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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

Kovsies celebrate ‘model of humanity’
2013-07-19

 

Zelda la Grange
Photo: Sonia Small
19 July 2013

   Video clip (YouTube)

Photo gallery
UFS Mandela Day Pledge (pdf)
Zelda la Grange speech (pdf)

The University of the Free State (UFS) joined people around the globe in celebration of the fourth annual Nelson Mandela Day. Long-time Madiba confidant, Zelda la Grange, delivered the main address, inspiring the crowd with anecdotes gleaned from her intimate knowledge of the former president.

La Grange felt that the UFS as an institution can contribute greatly towards the upliftment of South African society.

“Your university has become what we hope for in South Africa – a transformed society whose purpose serves the greater good of humanity. Embrace and nurture what you have here under the leadership of Prof Jansen and his team. And influence society consciously, every day, in the same way as Madiba did for every day of the 67 years of his activism, and beyond.”

As UFS Vice-Chancellor and Rector, Prof Jonathan Jansen, aptly put it, the Kovsie celebrations aim to give thanks to Madiba as a ‘model of humanity’ and for what he has done for all South Africans.

Prof Jansen stressed that the importance of Mandela Day cannot be overstated.

"I think it is incredibly important because the real legacy of Nelson Mandela is that of a man who gave everything he had for the struggle to gain our freedom, our democracy and that we can get along as just human beings and not as a skin colour, a religion or as strangers," he said.

Events began with a clean-up operation by UFS volunteers, Zelda la Grange and the Bikers for Mandela Day, the Mangaung Metropolitan Municipality and other sponsors. The team cleaned areas in Heidedal and Manguang before returning to the UFS Bloemfontein Campus.

Kicking off the campus section of the programme, UFS staff and students formed a ‘human chain’ on the Red Square as part of a wider initiative which was the brainchild of Archbishop Emeritus Desmond Tutu – who was the main attraction of the 2012 Mandela Day activities at Kovsies.

The assembled ‘chain’ recited the UFS Mandela Day pledge, whilst snaking around the Red Square and the gardens surrounding the Main Building, before offering interfaith prayers to Madiba in honour of the 67 minutes of selflessness epitomised by Nelson Mandela Day.

To conclude the first part of the celebrations, the No Student Hungry campaign’s patrons, Mrs Grace Jansen and Dr Carin Buys, released symbolic doves and joined the chain in the singing of the national anthem.

Rudi Buys, Dean of Student Affairs, said that the symbolic chain showed the UFS community’s aim to “join together as a country and show our commitment to our people” on the special day.

Mangaung Metropolitan Municipality Executive Mayor, Thabo Manyoni, together with Prof Jansen, welcomed UFS staff and students to the main festivities which centred around a coin-laying ceremony in front of the Main Building. All proceeds of the coin laying are to be contributed towards the NSH. More than R83 000 was raised through the coin-laying ceremony and donations, more than double the amount of 2012.

The jubilant crowd was edged on by OFM presenter, Johrné van Huyssteen, who offered to preside as master of ceremonies free of charge as part of his 67 minutes.

Manyoni stressed that Mandela Day is a celebration and should be regarded as a joyous occasion. He said that Madiba’s ability to take action and inspire change, is the foremost aspect of his legacy, one all South Africans should strive to emulate.

“We should all be the champions in the areas where we are. There can never be another Madiba, but we should all aim to be smaller, better Madibas,” he said.

Zelda la Grange emphasised the life-changing influence Madiba has had on her own life, as well as South Africa in general.

“Mandela Day is a call to action for individuals, for people everywhere, to take responsibility for changing the world into a better place, one small step at a time, just as Mr Mandela did. It is a day of service,” she said.

According to her, certain key characteristics are responsible for Madiba’s vast reverence throughout the world, principles everyone should try to emulate. She mentioned his principles, simplicity, honesty, integrity, discipline and respect for other people even when opinions differ, as the foremost of these qualities.

La Grange also stressed that the goodwill shown on Mandela Day should not be limited to one day in a year, but that we should all strive to live each day according to these principles.

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