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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.

News Archive

Council votes on appointment of senior staff

2004-11-18

The Council of the University of the Free State (UFS) today voted on the filling of three senior vacancies, including one post at Dean level and two at the level of Vice-Dean.

The Council voted as follows:


Dr Natie Luyt will be offered the post of Dean: Student Affairs	Prof Engela Pretorius will be offered the post of Vice-Dean: Faculty of Humanities	Dr Choice Makhetha will be offered the post of Vice-Dean: Student Affairs

“There are special challenges for the UFS in the short and medium term regarding transformation of our residences, and a certain combination of management qualities and skills is desirable. As a result of the diversity of the UFS’s student community it is therefore important to us to follow a team approach to deal with the challenges. With the combination of Drs Luyt and Makhetha, I believe we will be able to manage student affairs effectively and skillfully,” says Prof Frederick Fourie, Rector and Vice-Chancellor of the UFS.

“It is wonderful that we are able to celebrate the outcome of this process that has brought forward such excellent candidates who reflect our country’s diversity. It shows that we can achieve the goals of quality and diversity at the same time,” says Prof Fourie.

Prof Pretorius obtained all her qualifications (BA, BA (Hons) (cum laude), MA (cum laude) and D Phil) from the UFS, except for the Certificate in Gender Policy Management (cum laude) which she obtained in 2000 from WITS. She joined the Department of Sociology at UFS in 1980 and has headed the Department since 2001. She acted as Vice-Dean: Faculty of Humanities since July 2004. She has some thirty publications to her credit, published both nationally and internationally and has delivered 20 national and international papers. She is a member of the South African Sociological Association and is a member of the Council of the association and of the Editorial Board of Society in Transition, the society’s journal. She is also a member of the South African Academy for Science and Art and the Federation of African Women Educationalists in South Africa (FAWESA). Project involvement includes the Australian Women’s Executive Development Programme and the project Executive Development of Senior Women in South African Higher Education Institutions. She is also an NRF panelist.

Dr Luyt obtained his qualifications (BA, BA (Hons) (cum laude), MA (cum laude) and D Phil) at the UFS and started his career at the same institution in 1980 as lecturer in Political Science. He was promoted to senior lecturer in 1983 and appointed as Director: Student Affairs in 1997. He has been acting as Dean: Student Affairs since 2003. Dr Luyt completed several work-related training courses, among others a course in ethnic and multiculturality at the Swiss Institute for Federalism and a course in conflict management at the South Tyrolean Economic and Social Institute.

Dr Makheta also obtained all her qualifications (BA, BA (Hons), MA in Political Science and Ph D in Political Science) at the UFS and started working as a student assistant in Political Science at the same institution in 1999. She was promoted to junior assistant in 2000, coordinator and facilitator of Political Science in 2001, assistant/acting Director: Student Affairs in 2001 and acting Director: Student Affairs in 2003. Dr Makhetha is currently a Senior Political Analyst at the Department of Foreign Affairs.

The UFS Council also approved the promotion of nine professors to the rank of senior professor. They are Proff Louise Cilliers (Department English and Classical Languages), Dap Louw (Department of Psychology), Philip Nel (Department Afro-Asiatic Studies, Sign Language and Language Practice), Dirk van den Berg (Department of History of Art and Visual Culture Studies) Dingie van Rensburg (Director: Centre for Health Systems Research and Develoment), Andries Raath (Department of Constitutional Law and Philosophy of Law), James du Preez (Department of Microbial, Biochemical and Food Biotechnology), Johan Grobbelaar (Department of Plant Sciences) and Louis Scott (Department of Plant Sciences).

This is the first group ever of senior professors at the UFS. The post level was created to provide better career and earnings opportunities for high quality academics and to increase the attractiveness of an academic career to young people.

Media release
Issued by: Lacea Loader
Media Representative
Tel: (051) 401-2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za

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