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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

UFS in partnership with USA ’s Council on Economic Education 
2006-02-01

A visit to the campus of the UFS was part of the recent NCEE workshop.  Standing from the left are Prof Soehendro (Chairperson:  National Education Standardisation Body of Indonesia), Prof Herman van Schalkwyk (Dean:  Faculty of Natural and Agricultural Sciences at the UFS), Prof Elena Reshetnyak (Vice-Dean for International Programs, Kharkiv Polytechnic Institute, Kharkiv, Ukraine) and Mrs Annely Minnaar (local coordinator of the NCEE and professional officer of the UFS Department of Agricultural Economics).  Seated are from left Prof  Sutjipto ( Chairman of the Indonesian Council on Economic Education) and Dr Patty Elder (Vice-President of the NCEE's national programme).
Photo: Stephen Collett


UFS in partnership with USA ’s Council on Economic Education 

A group of 50 teachers in Economics, learning facilitators and lecturers from eight countries attended a ‘train the trainers’ workshop this past week in Bloemfontein.  The workshop forms part of the outreach programme of the National Council on Economic Education (NCEE) in the United States of America’s (USA) effort to improve the quality of the training in Economics of teachers and lecturers across the world. 

The UFS and the Free State Department of Education are the NCEE’s first partners in Africa.  “The initiative started in the Free State because of the connection that existed between the UFS and the NCEE,” said Prof Klopper Oosthuizen, from the UFS Department of Agricultural Economics and initiator of the cooperative agreement with the NCEE.

Three faculties at the UFS are involved in the cooperative agreement namely the Faculty of Natural and Agricultural Sciences, the Faculty of the Humanities and the Faculty of Economic and Management Sciences.

A group of 84 teachers and learning facilitators in the Free State attended the ‘train the teacher’ workshop at the UFS in December 2005 in an effort to improve the quality of Economics classes at schools in the Free State.  The last national workshop will take place in June 2006 in Bloemfontein.  During this workshop a group of 40 teachers and learning facilitators in the Free State will be trained by the NCEE.    

“Because of the success with the programme in the Free State Dr Patty Elder, Vice-President of the NCEE’s national programme, announced during last week’s workshop that the initiative will now be extended to the other provinces in the country,” said Prof Oosthuizen.  According to Prof Oosthuizen discussions around a strategy to get the other provinces on board of the programme also took place between Dr Elder and Prof Herman van Schalkwyk, Dean of the UFS Faculty of Natural and Agricultural Sciences.  Prof van Schalkwyk will take the lead in this regard.  

“The presence of Dr Elder and the executive directors of similar education networks in the Ukraine and Indonesia is an indication of the NCEE’s seriousness with the programme in Africa,” said Prof Oosthuizen.

Prof Oosthuizen explained that South Africa is competing to obtain funds from the NCEE to have a total South African representation in the workshops in the following one-year training period. 

South Africa has a good chance of establishing the network quickly because of the presentation of the last national workshop in Bloemfontein in June 2006.  “We are going to try to have as much South African representation as possible at this workshop,” said Prof Oosthuizen.

Concurrent with the workshop in June 2006, a programme will be developed that will be attended by at least five other provincial education departments and representatives of five other universities.  These representatives will then be able to observe on a first-hand basis how this action learning takes place and how the participating countries plan to establish and expand their networks,” said Prof Oosthuizen.

“The NCEE has been working together with international partners since 1992 to strengthen their Economics teaching systems.  They have already succeeded in increasing literacy in Economics of schools in the USA and more than 20 East Block countries.  More than 1,5 million learners in the East Block countries have already been served by this initiative,” said Prof Oosthuizen.

According to Prof Oosthuizen the focus of the NCEE has since 2004 moved away from the East Block countries to Africa, Asia, Latin America and the Middle East.  The representatives that attended last week’s workshop were from South Africa, Egypt, Jordan, Palestine, Indonesia, Mexico, Paraguay and Uruguay.  Countries such as Egypt, who was also present at last week’s workshop, are eager to start a similar network. 

Media release
Issued by: Lacea Loader
Media Representative
Tel:   (051) 401-2584
Cell:  083 645 2454
E-mail:  loaderl.stg@mail.uovs.ac.za
31 January 2006

 
 

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