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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

Official opening ceremony of the UFS Qwaqwa Campus
2006-02-15

Official opening ceremony of the UFS Qwaqwa Campus
11th February 2006 – Multipurpose Hall

Opening Speech:
Prof. Peter A. Mbati
Campus Principal

Successfully rising to the challenges of incorporations and mergers – developing a vibrant and academically stimulating satellite campus of the University of the Free State.

Thank you Mr. Program Director and good morning ladies and gentlemen.

I wish to once again welcome all of you to the official opening ceremony of the University of the Free State QQ campus.  Thank you for taking time to share with us an important date in our campus academic calendar.  I bring you greetings from our Rector and Vice Chancellor Prof. Frederick Fourie.

During such occasions we try and reflect on important matters that have affected us as an institution in the preceding year, commit ourselves to specific objectives for the current year, while planning for the proceeding year.

Today I shall be talking on Successfully rising to the challenges of incorporations and mergers – developing a vibrant and academically stimulating satellite campus of the University of the Free State’.

SRC inauguration
I would like to congratulate the SRC President and the entire SRC leadership for being elected into important positions of student leadership and authority. 

As a university we are proud of the quality of our student leadership on the Qwaqwa campus.  I am confident that you young leaders will rise to the challenges of your office and discharge your duties with diligence and without fear or favour.  That you will rise above your party affiliations and provide effective leadership to the entire student body on campus.
                              
Leadership is complex and requires you to be objective, just and fair in your approach to the many challenges that you will encounter.  You will be judged not by the populist decision that you take when confronted with difficult choices, but rather, on the wisdom that you exercise in reaching consensus in decision making processes.

The era when management and student leadership viewed each other with suspicion and as adversaries is long gone.  Management, academic and administrative staff, parents and students must have common agendas in as far the  quality growth and development of our university is concerned and to strive towards academic excellence.  I leave the challenge to you students, and more so to the inaugurated student leaders to define your agenda in achieving this noble objective.  I trust that you will make the right choices.

Brief history of incorporation
On the recommendations of the National Working Group of Higher Education, the Qwaqwa Campus of the then University of the North was incorporated into the University of the Free State on 1st January 2003.  We suddenly had to move from a campus that was originally semi-autonomous and with its own culture developed over almost 20 years, into a campus that had to operate as a fully integrated campus of the UFS, a 100 year old institution with its distinct culture.

Following incorporation, we not only had to continue with our core business of teaching, learning, research and community service, but we also had to engage in other important aspects such as exploring the most appropriate models of governance for the campus, encouraging dialogue and interactions at all levels between personnel at the different campuses with a view to developing trust between colleagues. And with the added dimensions such as participation in the transformation task team we in effect are at the fore front of developing a new institutional culture at the UFS and a truly South African University.

UFS Strategic objectives
The strategic and transformation priorities of the University of the Free State for 2006 – 2008 as approved by the Executive Management at its retreat in January 2006 are:

  • Quality and Excellence
  • Equity, diversity and redress
  • Financial sustainability
  • Regional co-operation and engagement

Central to this priority is the integration of the Qwaqwa campus as a valuable constituent part of the UFS, and the strategic reconfiguration of the campus in order that the UFS can play a meaningful role in regional engagement and development.

  • National leadership

The five strategic objectives cannot be viewed in isolation and run simultaneously and in concert with each other. 

The Question must therefore be what we on the QQ campus, staff and students, parents and our broader community are willing to do to achieve these strategic objectives. The reconfiguration and strategic planning of this campus, and therefore its success, must be a collaborative effort between colleagues at QQ and on the main campus.  We must all be ready to work together, to plan together, to shoulder responsibilities together and sometimes, to share the pain and disappointments together. 

The second question must therefore be: are we prepared to go that extra mile for our campus to ensure that we claim our rightful stake within the ranks of well respected academic institutions of higher learning in this country?  At this point in its history this campus requires committed men and women from across the cultural spectrum who appreciate the challenges ahead of us and who are ready to give of their best and to constructively engage at all levels to make this dream a reality.  Because this dream is possible and this dream will be realized!

Quality and Excellence (1st strategic objective)

As mentioned by the Rector in his speech at the official opening ceremony of the university on the main campus on Friday 3rd February, the university will in 2006 pay extra attention to Quality and Excellence.  This is informed by the Higher Education Quality Committee’s (HEQC) institutional audit which is scheduled to take place this year.  Our university as well as several other HEI’s will be subjected to this audit.  This will call for a lot of hard work on your part in preparation for a successful audit and in this regard therefore I request for your cooperation.

As a further step in confirming our commitment to quality and excellence, we have simultaneously introduced on the QQ campus and the main campus workshops on performance management systems to a cohort group.  This will be expanded in 2006 to a wider group of managers on the QQ campus to include among others all Program Heads and Subject Heads. PMS is an invaluable tool for fair, effective and efficient management of a very important resource on campus – the human resource.  Benefits of PMS include among others:

  • Instilling and enriching a culture of performance management (quality assurance) as an integral part of the day to day functioning of staff at the campus
  • Improving staff performance through mentoring, development and training

Tri campus project
One of the more important projects that we as a university undertook in 2005 was the Tri Campus Project which was coordinated by the Free State Higher Education Consortium (FSHEC) through Niel Butcher and Associates consultants.

The Tri-Campus project focused on the strategic planning for higher education campuses in the Free State that have been incorporated with UFS and CUT during the reshaping of the South African higher education landscape. The Bloemfontein Vista campus and the Qwaqwa campus of the University of the North were incorporated with the UFS, and the Welkom Vista campus with the CUT.

The planning process involved a range of research and consultation activities during the course of 2005. This included:

  • Conducting situational analyses of the Qwaqwa campus during which staff and students were widely consulted;
  • Consulting with the campus and with a range of stakeholders in the sub-region
  • Review of the Free State Provincial Growth and Development Strategy and Integrated Development Plans (IDPs) of the regions and other research of relevance to the sub-regions, province and country.

An operational framework for the reconfiguration of the campus with a range of possible Program Qualification Mixes has been produced.  In December 2005, the Rector, the Vice Rector Academic Planning Prof. Magda Fourie and I discussed this document with senior members of the DoE in Pretoria, and we will soon be meeting with the National Minister of Education Me Naledi Pandor for her guidance and to seek support in the further refinement of the document and subsequent implementation.

Recapitalization
This year a further R 6 M has been budgeted for recapitalization.  In about two weeks time the third of phase of renovations on campus will commence and attention will be given to the administration building, the humanities and the outstanding work in the lecture hall complex.  There- after the library, sciences and education buildings will follow.  As you will recall a substantial portion of the R 8.4 million in 2005 was used to upgrade the student residences and the lecture hall complex.

I am certain that the renovations and upgrading of our infrastructure and physical facilities including landscaping will create an enabling environment for you to enjoy your work and studies on this campus.

Renovations come with some measure of inconveniences and I therefore wish to request for your patience and support during this period.

Closing remarks
There is a heightened spirit of optimism on what the future holds for this campus.  This is evident when I talk to a large cross section of staff and students of this campus – and I therefore invite all of you to come and be partners with us on this journey of optimism and hope of what the future holds for the UFS – QQ campus.

Thank you and God bless!

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