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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

Projects of the South Campus inspire excellence
2014-12-18

The University of the Free State’s (UFS’s) South Campus in Bloemfontein runs several projects to make a difference in the lives of learners and educators in the central region. These projects are based on the very essence of the UFS – to ‘inspire excellence, change lives’.

Three projects which have been very successful since the outset are the UFS Schools Partnership Project, the Family Math and Family Science Project and the Internet Broadcast Project.

The Schools Partnership Project attempts to empower teachers by improving their teaching skills in critical Gr 10 – Gr 12 subjects (Physical Science, Mathematics and Accounting).

Poorly performing schools are invited to join in the programme. A mentor, providing guidance to teachers in the planning of lessons, transferring knowledge and creating a healthy learning environment in the classroom, is assigned to each subject teacher. Management and leadership skills are also improved.

Hercules Dreyer, Programme Manager, says the success of the programme can be seen in the lessons, the results and the progress which have been made.

“In 2013, the pass rate of participating schools has grown from 71.5% to 85%. We had an increase in donors and the project went from 22 schools with 12 mentors in 2013 to 72 schools and 34 mentors in 2015.”

The UFS Family Math and Family Science Project, which is already in its sixth year of existence, are extremely popular. This intervention programme focus on bringing about a better understanding of Mathematics and Science in learners, teachers and parents.

Dr Cobus van Breda, Programme Director of the Family Math and Family Science Project, says that judging by the feedback from teachers, it is evident that the programme is growing from strength to strength and that it is making a real difference in Mathematics and Science education in the early school years.

The UFS’s Internet Broadcast Project (IBP) has thus far received four awards for their successes. In this project, lessons in Mathematics, Accounting and Physical Science are broadcasted from the UFS’s South Campus through internet presentations to schools in rural areas.

“To date, the IBP catalogue contains over 2 000 video lessons and in 2013 alone, the 68 schools accessed and used these videos 69 305 times. The project has the potential to reach more than 40 000 learners and 1 765 teachers every week,” says Sarietjie Musgrave, Project Manager.

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