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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

New student leaders for UFS

2013-08-29

Rudi Buys, Dean of Student Affairs (centre), with newly elected president of the Bloemfontein Campus SRC, Phiwe Mathe (left) and Matlogelwa Moema, president of the Qwaqwa Campus SRC.
Photo: Sonia Small
29 August 2013

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2013/14 Student Representative Councils: YouTube video

Phiwe Mathe and Matlogelwa Moema, both third year students, have been elected as presidents of the 2013/14 Student Representative Councils (SRC) of the University of the Free State’s Bloemfontein and Qwaqwa Campuses respectively. They now also serve as the presidency of the Central SRC and will take up their seats as voting members of the UFS council in September 2013. Thirty-eight candidates contested the 19 elective seats of the campus SRCs, for which 83 nominations were received.

Rudi Buys, Dean of Student Affairs, announced the completion of the elections at the two campuses as successful.Buys deemed the elections highly significant, considering it is the third year of peaceful elections since students adopted changes in student governance in 2011. These changes included, among others, the introduction of independent candidacy for elective portfolios and organisational candidacy in SRC sub-councils that hold ex-officio seats on the campus SRC. Changes also included the establishment of student representative seats in faculty forums and the adoption of reviewed SRC constitutions, Buys said.

The SRC elections at the Qwaqwa Campus were completed on 23 August 2013, while the elections at the Bloemfontein Campus took place on 26 and 27 August 2013. Elections at the Qwaqwa Campus showed a voter turnout of 44% and at the Bloemfontein Campus a turnout of 31.5%, which is among the highest in the country.

Both campuses reached the required quorums and the campus elections bodies, the IEA (Bloemfontein Campus) and IEC (Qwaqwa Campus), declared the elections free and fair and announced the results as a true reflection of the will of the student bodies at the campuses.

This year also saw the piloting of a central SRC elections oversight committee (CEC) to strengthen independent oversight of all elections. The CEC monitors the elections as free, fair and democratic and consists of senior academics and former student leaders of the Student Elders Council. Prof Loot Pretorius, inaugural chair of the CEC, announced the CECs confirmation of the SRC elections across campuses as free, fair and democratic.

Celebrations marked a mass meeting on the Bloemfontein Campus where the new student leaders were announced on Thursday 29 August 2013. There were cheers and singing as Quintin Koetaan, Head of the Bloemfontein IEA, on behalf of the two elections bodies, read the names of the newly-elected student leaders of both campuses. Delivering his victory speech, Phiwe thanked competitors for running a good debate, saying it was not about characters or personalities, but rather the ideas that would best serve a Kovsie. “Students will remain central and the ‘R’ is back in SRC,” he told the resounding crowd. Matlogelwa reiterated this message and said, "the SRC is for students and will serve all students equally."

Following on the heels of the SRC elections, voting for residence committees will take place next week with 618 candidates contesting 231 available positions. The elections of association executive committees will also take place in September.

The new SRC members of the Bloemfontein Campus are:

President: Phiwe Mathe
Vice-President: Tshepo Moloi
Secretary: Masiteng Paul Matlanyane
Treasurer: Willem du Plooy
Arts andCulture:Hlonipa Matshamba
Accessibility and Student Support:Anastasia Sehlabo
First Generation Students: Nthabiseng Malete
Legal and Constitutional Affairs: Mosa Leteane
Media, Marketing and Liaison: Callie Hendricks
Sport: Laurika Hugo
Student Development and Environmental Affairs: Bataung Qhotsokoane
Transformation: Christopher Rawson
Assosiations Council and Ex officio:Ntakuseni Razwiedani
Academics Affairs Council and Ex officio: TBC
Residence Council and Ex officio: Andricia Hinckermann
Commuter Council and Ex officio:Clarise Haasbroek
Postgraduate Council and Ex officio: Oluwatoba Fadeyi
International Council and Ex officio: Brian Hlongwane
Student Media Council and Ex officio: Keabetswe Magano
RAG Fundraising Council and Ex officio: Jaco Faul
Rag Service Council and Ex officio: Suzanne Maree

The new SRC members of the Qwaqwa Campu are:

President: MP Moema
Deputy-President: NT Mndebele
Secretary General: JC Mosiea
Treasurer General: NT Zuma
Politics and Transformation: IT Dube
Media and Publicity: ZF Madlala
Student Development and Environmental Affairs:SS Mtetwa
Off-Campus Students: TSJ Sithole
Arts and Culture: S Mabele
Academic Affairs: NE Litabo
Sport Affairs: TSG Mohlakoana
Religious Affairs:TW Mofokeng
Residence and Catering Affairs: A Ndabankulu
RAG Community Service and Dialogue: S Yende

Issued by: Lacea Loader
Director: Strategic Communication

Telephone: +27(0)51 401 2584
Cellphone: +27 (0) 83 645 2454
E-mail: loaderl@ufs.ac.za

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