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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 invests in community journalists
2013-12-09

The first group of journalists who completed the Department of Communication Science’s short-learning programme for community journalists. The course was developed by Mrs Willemien Marais (far left) and Mrs Margaret Linström (far right). In front in the middle are Prof Lucius Botes, Dean of the Faculty of the Humanities, and Mr Lumko Mtimde, CEO of the Media Development and Diversity Agency, the sponsor of the programme. Fifth from right is Ms Manana Monareng Wa Stone, Programme Manager of the MDDA.

An investment in our people, our region and our democracy. This is the value of the Department of Communication Science’s short-learning programme for community journalists.

The first 20 community journalists from radio stations and newspapers in the Free State and Northern Cape received their certificates recently after successfully completing the course Basic Journalism Skills for Community Media.

This credit-bearing short-learning programme is fully sponsored by the Media Development and Diversity Agency (MDDA), a statutory body with the aim of developing and promoting community media.

The University of the Free State (UFS) is the first university in South Africa that presents a course of this nature. “It is also the first large-scale formal training of community journalists in the Free State and Northern Cape,” says Mrs Margaret Linström, journalism lecturer in the Department of Communication Science. She developed the course together with another journalism lecturer in the Department, Mrs Willemien Marais. “What distinguishes our programme for similar programmes is the element of mentoring,” explains Marais. Students attend a week-long training session on the Bloemfontein Campus of the UFS. The lecturers then visit all the participating newsrooms to provide further training in terms of the unique challenges of their area. “During the second semester we’ve travelled more than 3000 km to visit radio stations and newspapers as far afield as Springbok and Phuthaditjhaba,” says Linström.

During the certificate ceremony the CEO of the MDDA, Mr Lumko Mtimde, said this partnership with the UFS has the potential to make a tangible difference in communities. “Combined community media reaches the largest target audience in the country. Against this background the importance of training community journalists becomes very clear,” says Mtimde.

The role of community journalists differ from that of journalists who work for state or commercial media. Yet most of these community journalists fall outside the network of formal training, mostly due to a lack of resources and access to training.

“This course has changed my life. I came back as a newborn baby for whom everything is new!” said Mr Setona Selisa from Naledi FM in Senekal. Selisa and his colleague, Mr Teboho Mabuya, received the award for the best participants of the 2013 course.

 

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