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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 satisfied with proceedings of EFF National People’s Assembly
2014-12-17

The University of the Free State (UFS) is happy about another successful hosting of a political party; this time, the Economic Freedom Fighters (EFF). In the recent past (December 2012), the UFS hosted the African National Congress (ANC) with the same energy, support and selfless commitment as with the EFF.

“The fact that the EFF paid the required amount for the use of the university’s venues in full before the congress commenced, bears testimony to this. For the past two months, the UFS’s working team worked closely with the EFF’s logistics team to thoroughly plan for a smooth and successful National People’s Assembly,” says Dr Choice Makhetha, Acting Rector of the UFS.

The hard work and commitment invested in the preparation process paid off. The 1st EFF National People’s Assembly, held 13-16 December 2014 on the Bloemfontein Campus, was a huge success.

“It is with great excitement that I can report that all premises of the UFS have been left the way they were found on arrival; no damage to any property and no littering.”

“Thank you to the UFS staff members who worked selflessly on a daily basis: the cleaning staff who started very early in the morning and went home very late at night; garden staff who made sure that the grounds were exceptionally clean every day and the flowers bright; student volunteers who worked shifts of over 24 hours on the first day, making sure that EFF delegates were checked into residences; staff members at the Visitors Centre who were ready to share information about the university and provide support to EFF delegates; staff members at the Odeion (which served as media centre) who ensured that the national and international media houses were comfortable and that the media conferences ran smoothly; safety and security personnel who provided protection for all the people on campus and also ensuring safety of the buildings; the health and safety officers supported by our partners from ER24 emergency services; and the South African Police Services (SAPS). To the electricians, the plumbers and other colleagues from Physical Resources who assisted with any task, even beyond the call of duty, we say thank you. For all the support and extra miles travelled – we appreciate your passion for the work you do; you are all very important to us at the UFS.”

“As the University of the Free State, we would like to express our gratitude to the leadership of the EFF, the delegates, guests and partners, as well as the media houses. The level of discipline among delegates was impressive. The UFS staff members appreciate the level of professionalism and respect shown by the EFF leadership and delegates. All the best for the future!,” says Dr Makhetha.

The UFS will continue to host political parties, interest groups, associations and more in their diversity, provided there is availability of venues, events are held outside the academic period and payment is received well ahead of hosting. As a public institution of higher learning, the university has a responsibility to promote democracy and help deepen the principles thereof. A university is a perfect platform for differing views and diverse political formations to find expression.

“To the UFS community, thank you for the trust you showed in the working team as it prepared to host the EFF’s 1st National People’s Assembly. To Mangaung Metropolitan Municipality and the Free State Province – we appreciate the support. As the University of the Free State, we know we can always count on you!”, says Dr Makhetha.  

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