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Demystifying the two-pot retirement system

20 August 2025 | Story Dr Annelize Oosthuizen | Photo Supplied

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

Another boost for sport at the UFS

2005-10-13

A contract formalizing the appointment of Sports Plan (Pty) Ltd was signed by Prof Verschoor and Mr Morne du Plessis in the historic Main Building of the UFS Bloemfontein campus.

The University of the Free State (UFS) has officially appointed Sports Plan (Pty) Ltd, which has former Springbok rugby captain Morné du Plessis as managing director, to manage its Centre for Exercise and Sport Science Services (CESSS) on the Bloemfontein campus.

According to Prof Teuns Verschoor, Vice-Rector: Academic Operations, the appointment of Sports Plan (Pty) Ltd is another step in the implementation of the UFS’s wide-ranging sport strategy to improve sport facilities and elevate formerly marginalized sports such as soccer, hockey, netball, tennis etc.

Sports Plan (Pty) Ltd is the manager of the Sports Science Institute of South Africa and coordinates and manages the national basketball high-performance programme of SA Basketball, as well as the Boxing Academy on behalf of Boxing South Africa.

“It is also actively involved with the sports plans of several tertiary institutions like that of the University of Johannesburg and the University of Stellenbosch,” said Prof Verschoor.

“Sports Plan (Pty) Ltd was also appointed by the Ministry of Sport and Recreation to manage the allocation of sports codes to high-performance centres and to oversee the allocation of monies received from the National Lottery to these centres – this includes the CESSS at the UFS,” Prof Verschoor added.

In unfolding its national sports plan, the Ministry of Sport and Recreation has already identified the UFS-based CESSS as the high-performance testing centre for the national basketball teams whilst the national boxing teams are also earmarked to be trained at the UFS.

“We are glad to be associated with a company of this stature and look forward to work with them in the further development of sports at the UFS,” said Prof Verschoor.

According to Prof Verschoor, the CESSS will act as a centralised body that is responsible for the coordination and management of joint initiatives between professional service providers, research projects and KovsieSport.

“The centre will also coordinate and manage joint initiatives between various academic programmes in different academic subject fields such as sports medicine, bio kinetics, physiotherapy, dietetics, etc. ,” said Prof Verschoor.

These initiatives will help the UFS to become a centre and catalyst of sports development, to become internationally recognised in the field of exercise and sports science research and to become a centre for high quality sports performance enhancement.

Some of the objectives of the CESSS are:

To provide sports science services like to athletes, students, the general public and other stakeholders including certain national sport teams.
To provide the necessary teaching and training facilities and internship opportunities for UFS students in sports related fields of study will also be provided by the centre like human movement science.
To present skills-transfer programmes directed at the broader community like development of skills in various sporting codes.
To continue and extend the current chronic risk reversal programmes presented by the Department of Human Movement Science such as obesity management, cardiac rehabilitation and other lifestyle related conditions.

The centre was founded in 2003 and was until now managed by Dr Louis Holtzhausen, from Kovsie Health and a consultant, Dr Gary Vorster.

A contract formalizing the appointment of Sports Plan (Pty) Ltd was signed today by Prof Verschoor and Mr Morne du Plessis in the historic Main Building of the UFS Bloemfontein campus.

The manager of the centre appointed by Sports Plan (Pty) Ltd is Mr Charles Store, an alumnus of the UFS, previously employed at the Sports Science Institute in Cape Town and by the SANDF at 3 Military Hospital, Bloemfontein.

Media release
Issued by: Anton Fisher
Director: Strategic Communication
072-207-8334
12 October 2005

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