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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

Research project gives insight into the world of the deaf

2005-11-30

Mr Akach in conversation (using sign language) with his assistant Ms Emily Matabane. Photo: Lacea Loader

UFS research project gives insight into the world of the deaf

The Sign Language Division of the University of the Free State’s (UFS) Department of Afro-Asiatic Studies and Language Practice and Sign Language has signed a bilateral research project with the universities of Ghent and Brussels to write a book on sign language.

“We want to compare the Belgium and South African sign languages with each other. The book will be about the deaf telling us about themselves and how they live. It will also focus on the use of story telling techniques and the grammar used by deaf people. We want to see if the hand forms and the grammatical markers and other linguistic features that deaf people from these two countries use are the same or not,” said Mr Philemon Akach, lecturer at the UFS Sign Language Division and coordinator of the research.

According to Mr Akach, the sign language community in South Africa, with about 600 000 deaf people who use South African Sign Language (SASL) as first language, is quite big. “Over and above the deaf people in South Africa, there are also the non-deaf who use SASL, like the children of deaf parents etc. This book can therefore be used to teach people about the deaf culture,” he added.

Another of Mr Akach’s achievements is his election as Vice-President of the newly established World Association of Sign Language Interpreters (WASLI). The association was established earlier this month during a conference in Worcester.

Mr Akach has been actively involved with sign language interpretation since 1986 and has been interpreting at the World Congress of the World Federation of the Deaf (WFD) since 1987. “My appointment as Vice-President of the WASLI is an emotional one. I have been involved with deaf people for so long and have been trying to create awareness and obtain recognition for sign language, especially in Africa,” said Mr Akach. WASLI is affiliated to the WFD.

According to Mr Akach there was no formal structure in the world to support sign language and sign language interpreters. “Now we have the backup of WASLI and we can convince governments in other African countries and across the world to support deaf people by supporting WASLI and therefore narrow the communication gap between the deaf and the hearing. My main aim as Vice-President is to endeavour for the recognition of sign language and spoken language interpreters as a profession by governments,” he said.

According to Mr Akach the formal training of interpreters is of vital importance. “Anybody who has a deaf person in his/her family and can communicate in sign language can claim that they are an interpreter. This is not true. It is tantamount to think that all mother tongue or first language speakers are interpreters. Likewise students who learn sign language up to whatever level and are fluent in signing, should still join an interpreter’s programme,” he said.

“Sign language interpreting is a profession and should be presented as an academic course alongside other spoken languages. The UFS has been taking the lead with sign language and spoken language interpretation and was the first university on the African continent to introduce sign language as an academic course,” he said.

“Although sign language has always been an unknown language to young people it has become quite popular in recent years. This year we had a total of 160 students at the Sign Language Section of the UFS and the numbers seem to increase steadily every year,” he said.

Mr Akach’s assistant, Ms Emily Matabane, is deaf and they communicate in sign language. Ms Matabane also handles the tutorials with students to give them hands-on experience on how to use sign language.

Media release
Issued by: Lacea Loader
Media Representative
Tel: (051) 401-2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za
30 November 2005

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