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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

From peasant to president; from Samora Machel to Cahora Bassa
2015-03-25

Prof Barbara Isaacman and Prof Allen Isaacman
Photo: Renè-Jean van der Berg

When the plane crashed in Mbuzini, the entire country was submerged in a profound grieving.

This is how Prof Allen Isaacman, Regents Professor of History at the University of Minnesota, described the effect President Samora Machel’s death in 1986 had on Mozambique. In a public lecture, Prof Isaacman spoke about the man, Samora Machel, and the influences that shaped Machel’s life. The event, recently hosted by the UFS International Studies Group on the Bloemfontein Campus, was part of the Stanley Trapido Seminar Programme.

Samora Machel: from peasant to president
Born in 1933 into a peasant family, Machel was allowed to advance only to the third grade in school. “And yet,” Prof Isaacman said, “he became a very prominent local peasant intellectual and ultimately one of the most significant critics of Portuguese colonialism and colonial capitalism.” Machel had a great sense of human agency and firmly believed that one is not a mere victim of circumstances. “You were born into a world, but you can change it,” Prof Isaacman explained Machel’s conviction.

From herding cattle in Chokwe, to working as male nurse, Machel went on to become the leader of the Liberation Front of Mozambique (Frelimo) and ultimately the president of his country. To this day, not only does he “capture the imagination of the Mozambican people and South Africans, but is considered one the great leaders of that moment in African history,” Prof Isaacman concluded his lecture.

Displacement, and the Delusion of Development: Cahora Bassa and Its Legacies in Mozambique, 1965–2007
Later in the day, Profs Allen and Barbara Isaacman discussed their book: ‘Displacement, and the Delusion of Development: Cahora Bassa and Its Legacies in Mozambique, 1965–2007’ at the Archives for Contemporary Affairs. As authors of the book, they investigate the history and legacies of one of Africa's largest dams, Cahora Bassa, which was built in Mozambique by the Portuguese in the late 1960s and early 1970s.

The dam was constructed under conditions of war and inaugurated after independence by a government led by Frelimo. The dam has since operated continuously, although, for many years, much of its electricity was not exported or used because armed rebels had destroyed many high voltage power line pillars. Since the end of the armed conflict in 1992, power lines have been rebuilt, and Cahora Bassa has provided electricity again, primarily to South Africa, though increasingly to the national Mozambican grid as well.

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