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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

Open Day engulfs Bloemfontein Campus with colour, crowds and cheer
2013-05-04

 

08 May 2013
Photo: Lelanie de Wet


   Open Day YouTube video

The procession – comprising of Prof Jonathan Jansen and the Deans of all the UFS faculties – stately entered a packed Callie Human Centre on Saturday morning 4 May 2013. As everyone took their seats, all the lights were abruptly cut, leaving the hall in a stunned silence. Suddenly brilliant beams of green, blue and red lights cut through the dark, exploding into a spectacular laser show.

Open Day 2013 on the Bloemfontein Campus was officially under way.

The audience of parents and prospective students were awe-struck by a transfixing electric guitar performance, dancers lit up by LED suits, pulsing music and finally Corneil Muller singing to the accompaniment of Prof Jansen behind the piano.

Vice-Chancellor and Rector, Prof Jansen immediately made attendees from across all nine provinces, Namibia, Lesotho and several other countries feel at home and embraced by the university. During his welcoming address, Prof Jansen referred to the fact that Kovsies places the bar high when it comes to achievement. “We expect more of our students,” he said. “Passing is not important, passing wéll is important.” He stressed that at the university we teach students to be decent, to be exceptional people. “We place a high premium on being an outstanding human being.” He went on to say that our students are better than the previous generation – they do not carry the baggage of the old.

Prof Jansen also communicated the university’s commitment to developing leaders with an understanding of the world. This is why the university afford students the opportunity, amongst other things, to study abroad. Students have access to a wide variety of organisations and the privilege to have access to leaders who they can converse with. Kovsies strives to produce leaders, not only in the community, but on a global platform.

To demonstrate this last point, top Kovsie achievers joined Prof Jansen on stage to relay their stories of perseverance, courage and success. Included among these stars, were athlete Danél Prinsloo; Varsity Cup Player that Rocks 2013 Oupa Mohoje; DW Bester, a Rhodes Scholar currently studying at Oxford University in the United Kingdom; and Jurie Swart, who ranked under the top five in the 2012 International Graduate Architecture Student Design competition.

The residences pulled out all stops when it came to the presentation of their individual stalls. The gardens in front of the Main Building burst with colour, sound, dancing and laughter as the residences competed to draw the most visitors. The faculties also opened their doors for a glimpse at the exciting opportunities awaiting prospective students.

A record amount of visitors went home with the words of Rudi Buys, Dean of Student Affairs, inscribed in their minds summing up what the UFS is all about: “Where a sense of community matters more than the colour of your skin.”

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