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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 research sheds light on service delivery protests in South Africa
2015-01-23

UFS research sheds light on service delivery protests in South Africa

Service delivery protests in the country have peaked during 2014, with 176 major service delivery protests staged against local government across South Africa.

A study by the University of the Free State (UFS) found that many of these protests are led by individuals who previously held key positions within the ANC and prominent community leaders. Many of these protests involved violence, and the destruction had a devastating impact on the communities involved.

This study was done by Dr Sethulego Matebesi, researcher and senior lecturer at the UFS. He focused his research on the dynamics of service delivery protests in South Africa.

Service delivery protests refer to the collective taken by a group of community members which are directed against a local municipality over poor or inadequate provision of basic services, and a wider spectrum of concerns including, for example, housing, infrastructural developments, and corruption.

These protests increased substantially from about 10 in 2004 to 111 in 2010, reaching unprecedented levels with 176 during 2014.

The causes of these protests are divided into three broad categories: systemic (maladministration, fraud, nepotism and corruption); structural (healthcare, poverty, unemployment and land issues); and governance (limited opportunities for civic participation, lack of accountability, weak leadership and the erosion of public confidence in leadership).

In his research, Dr Matebesi observed and studied protests in the Free State, Northern Cape and the North-West since 2008. He found that these protests can be divided into two groups, each with its own characteristics.

“On the one side you have highly fragmented residents’ groups that often use intimidation and violence in predominantly black communities. On the other side, there are highly structured ratepayers’ associations that primarily uses the withholding of municipal rates and taxes in predominantly white communities.”

 

Who are the typical protesters?

Dr Matebesi’s study results show that in most instances, protests in black areas are led by individuals who previously held key positions within the ANC - prominent community leaders. Generally, though, protests are supported by predominantly unemployed, young residents.

“However, judging by election results immediately after protests, the study revealed that the ANC is not losing votes over such actions.”

The study found that in the case of the structured ratepayers’ associations, the groups are led by different segments of the community, including professionals such as attorneys, accountants and even former municipal managers.

Dr Matebesi says that although many protests in black communities often turned out violent, protest leaders stated that they never planned to embark on violent protests.

“They claimed that is was often attitude (towards the protesters), reaction of the police and the lack of government’s interest in their grievances that sparked violence.”

Totally different to this is the form of peaceful protests that involves sanctioning. This requires restraint and coordination, which only a highly structured group can provide.

“The study demonstrates that the effects of service delivery protests have been tangible and visible in South Africa, with almost daily reports of violent confrontations with police, extensive damage to property, looting of businesses, and at times, the injuring or even killing of civilians. With the increase of violence, the space for building trust between the state and civil society is decreasing.”

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