Latest News Archive

Please select Category, Year, and then Month to display items
Previous Archive
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

Official opening: UFS earmarks R10-million to support national priorities
2006-02-06

 

The University of the Free State (UFS) is to align key areas of its academic and research efforts with national priorities through the introduction of five strategic clusters which would be funded by seedmoney of R10-million in 2006.

Speaking at the Official Opening of the UFS on Friday (3 February 2006), the Rector and Vice-Chancellor, Prof Frederick Fourie, said the academic and research work that will be done in the five strategic clusters would contribute to the development of Mangaung, the Free State, South Africa and Africa.

 “It makes sense to concentrate the university’s human resources, our infrastructure, financial resources and intellectual expertise to ensure that the UFS makes a contribution to the country and the African continent,” Prof Fourie said.

“Strategic clusters will be organised on the basis that these areas of knowledge could become in the short term the flagships of the UFS, meaning those areas where the university currently has or in the very near future is likely to have some competitive advantage,” Prof Fourie said.

According to Prof Fourie, this strategic-cluster approach will be in line with the approach being designed by the National Research Foundation (NRF) to take national priorities into account and would enhance the quality of scholarship at the UFS.

The five strategic areas in which research and academic investment at the UFS will be clustered are the following:

Enabling technologies / Technology for the future;
Food production, quality and food security for Africa;
Development;
Social transformation;
Water resource and ecosystem management;

“Such strategic clusters are understood not only as research areas but as areas that also encompass strong undergraduate and particularly postgraduate teaching and a potentially solid scientific basis for service learning and community service research,” Prof Fourie said.

Within each of these clusters specific niche areas will be identified. Clusters could focus on one or more aspects of a particular discipline or could involve more than one discipline in researching a particular issue.

He said not all academic work and research being done at the UFS would be clustered in this way. Sufficient resources and support have been put in place for general research excellence in the past five years.

“Some of the spin-offs can have an important impact on industrial development, for example in the chemicals industry and may also create a basis for cooperation with provincial, national and international partners,” he said. 

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

We use cookies to make interactions with our websites and services easy and meaningful. To better understand how they are used, read more about the UFS cookie policy. By continuing to use this site you are giving us your consent to do this.

Accept