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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

Shimlas: Unbeaten Varsity Cup Champions!
2015-04-14

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    Photo: Johan Roux
    Spotlight Photo: Spektor Photography
    Photo gallery

The UFS Shimlas rugby team made history on Monday 13 April 2015 when they won their first ever Varsity Cup tournament, beating North-West University (NWU) Pukke 63-33 in the final.

Not only did Shimlas make history by winning their first-ever tournament title since the inaugural tournament in 2008, but they did not lose a single game in the 2015 Varsity Cup, thus claiming the cup in front of their home crowd at Shimla Park in Bloemfontein.

Shimlas outscored their traditional intervarsity rivals with nine tries to four. Pukke put the first points on the scoreboard with a penalty kick. The home side started off slowly in the first half. However, Shimlas’ lock, Johan van der Hoogt, did score the first try of the match followed by flyhalf and player that rocks, Niel Marais’s successful conversion kick. Yet, the men from the North-West retaliated full force for the greater part of the first half and, two tries later, had a 18-8 lead over the UFS team. 

Shortly after the first strategy break, Shimlas No.8, Niell Jordaan, crossed the try line following a driving maul, but the visitors received another penalty and succeeded with the kick at goal. The last ten minutes before half time saw Shimlas taking advantage, with the Pukke skipper being sent to the sin bin. Wing Maphutha Dolo hit a gap in NWU’s defense, and scored the try that put Shimlas in the lead again. Not long after, Marais sparked in making a play, offloading to flank Daniel Maartens to score a final try before half time, securing a 26-20 lead.

The second half had not been in play too long when the home side crossed the try line again, scoring their fifth try. Marais was again central in creating the play that saw Shimlas outside centre, Nico Lee, putting the points on the board.

NWU fought back again, scoring a pushover try from a scrum. But Shimlas would not give up the lead again, and a well-timed pass from Marais had Lee crossing the line for his second try.

More Shimlas tries piled up from Marais, Dolo, and Maartens, leaving the Potchefstroom side behind 63-25, giving them little opportunity to score again. One desperate consolation try by Pukke in the final seconds did manage to close the gap on the scoreboard, but it was not nearly enough to snatch the title from the hungry and undefeated Shimlas.

FNB Player that Rocks: Niel Marais
Shimlas point scorers:
Tries: Johan van der Hoogt, Niell Jordaan, Maphutha Dolo (2), Daniel Maartens (2), Nico Lee (2), Niel Marais
Conversions: Niel Marais (6)

 

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