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20 August 2025
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Story Dr Annelize Oosthuizen
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Photo Supplied
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.
UFS mourns the death of a great academic
2007-02-27
It is with great sadness that the management of the University of the Free State (UFS) heard of the death of Prof. Dawfré Roode.
Prof. Roode (70) was the first Registrar: Academics at the UFS. He retired in July 1997 and was living in Jeffrey’s Bay with his second wife, Daphne, for the past three years.
Prof Roode’s ties with the UFS stretch over more than fifty years. He registered at the UOFS in 1955 as first-year student and was elected as chairperson of the student representative council in 1958. He also represented the university on the cricket field and as Free State nineteen-year old in the Currie Cup. His academic career at the UOFS started in 1963 when he was appointed as lecturer in Sociology and Social Work. After completing his D Phil in 1964, he was promoted to senior lecturer in 1966. He became the first head of the Department of Sociology in 1972 and in 1989 he was appointed as Registrar: Academics and in 1989 Vice-Rector: Staff and Administration.
“Prof Roode brought professionalism to the administration that did not exist. He not only served the academe as registrar, but also established it as an important function within the UOFS. His ‘institutional memory’ about earlier decisions and events at the UOFS is also legendary,” said Prof Frederick Fourie, Rector and Vice-Chancellor at the UFS.
Prof Roode’s father, the late Prof Dawie Roode, was the first head of the Department of Music at the UFS. Prof Dawfré Roode had a love for music and was closely involved with the establishment of the Odeion String Quartet.
In October 2004 the university honoured him with a Centenary Medal for his outstanding leadership and contribution, as Registrar and Vice-Rector, to the development of the UFS by establishing and developing a strong and professional administrative structure at the UFS.
“Prof Roode left deep footprints at the UFS. I am glad that we could honour him for this in 2004 with a Centenary Medal before he passed away. He also attended the launch of the university’s history book earlier in February,” said Prof Fourie.
“Our sympathies go to Ms Trudie Roode (his first wife) and their three children Ms Frelet Roux and Gerda Daffue, and their son, Mr Dawie Roode. Prof Roode has left a gap in the hearts of the people who knew and worked with him at the UFS,” said Prof Fourie.
A memorial service will be held in Jeffrey’s Bay on Wednesday 28 February 2007 at 10:30. A memorial service will also be held in Bloemfontein on Wednesday 7 March 2007. More details will be made available at a later stage.
Media release
Issued by: Lacea Loader
Media Representative
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: loaderl.stg@mail.uovs.ac.za
27 February 2007