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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

Centre for Africa Studies goes quadruple
2014-09-02

The Centre for Africa Studies at the UFS hosted a book launch on 27 August 2014. Prof Heidi Hudson expressed her excitement as she welcomed the audience and authors that evening, “This has not happened yet at our department where we launch four books at the same time, thus it is a happy and glorious moment for us.”

Book 1: Sacred Spaces and Contested Identities. Space and Ritual Dynamics in Europe and Africa. Edited by Paul Post, Philip Nel and Walter van Beek.

This book deals with the fundamental changes in society and culture that are forcing us to reconsider the position of sacred space, and to do this within the broader context of ritual and religious dynamics and what is called a ‘spatial turn’. Conversely, sacred sites are a privileged way of studying current cultural dynamics. This collection of studies on sacred space concerns itself with both perspectives by exploring place-bound dynamics of the sacred spaces in Africa and Europe.

Book 2: Understanding Namibia. The Trials of Independence. Written by Henning Melber.

This study explores the achievements and failures of Namibia’s transformation since independence. It contrasts the narrative of a post-colonial patriotic history with the socio-economic and political realities of the nation-building project.

Book 3: Peace Diplomacy, Global Justice and International Agency Rethinking Human Security and Ethics in the Spirit of Dag Hammarskjöld. Edited by Carsten Stahn and Henning Melber.

This tribute and critical review of Hammarskjöld's values and legacy examines his approach towards international civil service, agency and value-based leadership, investigates his vision of internationalism and explores his achievements and failures as Secretary-General. The book is also available in print. Melber is a Senior Adviser and Director Emeritus of The Dag Hammarskjöld Foundation, Uppsala, Sweden. He is also Extraordinary Professor at both the University of Pretoria and the Centre for Africa Studies, University of the Free State.

Book 4: Au commencement était le Mimisme: Essai de lecture globale des cours de Marcel Jousse ( In the beginning was mimism: A holistic reading of Marcel Jousse’s lectures). Written by: Edgard Sienaert

This publication allows us to hear the voice of Marcel Jousse, professor of Anthropology of Language, who taught in Paris between 1931 and 1957. Edgard Sienaert, after having edited and translated in English all publications of Jousse, returns here to Jousse’s one-thousand lectures, synthesised through the lens of an anthropology of human mimism. Jousse’s train of thought leads us to question our own thought categories stuck in antagonisms: spirit and matter, concrete and abstract, body and mind, science and faith. Sienaert is currently a research fellow at the Centre for Africa Studies, University of the Free State, with an MA and PhD in Romance Philology. He published widely on medieval French literature and on orality. 
 

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