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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

Lecture by Judge Albie Sachs: ‘Sites of memory, sites of conscience’
2015-03-23

Judge Albie Sachs

Human rights activist and former Constitutional Court Judge, Albie Sachs, will deliver a public lecture on the Bloemfontein Campus. The topic of his discussion will be ‘Sites of memory, sites of conscience’. This lecture will form part of a series that focuses on how the creative arts represent trauma and memory – and how these representations may ultimately pave the way to healing historical wounds.

The details of the event are:
Date: Thursday 26 March 2015
Time: 12:30
Venue: Albert Wessels Auditorium, Bloemfontein Campus
RSVP: Jo-Anne Naidoo at Naidooja@ufs.ac.za
A South African Sign Language interpreter will be present at the event.

Joining Judge Sachs on stage as respondent will be Dr Buhle Zuma, a young scholar and lecturer at the University of Cape Town's Psychology Department.

Expressing experiences of trauma
Judge Sachs is no stranger to the use of the arts as a way of expressing the inarticulable and overwhelming experiences of trauma. Targeted as an anti-apartheid freedom fighter, he lost his right arm and was blinded in one eye in a car bomb attack in 1988. As a judge of the Constitutional Court, he spearheaded conversations about the role of the arts in our constitutional democracy. This has led to the installation of some of the best artworks by South African artists at the Constitutional Court.

Vice-Chancellor’s Lecture Series on Trauma, Memory, and Representations of the Past
This lecture will launch of the Vice Chancellor’s Lecture Series on Trauma, Memory and Representations of the Past. It forms part of a five-year research project led by Prof Pumla Gobodo-Madikizela, funded by the Mellon Foundation. The event is hosted by the UFS Trauma, Forgiveness and Reconciliation Studies.

“One of the most remarkable aspects of trauma,” Prof Gobodo-Madikizela says, “is the loss of language, a moment of rupture that produces what some scholars have referred to as ‘speechless terror’. The arts, in all its forms – literary, performance, and visual – are a viable mechanism through which the unspeakable, traumatic past may be represented.”

These artistic forms of representing trauma are at the heart of this Vice-Chancellor’s Lecture Series. “We are interested not only in how experiences that transcend language are represented through the arts,” Prof Gobodo-Madikizela explains, “but also in probing the limits of trauma theory, and how the creative arts might be employed to bear witness in a way that may open up the possibility of healing.”

Dr Buhle Zuma
Former Mandela Rhodes scholar and one of the 2011 Mail & Guardian’s 200 Young South Africans, Dr Zuma is particularly interested in issues at the heart of our rainbow nation. His current research revolves around the question of freedom: what it means to be human for black people after centuries of dehumanisation, and the role of desire and fantasy in the political imagination of post-apartheid South Africa.

 

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