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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

Top matriculants for Kovsies
2014-01-24

 

 
From left are: Saneliswe Khambule, Lungile Mkhungo, Jannie de Wet, Anje Venter, Siqiniseko Buthelezi and Abrille Beukes.
Photo: Hannes Pieterse

Hailing from top schools in KwaZulu-Natal (KZN), Naushad Mayat, Lungile Mkhungo and Siqiniseko Buthelezi share 20 distinctions between them. Leaving the province of the Zulu Kingdom for Bloemfontein, all three are at Kovsies to study as doctors.

Naushad obtained eight distinctions, an achievement that placed him in the top ten matriculants in KwaZulu-Natal. The former learner from Glenwood High School in Durban came fourth in the Umlazi District and tenth overall in the province. Enrolling for a degree in Medicine, he will join the list of outstanding health professionals Kovsies produce every year.

Lungile, who matriculated from Kingsway High School, attained seven distinctions and her average percentage was 90%. She received distinctions in English – 90%, IsiZulu – 94%, Mathematics – 83%, History – 92%, Physics – 89%, Life Sciences – 89% and Life Orientation – 93%. Lungile is not only clever, but also performed well in sports at her school, participating in netball, soccer and athletics. This future doctor is a proud resident of Wag-'n-Bietjie residence. 

Siqiniseko made history at his school, Maritzburg College, becoming the first black Head Prefect at the 150-year-old school, the oldest boys' high school in KZN and one of the oldest schools in South Africa. A gifted learner excelling in sport, culture and academics, Siqiniseko obtained five distinctions (English, Afrikaans, Life Orientation, Accounting and Life Sciences). His sporting prowess has seen him captaining Maritzburg College's first rugby team, as well as the KZN Academy team.

The three are joined by fellow KwaZulu-Natal resident, Saneliswe Khambule, Namibian Abrille Beukes and Free Staters Anje Venter and Jannie de Wet.

Saneliswe, a former learner of Menzi High School in Umlazi, received five distinctions in her final-year exams. The Emily Hobhouse resident registered for a Forensic Science degree and plans on doing her doctoral studies in this exciting career field.

Abrille Beukes is another future doctor and is all the way from Windhoek in Namibia. Abrille obtained a ‘one’ in all her subjects, the highest possible mark in the Namibian school system. The Windhoek-born student received high levels in Mathematics, Accounting, Physical Science, Biology, Afrikaans and English. As second best student in her home country, she will register for a Medicine degree.

Anja, the Free State’s top achiever, received an average percentage of 93% in the matric final exams. The former Eunice student obtained nine distinctions, an achievement that placed her in the national top 100 matriculants.  Anja enrolled for a BSc Actuarial Science degree and will be joined in class by former school friend, Jannie de Wet, who obtained a whopping ten distinctions. Jannie and Anja attended Universitas Primary School together, with Jannie finishing his school career at Jim Fouché High School, and just like Anja, he will also enrol for a BSc Actuarial Science degree.

Jannie obtained distinctions in Afrikaans, English, Mathematics, Mathematics (third paper), Life Orientation, Accounting, Physical Science, Life Science, Economics and Information Technology. Jannie is also the Volksblad and the University of the Free State’s 2013 Matriculant of the Year.

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