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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 Council unanimously approves two senior appointments
2014-11-24

The Council of the University of the Free State (UFS) unanimously approved the appointment of Dr Lis Lange as Vice-Rector: Academic and Prof Sechaba Mahlomaholo as Dean: Education during its meeting on Friday 21 November 2014.

Dr Lis Lange is currently Acting Vice-Rector: Academic at the University of the Free State, where she holds a substantive position as Senior Director heading the Directorate for Institutional Research and Academic Planning (DIRAP). Prof Mahlomaholo is Head of the School of Mathematics, Natural Sciences and Technology Education at the UFS.

“These are two exceptional and trusted academics with international stature and I am delighted to welcome them as part of the senior leadership of the UFS. Dr Lange’s skills set pertaining to academic management and quality assurance make her one of only a few people with similar skills in the country, while Prof Mahlomaholo is a leading expert in community-based education,” says Prof Jonathan Jansen, Vice-Chancellor and Rector of the UFS.

Dr Lange joined the UFS in 2011. Before this, she was the Executive Director (2006-2010) of the Higher Education Quality Committee of the Council of Higher Education (CHE), and Acting CEO of the same organisation between August 2007 and April 2008. She has been involved in the development and implementation of science and technology and higher education policy in South Africa for a decade and a half, working in different capacities in the Human Sciences Research Council, the National Research Foundation and the Council on Higher Education. Dr Lange has served as a member of the board of the International Network of Quality Assurance Agencies in Higher Education (INQAAHE) and has participated in several international initiatives on quality assurance. She is the editor of an academic journal focused on the humanities, Acta Academica.

She has undertaken research and published in the fields of history, higher education and quality assurance. Her major concern in both research and practice is the role of higher education in the development of democratic societies, based on social justice. Dr Lange studied in Argentina, Mexico and South Africa, where she obtained a PhD in South African history from the University of the Witwatersrand.

Prof Mahlomaholo is a graduate of the Universities of the North, Western Cape and Harvard University in the United States. He is a National Research Foundation (NRF)-rated Professor of Education.

Before joining the UFS, he worked at six other universities where he was Deputy Dean in the Faculty of Education (UNIN-QwaQwa), Head of Professional Education (Vista University), Professor and Director of Research and Postgraduate Studies (MEDUNSA), Professor and Director of Curriculum Development (Central University of Technology), and Research Professor (North-West University).

His research interests lie in designing strategies mounted on Bricolage, Participatory Action Research and Critical Emancipatory Research as theoretical bases. He leads the NRF-sponsored project on the creation of Sustainable Learning Environments in schools. In this Participatory Action Research project, 28 PhD and 22 MEd students participate under the guidance of 15 academics. The project has relationships with the Global Network project (St Petersburg University), the Post-Colonial Education project (West Indies University) and the Discourse, Power, Resistance project (Plymouth University and now University of London). He has served as guest editor in the following ISI-indexed, peer-reviewed and accredited journals: the South African Journal of Higher Education (2010 and 2014), the South African Journal of Education (2011), Communitas (2012), the Journal of New Generation Sciences (2012), the Journal for Transdisciplinary Research in Southern Africa (2013) and the Journal of Education Studies (2013).

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