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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

Postgraduates’ new Kovsies home
2013-05-10

 
Some of the guests attending the launch, included from left: Prof Driekie Hay, Vice-Rector: Academic, Dr Henriette van den Berg, Director: Postgraduate School and Prof Corli Witthuhn, Vice-Rector: Research.
10 May 2013
Photo: Johan Roux

Postgraduate students and their academic 'parents' at the University of the Free State (UFS) now have a dedicated physical, emotional and electronic space to provide for their specialised needs in order to further promote research excellence at the UFS.

The university's Postgraduate School was launched in May 2011, but ventured further in the quest to fulfil and expand its mandate with new initiatives. These different aspects of the school were launched on Wednesday 8 May 2013 in the CR Swart Auditorium on the Bloemfontein Campus. The postgraduate strategy, postgraduate prospectus, the website and the headquarters of the Postgraduate School in the Johannes Brill Building were all unveiled and launched.

Prof Driekie Hay, Vice-Rector: Academic, who was a major driving force behind the formation of the Postgraduate School, during her address at the opening emphasised the multifaceted and unique relationships which often exist between students and supervisors.

Prof Hay, who has a distinguished academic background in postgraduate teaching, made plain her expectations for the Postgraduate School. She said it aims to "create an intellectual space for postgraduate students and supervisors" in order to produce world-class intellectuals at this university.

She said the school will empower both students who often don't know what to expect from supervision, as well as supervisors who often lack supervision skills. Through this it will be possible to create healthy, productive relationships between the distinct pairs in often misunderstood, unbalanced and intricate interactions.

Dr Henriette van den Berg, Director of the Postgraduate School, introduced the strategic plan of the school and emphasised the great strides that have already been made and what still needs to be done at the UFS in terms of postgraduate teaching. According to her, the Postgraduate School aims towards "holistic development of postgraduate students with transferable skills," through a multi-level and institution-wide approach at the university.

"Our aim is to develop a one-step service for postgraduate students, involving all the different stakeholders," she said.

The new Postgraduate School website was also showcased during the event. Reachable through a number of avenues on the main website, the site offers a digital version of the Johannes Brill Building. Brimming with features catering specifically for local, international, current and prospective students, the website provides crucial information.

The Johannes Brill Building's refurbished interior, with staff offices, seminar rooms and social spaces, were also showcased to UFS' staff and students. The initial phase of the Supervisors' Wall of Fame was also unveiled. According to Dr van den Berg , the wall will after completion bestow much-deserved praise on a hand-picked group of 60 supervisors who have respectively been responsible for more than 300 and more than 500 successful PhD and master's candidates over the past decade.

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