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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

Vice-Chancellor honoured with major awards
2013-05-02

02 May 2013

The University of the Free State (UFS) is proud to announce that Prof Jonathan Jansen, Vice-Chancellor and Rector, has been awarded a number of major awards recently.

The University of California in the United States awarded him the Alice and Clifford Spendlove Prize in Social Justice, Diplomacy and Tolerance. The award is made in recognition of persons who exemplify in their work the delivery of social justice, diplomacy and tolerance in the diverse local and global society.

“The committee was very impressed with the commitment that Prof Jansen has had to reconciliation and forgiveness as a way to build bridges and to find common ground. Prof Jansen is following in the steps of many of our greatest peace-time leaders and we support his efforts to bring understanding to all cultures,” said Mark Aldenderfer, chair of the awards committee and Dean of the School of Social Sciences, Humanities and Art at the University of California.

Prof Jansen also received the 2013 Academia Award at the Sixth Annual Ubuntu Lecture and Dialogue Awards Ceremony of the Turquoise Harmony Institute on 4 April 2013 in Johannesburg. The Institute aims to foster relations among different faith and cultural traditions to contribute to the well-being of humanity.

According to the organisers, “outstanding individuals who made noteworthy contributions to dialogue, peace and harmony in the society,” are given recognition during the ceremony. The awards are made in a number of different categories. Prof Jansen was among the recipients who included Graca Machel and the South African National Editors Forum (SANEF). Previous winners of Turquoise Awards include Ahmed Kathrada, Chester Williams, Dr Frene Ginwala and Prof Russel Botman.

On 10 May 2013, Prof Jansen was also honoured by Kappa Delta Pi International Honour Society in Education. He was awarded membership of the Laureate Chapter of the society founded in 1911 which “is comprised of men and women who have made distinguished contributions to education, and is limited to 60 living persons”. Prof Jansen joins an exclusive membership of 293 which includes such luminaries as Albert Einstein, Eleanor Roosevelt, Jean Piaget and George Washington Carver.

Also in the United States, Prof Jansen has been invited to be Messenger Lecturer for Fall 2013 at Cornell University. He will give three lectures and interact with the students and staff of Cornell at various functions.

“This is a significant honour and it will really allow members from across the university to get a deeper appreciation of the work you are doing at UFS and in South Africa more broadly,” said Prof Judith Byfield of Cornell’s Department of History and Director of Graduate Studies at the department’s Africana Studies and Research Centre.

On the local front, City Press published its inaugural 100 World Class South Africans on 28 April 2013. During a rigorous selection process, 100 of our country’s most extraordinary citizens who have achieved world-class status were chosen. Prof Jansen’s achievements procured him a place on this prestigious list in the category: Heroes and Mavericks.

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