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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.

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New SRC: Records of support and a victory for women

2014-09-04

Ms Mosa Leteane and Ms Louzanne Coetzee
Photo: Johan Roux

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While campuses across South Africa regularly report falling voter turnout in campus elections of student representatives, the University of the Free State, in its recently completed SRC elections, registered record levels of support across our campuses with a total voter turnout of 44%. At the Bloemfontein Campus 34,4% of students voted (5052 votes) and 53,3% (1583 votes) at the Qwaqwa Campus.

Also, for the first time under the new SRC constitution, students elected a woman to lead the student body – Ms Mosa Leteane was elected as President. Another first was the election of a blind woman to the SRC – Ms Louzanne Coetzee. She will be responsible for student accessibility of our Bloemfontein SRC. This marks a victory for women in student governance.

Mr Tulasizwe Sithole was elected as the President of the SRC at our Qwaqwa Campus.

The election of Ms Leteane as President underscores the progress achieved for gender equality with near half of her SRC consisting of women (48%).

These successes are all the more significant, since this is the 4th year of elections under newly adopted SRC constitutions that allow for broader participation of diverse student constituencies in student governance.

This means that the crucial 3-year mark to test a new approach and method in governance and elections was not only successfully reached, but also in its 4th year shows the constitution as one that sustains its impact to deepen democracy and citizenship among our 30,000-strong student body.

“The results of the SRC elections across campuses show that our students are not only ready to lead our campus communities on issues relating to justice, freedom and democracy beyond our societal legacies of race and gender, but do so also for the student movement nationally. We’re immensely proud of our students, who show courage and resilience to choose leaders not for expediency, but for significance, and to lead not for some, but for all”, the Dean of Student Affairs, Rudi Buys, said.

The Qwaqwa SRC was installed on 2 September 2014, while the Bloemfontein SRC will be installed on 5 September. The Central SRC will be established on 14 September by joint sitting of the two SRCs.

The SRC members 2014/15 at the Bloemfontein and Qwaqwa Campuses are as follows:

Bloemfontein Elective portfolios:
President: Ms Mosa Leteane
Vice Pres: Mr Waldo Staude
Secretary: Ms Dineo Motaung
Treasurer: Ms Maphenye Maditsi
Arts & Culture: Mr Stefan van der Westhuizen
Accessibility & Student Support: Ms Louzanne Coetzee
First Generation Students: Ms Mpho Khati
Media, Marketing & Liaison: Ms Lethabo Maebana
Legal & Constitutional Affairs: Mr Lindokuhle Ntuli
Sport: Ms Dominique de Gouveia
Student development & Environmental Affairs: Mr Victor Ngubeni
Transformation: Mr Tumelo Rapitsi

Bloemfontein Ex officio Portfolios
Dialogue & Ex officio: Associations Student Council: Mr Piet Thibane
Academic Affairs & Ex officio: Academic Affairs Student Council: Mr Jonathan Ruwanika
Residence Affairs & Ex officio: Campus Residences Student Council: Ms Melissa Taljaard
City student Affairs & Ex officio: Commuter Student Council: Ms Kerry-Beth Berry
Post graduate Affairs & Ex officio: Post Graduate Student Council: Ms Masabata Mokgesi
International Affairs & Ex officio: International Student Council: Mr Makate Maieane
Student Media Affairs & Ex officio: Student Media Council: Mr Samuel Phuti
RAG Community Service & Ex officio: RAG Fundraising Council: Mr Johan du Plessis
RAG Community Service & Ex officio: RAG Community Service Council: Mr Manfred Titus

Qwaqwa Elective portfolios:
President General: Mr Thulasizwe Sithole
Deputy President: Ms Zethu Mhlongo
Secretary General: Mr Vukani Ntuli
Treasurer General: Mr Langelihle Mbense
Media & Publicity: Ms Nongcebo Qwabe
Politics & Transformation: Ms Nkosiphile Zwane

Qwaqwa Ex officio Portfolios
Student Development & Environmental Affairs: Mr Ndumiso Memela
Academic Affairs: Mr Simon Mofekeng
Arts & Cultural Affairs: Ms Samkelo Mtshali
Off-Campus Students: Mr Khanyisani Mbatha
RAG, Community Service & Dialogue: Mr Njabulo Mabaso
Religious Affairs: Mr Mfundo Nxumalo
Residence & Catering Affairs: Ms Ntombifuthi Radebe
Sports Council: Mr Luvuno

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