a nation with ethics.

“He took sides with the poor against an unjust system. Power breaks cohesion. It makes people not to think,” Rev. Chikane said.

If Afrikaners and black people stood together after the South African War (Anglo-Boer War), we would have talked a different language today. However, they did not. Afrikaners stood together, excluding black people and cohesion between all races was destructed. ‘Oom Bey’ tried to build relationships between people from all races in South Africa in an effort to create peace amongst all people. He was alienated from the Broederbond and defrockedrom the church.

In his speech, Rev. Chikane also said that South Africa did not succeed in collaborative partnerships in terms of the economy. “We need collaborative action to change our economy. This specific failure can destroy all that we have built together.”

“All South Africans can be like ‘Oom Bey” and make a contribution, especially in terms of the economy. To deal with this challenge, we can all contribute. This is important because due to a poor economy, many people are desperate and desperate people can destroy any relationship that we might have built so far.”

At this event, the university and Kagiso Trust also announced the winners of a poetry and essay competition that coincided with this last Beyers Naudé lecture for 2012. The award ceremony looked at the creativity of the learners, how they expressed themselves as well as the novelty of their work. Students as well as learners from schools in the Free State participated in the competition and first, second and third place winners received cash prizes as well as a book from Rev. Frank Chikane for their brilliant work.
 

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