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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

Autumn Graduation Ceremony a thrilling showcase
2013-04-19

 

Yolanda du Toit from the Department Student Academic Services is the proud mother of three daughters who all received qualifications at the Autumn Graduation. Maryke (left) received her certificate in Certified Financial Planning. She already has degrees in B.Com. Law and LLB. Amandi (centre) received her B.Ed and twin sister received her degree in consumer science.
Photo: Renè-Jean van der Berg
19 April 2013

Gareth Cliff video clip
Vicus and Vincent Visser video clip
Joshua Johnson video clip
Graduation YouTube video clip

Photo Gallery

The university’s Autumn Graduation Ceremony infused the Bloemfontein Campus with exhilaration last week.

Beaming with pride, graduates received 526 diplomas/certificates and 2 796 bachelor’s and honours degrees in total.

Prof Jonathan Jansen, Vice-Chancellor and Rector, lead each procession of graduates from the Red Square down the path to the Callie Human Centre while the beat of drums filled the air. “To break the cycle of poverty, get an education, get a degree,” Prof Jansen urged graduates during their respective ceremonies. He underscored the fact that, as graduates, they are ten times more likely to get a job, with the odds rising as they continue their postgraduate studies.

Dr Khotso Mohele, Chancellor of the university, advised graduates not to allow life’s obstacles to discourage them. “Take what you have learned over the last three or four years and use that knowledge to reach your goal,” he said. He also emphasised that graduates need to be able to take standpoint against issues.

Graduates’ ceremonies were made even more memorable by various local and international speakers and performers.

American student and tap-dancer, Joshua Johnson, inspired the audience with his story of hope and perseverance. As a student from Penn State University, he travels five hours by bus to New York every weekend where he dances on the subway train to earn money for his tuition fees. Joshua told graduates that, in order to achieve their goals, they have to make the best use of the 24 hours they get to live daily. “Don’t follow in the footsteps of someone else. Take the beat of life, but add your rhythm to it," his wise words resonated with the exhilarated graduates. The audience could not help but clap to the rhythmic beat of his tap-dancing performance.

Vicus Visser, dubbed Bloemfontein’s Justin Bieber was also on the list of performers. Vicus – a South African YouTube singing sensation – performed with his brother, Vincent, to the delight of the crowd.

Radio personality and Idols South Africa judge, Gareth Cliff, was also among the speakers who addressed the graduates during the week. “It’s a good time be alive, a good time to be a South African, a good time to be a qualified South African,” he said. “It’s a time in our country’s development that we require minds such as yours to propel us forward,” was part of his message. Gareth also stressed the freedom of speech in South Africa, especially the freedom of the media.

The Autumn Graduation Ceremony of 2013 was an immense success and filled the hearts of Kovsie graduates, students, staff, parents, family and friends with overwhelming pride.

The Qwaqwa Campus’ graduation ceremony will take place on 8 June 2013. Diplomas / certificates up to and including doctorates will be awarded at this ceremony.

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