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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
UFS welcomes two new deans in the faculties of Theology and Law
2014-08-04
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The university council has approved the appointment of two deans: Prof Fanie Snyman, at the Faculty of Theology and Prof Caroline Nicholson, at the Faculty of Law.
Both professors offer the university a wealth of knowledge and experience in research and teaching.
Prof Fanie Snyman
Prof Snyman joined the university in 1984 as a senior lecturer in the Department Old Testament. His career followed a steadfast ascent which led him to attaining the title of professor and head of department the following year. On 1 July 2013, Prof Snyman took on the additional role of acting dean of the faculty.
As dean, he set out a clear vision of academic leadership with four primary focus areas: research, teaching and learning, internationalisation and regional engagement.
He is the author of eight books and contributed to seven internationally- and twelve nationally-published books. He has published nine articles in international journals and about 60 more in accredited journals.
Prof Snyman proposes to bring staff members together to extensively rethink and reposition the faculty in terms of identity, transformation and the way forward. “We live in a complex world, characterised by uncertainty and in constant change. This calls for complex but also innovative solutions,” he says.
Prof Caroline Nicholson
Prof Caroline Nicholson was born in Scotland and came to South Africa as a young child. She obtained her BProc and LLB degrees at the University of the Witwatersrand and completed her articles of clerkship at Chernin’s in Hyde Park Corner, Johannesburg. Prof Nicholson was admitted as both an attorney and notary public of the then Supreme Court of South Africa in 1986.
In 1986 she joined the University of South Africa (UNISA ) as a lecturer and remained there until 1999. During this time she completed an LLM in Banking Law and an LLD in Comparative Conflict of Laws – focusing on international parental child abduction. During the same year she moved to the Faculty of Law at the University of Pretoria where she worked for the last fifteen years. In 2003 she completed a Postgraduate Diploma in Alternative Dispute Resolution (ADR) and has an abiding interest in ADR, especially within the Family Law context.
Prof Nicholson has produced numerous articles and research presentations on a variety of legal subjects. Her primary areas of interest are, however, legal education and child law. She is known both nationally and internationally for her research contributions.